Sitting of 21 June 1965

Preamble
The House met at half-past Two o'clock
PRAYERS
[Mr. SPEAKER in the Chair]
PRIVATE BUSINESS
  MANCHESTER CORPORATION BILL
  Read the Third time and passed.
ORAL ANSWERS TO QUESTIONS

  GENOCIDE CONVENTION
  Mr. W. T. Williamsasked the Secretary of State for Foreign Affairs whether he will now announce the result of his consideration of the question of United Kingdom accession to the Genocide Convention.
  The Minister of State for Foreign Affairs (Mr. George Thomson): The consideration of this question has not yet been completed. I have, therefore, nothing to add at this time to the Answer I gave to my hon. Friend on 1st March.
  Mr. Williams: Why does the Minister stop at 1st March when this matter has been before this and former Governments for the last 14 years? Are Her Majesty's Government content to stay in the company of the more unattractive members of the United Nations? Is it not time that something was done about this matter?
  Mr. Thomson: I am aware that this matter has been the subject of Questions in the House for the last 14 years, as my hon. and learned Friend said. However, the present Government have had the responsibility of facing this problem only in recent months. We are giving the matter very careful consideration indeed, but complex issues are involved and they need consultation.
  Mr. Peter Thomas: Does the Minister of State agree that one of the most complex issues is that of political asylum, and has he anything to say about that?
  Mr. Thomson: It is one of the difficulties. Successive Governments have always made it clear that they have freely accepted the spirit of the Convention and have supported its objects. In 1962, for example, the complex difficulties were laid very fully before the House. These difficulties are now being re-examined and we will report back to the House as soon as possible.
  Sir B. Janner: Would my hon. Friend give an assurance that he will give an answer on this issue very shortly? Is he not aware that the prevailing attitude of the Government has been the attitude of Governments in Britain for very many years and that many people, not only in this country but in other Commonwealth countries some of which have accepted the Convention, cannot understand why we should be standing aside on this matter? Will my hon. Friend give it his immediate attention?
  Mr. Thomson: I made it clear that this country has always accepted the spirit of the Convention. Perhaps we are rather more scrupulous than are some in implementing conventions where there are legislative difficulties. One difficulty in fully acceding to the Convention is that to do so would probably imply legislation, and this is one of the matters which is now being actively studied.

  PEOPLE'S REPUBLIC OF CHINA (EXCHANGE OF AMBASSADORS)
  Mr. Freesonasked the Secretary of State for Foreign Affairs if he will now initiate further negotiations to seek an exchange of ambassadors between the United Kingdom and the People's Republic of China.
  The Minister of State for Foreign Affairs (Mr. Walter Padley): No, Sir. As I told my honourable Friend on 10th May, we have proposed this to the Chinese and been refused and I have no reason to suppose their position has since changed.
  Mr. Freeson: With respect, that is not satisfactory. As it is now about eight months since the Government made this proposition—for which, of course, we should be glad, although we regret that the Chinese did not take it up—should we not seek to alter the position? Will

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  my hon. Friend reconsider the matter and not leave things standing as they are in regard to our relations with a quarter of the world's population?
  Mr. Padley: No, Sir. We have made the position clear to the Chinese Government that we should like an exchange of ambassadors. Their reply up to now has been, "No". If there is a change of heart in Peking we shall be very glad.

  CHINA (UNITED NATIONS REPRESENTATION)
  Mr. Freesonasked the Secretary of State for Foreign Affairs if he will now initiate further negotiations to seek the admission into the United Nations Organisation of the People's Republic of China.
  Mr. Hamlingasked the Secretary of State for Foreign Affairs if he will instruct the United Kingdom permanent representative at the United Nations to raise the question of representation of Communist China.
  Mr. Lomasasked the Secretary of State for Foreign Affairs what action has been taken by Her Majesty's Government since October, 1964 to secure the admission of China to the United Nations.
  Mr. Padley: This is a matter which must be decided by a vote of the General Assembly. An item urging the "Restoration of the Lawful Rights of the People's Republic of China in the United Nations" was included in October, 1964, in the agenda of the 19th Session of the General Assembly, but the Session was adjourned before the item could be considered and the General Assembly is not expected to meet again before the autumn of this year. When the item was tabled in 1964, our representative was, as in previous years, instructed to vote in its favour. Similar instructions will be issued to him for the next Session of the Assembly.
  Mr. Freeson: While thanking my hon. Friend for that reply, or the latter part of it—regrettable as the previous part may have been—may I ask him whether he will be prepared to undertake something more than instructing our representatives to vote for the particular
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  proposition?—[Laughter.] This is not a laughing matter. Will my hon. Friend initiate negotiations with the other Powers concerned in order that we may stand a better chance of success in the future, particularly bearing in mind the very important rôle that this State, representing one-quarter of the world's population, must, whether we like it or not, play in the world's affairs in the future?
  Mr. Padley: All the Governments concerned are well aware of the position of Her Majesty's Government. There will doubtless be a motion to seat China in the United Nations, and our delegate will vote in favour of it.
  Mr. Hamling: I thank my hon. Friend for that very clear declaration of the attitude of Her Majesty's Government, but would he agree that at this stage in diplomatic relations in the Far East, the admission of China to the United Nations could do nothing but good?
  Mr. Padley: I reiterate that Her Majesty's Government are strongly in favour of the Peking Government taking their seat in the United Nations. As to the broader issue of the international problems of the Far East and South-East Asia, we should certainly like to see a change in the attitude of the Chinese Government equally with regard to the acceptance of an exchange of ambassadors.
  Mr. Lomas: Is my hon. Friend aware that there is a growing feeling that it is not sufficient merely to be in support of the entry of China into the United Nations, but a matter of supreme importance that this country should make every effort to try to persuade other nations which have so far sought to exclude that part of the world from the United Nations to take a different view, and to do its very best to get China into the organisation?
  Mr. Padley: As a natural part of the diplomatic practice of Her Majesty's Government, we seek to get other countries to share our point of view, and that we shall continue to do.
  Mr. Peter Thomas: Whilst I appreciate that Her Majesty's Goverment are following the previous Government's policy, may I ask whether the hon. Gentleman can say whether or not the

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  People's Republic of China has expressed a wish to join the United Nations?
  Mr. Padley: As far as I am aware, the People's Republic of China has not up to now said that it would refuse to be seated if there were a positive resolution of the United Nations. I think that we should all be wise to continue our efforts to secure the admission of the Peking Government to the United Nations.

  MIDDLE EAST (INFORMATION SERVICES)
  Mrs. McKayasked the Secretary of State for Foreign Affairs to what extent he is satisfied with the quantity and quality of Her Majesty's Government's information services in the Arab countries, Iran and Afghanistan; and what steps he intends to take to improve them.
  Mr. George Thomson: Within the limitations of our existing overall budget and manpower, I am satisfied that we are making the best use of the available resources in our information services in the Middle East.
  I do not believe we should at present be justified in stepping up our effort in this part of the world at the expense of other areas. But we do, in fact, frequently review the allocation of our resources, and have recently decided to appoint information officers to two further Middle Eastern posts at the cost of taking staff from larger embassies in that area.
  Mrs. McKay: I thank my hon. Friend the Minister of State for his reply. Nevertheless, I hope that he will take steps to secure an increase in the overseas information Vote sufficient to enable effective presentation of the Government's policy to be made in all Middle Eastern countries, and to foster mutual understanding with a view to enabling a progressive reduction to be made in our expensive military commitments in those areas.
  Mr. Thomson: We are anxious, both in the Middle East and in other parts of the world, to make the most effective presentation in every way possible of the policies of Her Majesty's Government,
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  but any increase in this respect involves an increase in the global amount of money available on the information Vote.
  Mr. W. T. Williams: Does my hon. Friend not know that among ordinary folk—in the countries of the Arabian Federation, anyway—there is a good deal of anti-British feeling at the moment; and that the vacuum that has been created by the failure of British propaganda is being filled by United Arab Republic propaganda and German influence? Does he not feel that these are matters that require the serious attention of Her Majesty's Government?
  Mr. Thomson: Yes, Mr. Speaker. I am aware that there is a good deal of critical feeling of Her Majesty's Government's policies in the Middle East, and I believe that that critical feeling is almost always based on misunderstandings of our policy, which our information services do their best to remove. I would pay tribute to the work that our regional information office does in Beirut. In the face of considerable difficulties, it does excellent service on behalf of the country.
  Lady Tweedsmuir: What is the total budget for this area for last year and, as the Minister of State said that there was to be a reorganisation there, what is proposed in the coming year?
  Mr. Thomson: I am sorry, but I could not give that information without notice. If the noble Lady likes to put down a Question I shall, of course, answer it.

  DISARMAMENT
  Viscount Lambtonasked the Secretary of State for Foreign Affairs what actions have been taken by the Minister of Disarmament towards achieving disarmament.
  Mr. Blakerasked the Secretary of State for Foreign Affairs what new proposals Her Majesty's Government have with regard to disarmament.
  Mr. Eldon Griffithsasked the Secretary of State for Foreign Affairs if he is satisfied with the progress being made in preparing for another Geneva Disarmament Conference; and if he will make a statement.
  Mr. Philip Noel-Bakerasked the Secretary of State for Foreign Affairs what new proposals Her Majesty's Government have laid before the United Nations Disarmament Commission for implementing the freeze of nuclear weapon delivery vehicles proposed by President Johnson.
  The Secretary of State for Foreign Affairs Mr. Michael Stewart): As the House is aware, Her Majesty's Government have played a full part in the discussions at the United Nations Disarmament Commission in New York, which ended its Session on 16th June. Before it closed, the Commission adopted a Resolution which called, amongst other things, for the Eighteen-Nation Disarmament Conference at Geneva to "reconvene as early as possible". It is our view that the Geneva Conference is the most experienced and business-like body for detailed consideration of disarmament questions, and the one most likely to be able to make progress towards agreement on the measures under discussion. We hope that it will prove possible to agree on an early date for a resumption of the Geneva Conference.
  As regards the proposed freeze on nuclear delivery vehicles, we should like to see progress made towards agreement on President Johnson's proposal. This is a measure which we think might be combined with the destruction of some of these weapons. We hope that there will be detailed discussion of these ideas as soon as the Geneva Conference reassembles.
  Viscount Lambton: With great respect, the Foreign Secretary does not seem to have answered the Question. I asked what the Minister of Disarmament does when these conferences are not taking place? Will he also say what was the purpose of the visit of the Minister of Disarmament to the Scandinavian countries? Was it his intention to disarm them?
  Mr. Stewart: Perhaps the noble Lord will put down the last part of his supplementary question as a Question on the Order Paper. In general, the work of my noble Friend is to conduct a complete review of disarmament policy. There are a number of fields in which we think an advance could be made, but
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  they require very detailed study, and on that my noble Friend is engaged.
  Mr. Eldon Griffiths: Does the Foreign Secretary agree that the People's Republic of China, in recently exploding nuclear weapons, has not helped in any way towards the efforts now being made by this Government, and by many other Governments, for disarmament? Would he also agree that the Minister of State in another place is certainly one of the most under-employed Members of the Government?
  Mr. Stewart: The answer to the first part of the supplementary question is certainly "Yes", and, to the second, equally certainly, "No".
  Mr. Noel-Baker: Does not my right hon. Friend agree that the Chinese nuclear explosions make the whole question of disarmament even more urgent than it was before? Has not the Minister of State helped in New York to make a strong demand for the end of the disastrous drift we have had in this matter for the last 13 years? Can the Foreign Secretary say what proposals he has for reforming the Committee of Eighteen, and ensuring that its work shall be more efficient?
  Mr. Stewart: The procedure of the Committee of Eighteen is something that the Committee itself decides. We want to see it proceed rather more speedily, but our first task is to get that Committee started, because that is the best instrument we have at the moment for these discussions.
  Mr. Maudling: Does the Foreign Secretary recall that last October he and his colleagues were convinced that the time was opportune for a new breakthrough in the disarmament negotiations and that they were going to take an initiative? What has happened to that initiative?
  Mr. Stewart: I have explained that there are a number of fields in which we think an advance can be made, but these need careful study and preparation.
  Mr. Peter Thomas: Can the right hon. Gentleman tell us whether there is any new field other than the fields which we explored a year and more ago where he thinks that an advance can be made?

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  If so, could he name one of those fields, because we have had a total absence of any new thinking from the Minister of State for Disarmament, particularly on the United Nations Commission? Will the Foreign Secretary say in regard to the Eighteen-Nation Conference—as it is now June—when he hopes that it will be reconvened because, if we are fortunate, it will soon be time for the General Assembly?
  Mr. Stewart: I hope that the conference will be resumed as soon as possible, but, as the hon. and learned Member knows, that is a matter for the Governments of the United States and Soviet Union. The measures we are particularly concerned with are a non-dissemination treaty, the extension of the Test Ban Treaty and a freeze, combined with the destruction of some nuclear vehicles. There are then some larger questions affecting European problems and a reduction in nuclear weapons generally which, as I said, require further study.
  Mr. Rankin: Would not my right hon. Friend agree that it would be of the greatest help to disarmament if President Johnson stopped unfreezing his bombs over North Vietnam?
  Mr. Stewart: There are Questions on that subject to be asked a little later.

  CAMBODIA (CONFERENCE)
  Mr. Hector Hughesasked the Secretary of State for Foreign Affairs if he will now make a statement on the correspondence with the Soviet Government on an international conference on Cambodia; and what will be the scope, personnel, time and place of meeting of the conference.
  Mr. M. Stewart: A record of the Diplomatic Exchanges concerning the Cambodian Conference and a full explanation of Her Majesty's Government's attitude were given in the White Paper which was published on 3rd June. I have nothing further to add at present.
  Mr. Hughes: Does my right hon. Friend realise that I understand all that was in that White Paper? Does he not think that it would be a good idea, having regard to the way in which the situation
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  of Cambodia affects other Far Eastern countries, to take a leaf out of the Prime Minister's book and pay a visit to Cambodia with a view to bringing about the desired conference?
  Mr. Stewart: I congratulate my hon. and learned Friend; it was a long and complex White Paper. I think the Government's position is quite clear on this. It was suggested first by the Cambodian Government, supported by the Soviet Union, that a conference should be held. We fully assented to that view and as soon as the Cambodian Government are prepared to join with us in issuing invitations the conference will be held.
  Mr. Maudling: Can the right hon. Gentleman tell us how the prospects of such a conference have been affected by Mr. Gordon Walker's remarks that it would be used for other purposes?
  Mr. Stewart: That suggestion has been made more than once by hon. Members opposite. There is no evidence for it at all.

  POLAND, CZECHOSLOVAKIA AND EAST GERMANY (FRONTIERS)
  Viscount Lambtonasked the Secretary of State for Foreign Affairs what is the policy of Her Majesty's Government with regard to a settlement of the frontiers of Poland, Czechoslovakia, and Eastern Germany.
  Mr. Padley: As regards Her Majesty's Government's policy on the question of a settlement of the frontiers of Poland and Czechoslovakia, I would refer the hon. Member to the reply which my right hon. Friend the Prime Minister gave to a Question on this subject by my hon. Friend the Member for Manchester, Gorton (Mr. Zilliacus) on 23rd March.
  As the hon. Member will be aware from the reply which my right hon. Friend the Foreign Secretary gave to him on 3rd May, Her Majesty's Government do not recognise the existence of a State in East Germany. The question of a settlement of East Germany's frontiers does not, therefore, arise.
  Viscount Lambton: The Foreign Secretary on 3rd May said that the Prime

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  Minister had mentioned these discussions in the statement which the Prime Minister had spoken of on 20th December, 1961, and 5th July, 1962. Is it then the present policy of Her Majesty's Government not to advocate settlement in Eastern Europe for those three countries together and especially for a wider settlement to which the Foreign Secretary referred on 3rd May?
  Mr. Padley: Certainly not. While we regret the failure so far to conclude a peace treaty with Germany, which is crucial in this matter, we cannot abandon our treaty commitments or cease to work for a peace settlement and for the possible reunification of Germany. The final determination of Germany's frontier with Poland must await the settlement of the peace treaty. On the question of the Munich Agreement and Czechoslovakia's frontiers, that position was made abundantly clear by the statement which the Foreign Secretary made when he recently visited Prague.
  Mr. Peter Thomas: Does this mean that Her Majesty's Government's policy is that the frontier between Czechoslovakia and Germany should remain as it is and that any changes made after 1938 do not apply?
  Mr. Padley: The answer to that is "Yes", and that was made abundantly clear by my right hon. Friend in Prague.
  Mr. Zilliacus: In view of the fact that at the 1961 Labour Party Conference the policy was adopted by an overwhelming majority on the initiative of the National Executive that we should recognise the existing frontiers of Germany and recognise the existence of a second German State, and as those are the only possible terms on which Germany can be united, and as the present policy is not only unreal but an obstacle to making peace, will my hon. Friend make an effort at last to pay some attention to the policy on which we were elected?
  Mr. Padley: Perhaps I might, both as Minister of State and as the Chairman of the Overseas Committee of the Labour Party, repudiate that interpretation of the decision of the 1961 Labour Party Conference.

  VIETNAM
  Mr. Shinwellasked the Secretary of State for Foreign Affairs, what action is being taken by the United Nations to bring the conflict in Vietnam to an end.
  Mr. Hector Hughesasked the Secretary of State for Foreign Affairs, if he will make a statement on the reports he has received up to date from Mr. Gordon Walker on conditions in Asia; and what steps he has taken during the last two weeks towards a peace settlement in Vietnam.
  Mr. A. Hendersonasked the Secretary of State for Foreign Affairs, whether he will make a statement on the progress towards an international conference on the Vietnam conflict.
  Mr. Wallasked the Secretary of State for Foreign Affairs, if he will make a statement about the current position of the cease-fire negotiations in Vietnam.
  Mr. Lomasasked the Secretary of State for Foreign Affairs if he will use the offices of the United Nations in seeking a solution to the situation in Vietnam.
  Mr. M. Stewart: Efforts to seek a basis for a peaceful settlement in Vietnam have moved into a new phase with the Commonwealth initiative which was announced on 17th June. In his statement to the House on 17th June, my right hon. Friend the Prime Minister explained the background to the decision that a Commonwealth mission should make contact with those most concerned in the Vietnam conflict. I do not think I can do more in answering Questions on the various possibilities for action over Vietnam than to refer hon. Members to what he then said. We shall now concentrate all our efforts on making this initiative as fruitful as those concerned will allow.
  Mr. Shinwell: My right hon. Friend, quite unwittingly, has forgotten what my Question is. I asked him what the United Nations has done in order to secure peace in Vietnam, but he has referred me to the initiative taken by my right hon. Friend the Prime Minister and the Commonwealth Prime Ministers' Conference. Do I understand that the United

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  Nations fully supports the initiative taken by my right hon. Friend? If so, could we have some publicity about this matter?
  Mr. Stewart: Aspects of this dispute, as I think my right hon. Friend the Member for Easington (Mr. Shinwell) knows, have been reported to the United Nations, but the difficulty there has been the refusal of North Vietnam to recognise the jurisdiction of the United Nations in the matter. Since I last answered Questions on this subject in the House, I have pursued further the question of whether anything could be done through the United Nations, but I am afraid that at present that channel does not seem likely to lead to a solution. It was therefore for that reason that I thought it right to stress the initiative we are now taking.
  Mr. Shinwell: May I ask my right hon. Friend if he will be good enough to answer my Question? All I want to know is whether the United Nations fully supports the initiative taken by my right hon. Friend.
  Mr. Stewart: We have, of course, drawn the attention of the Secretary General to it and I believe he welcomes it, but it has not been put as a formal matter before the Security Council or the General Assembly.
  Mr. Hector Hughes: Would it not be desirable and practicable in the events which have happened in the Far East, and events which have not happened in the Far East, to bring Mr. Gordon Walker home for a conference face to face so that Ministers here can realise more closely what is happening there?
  Mr. Stewart: I have, of course, discussed with Mr. Gordon Walker since his return the work he did in the Far East.
  Mr. A. Henderson: In order to clarify the position, may I ask my right hon. Friend whether he will emphasise the fact that the proposed Commonwealth peace mission has been sponsored by the Commonwealth Prime Ministers' Conference as a whole, for which all Commonwealth members accept responsibility, and is not put forward merely by the member States which are going on the
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  mission? Secondly, in spite of the ex parte statements made by Mr. Chou en Lai and the North Vietnam Press Agency, rejecting the proposal, may we take it that the Commonwealth mission will press for an official reply from both the Government of China and the Government of North Vietnam?
  Mr. Stewart: I would reply "Yes" to both parts of that question. This is a mission of the whole Commonwealth and, setting aside the remarks we have so far seen reported in the Press, we shall press for proper replies from the Governments concerned to the mission's request to visit their capitals.
  Mr. Maudling: Can the Foreign Secretary assure the House that the Prime Minister's initiative and the mission will not involve any change in the Government's policy of support for the American position in Vietnam, so clearly set out by himself on many occasions?
  Mr. Stewart: The right hon. Gentleman will remember that I have made clear our view that the United States, in the position it was, had to take these military measures. He will remember that I have also said that Her Majesty's Government reserve their right to form and pronounce their judgment on any future events as they occur.
  Mr. Wall: While wishing the Prime Ministers well on the peace mission, may I ask the Foreign Secretary whether the mission will go ahead, even if some of the protagonists refuse to meet it?
  Mr. Stewart: I do not think it would be suitable to answer hypthetical questions at this stage.
  Mr. Orme: In this difficult situation, will my right hon. Friend ask the Americans to cease the bombing of North Vietnam, because this would possibly create a new situation giving rise to an initiative for the peace mission to be successful?
  Mr. Stewart: My hon. Friend may have noticed that the mission is already appealing to all parties concerned to show the utmost restraint in military operations as a step towards creating the right atmosphere. I think my hon. Friend would agree that an appeal of that kind must be addressed to all the parties concerned.
  Sir F. Bennett: The Foreign Secretary seemed to indicate that the Prime Minister's initiative was the result of a collective decision of the whole Commonwealth Conference. If this is so, will he say why there is not a single prospective or actual Asian member of the mission at present? Would he care to reaffirm now that the mission has the support of the whole Commonwealth including, in particular, Tanzania and Pakistan?
  Mr. Stewart: As I have said before, this is an initiative of the whole Commonwealth. The hon. Gentleman may know that it had been hoped to include the Prime Minister of Ceylon, but he is unfortunately unable to come in the mission.
  Mr. Speaker: Mr. Dodds-Parker.
  Mr. Ennals: On a point of order. My right hon. Friend said that in answering Question No. 8 he would deal with certain other Questions, including No. 37. I attempted to catch your eye, Mr. Speaker.
  Mr. Speaker: I heard "47" not "37". I see nods confirming that I am correct.
  Mr. Eldon Griffithsasked the Secretary of State for Foreign Affairs if he is aware of the Chinese Government's official statements that China may intervene in the Vietnam war; and what is the policy of Her Majesty's Government on this matter.
  Mr. M. Stewart: Her Majesty's Government are very conscious of all the dangers presented by the situation in Vietnam, and it is for this reason that we have worked unceasingly in the search for a peaceful settlement.
  Mr. Griffiths: May I preface my supplementary question by congratulating the Foreign Secretary on the lucidity, courage and intellectual power with which he presented Her Majesty's Government's case on Vietnam at the Oxford Union? [HON. MEMBERS: "Hear hear."] I think all who heard him were proud to hear him speak for this country.
  May I now ask him about China and ask whether he would not agree that while we all recognise the importance of China, its attitude on Vietnam has been singularly unhelpful, whether it be in the denunciation of the Commonwealth mission or in its test explosions of bombs in recent months? Would not the right
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  hon. Gentleman agree that there must be a change in the attitude in the Government of China before we can get peace in Vietnam or anywhere else?
  Mr. Stewart: I think I made it clear on several occasions that while we, for our part, have searched many ways in which a peaceful settlement can be reached, we have so far found a barrier in the attitude of China and, indeed, of other Governments, and that a change is needed there. We have got to go on making our own intention and desire for a settlement clear until that change comes.
  Mr. Emrys Hughes: Will my right hon. Friend give a definite assurance that in the event of the United States getting involved in a war with China, we will not be involved in it?
  Mr. Stewart: I think if my hon. Friend is really thinking in those gigantic terms he may realise that the world might then be in a state in which none of us would be able to control events. We have got to do what we can now to get a settlement of this dispute so that the contingency that my hon. Friend has in mind never a rises.
  Mr. A. Royle: Would the right hon. Gentleman confirm that the Government's policy regarding Vietnam remains the same as the policy which he expressed so ably at the Oxford Union last week?
  Mr. Stewart: Yes, and perhaps I should make clear, in view of some of the comments that I have seen, that I said nothing at all there that I have not already said in the House, as hon. Members who have heard what I said in the House will already be aware.
  Mr. Frank Allaun: Is my right hon. Friend aware that millions of people passionately want the Commonwealth mission to succeed? But, if it is to succeed, is it not clear that the whole of the mission must be non-aligned and, in order to show that to all the countries and parties concerned, must it not be clear that we no longer support the bombing of North Vietnam by the Americans?
  Mr. Stewart: No, I do not think I could accept that. This is a Commonwealth mission, and the Commonwealth contains countries which have different views on the history and possibly even

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  on the best method of settling this problem. What they have in mind is a genuine desire to see if they can find the circumstances in which there could be a conference and discussion, and I think if one said that it had got to be composed entirely of nations which were completely non-aligned on this matter it would not have been representative of the Commonwealth.

  JORDAN WATERS DISPUTE
  Mr. Dodds-Parkerasked the Secretary of State for Foreign Affairs whether he will now name the dispute over Jordan waters at the United Nations Security Council as a threat to peace.
  Mr. Jacksonasked the Secretary of State for Foreign Affairs whether he will now instruct the United Kingdom representative at the United Nations to raise the issue of the Jordan waters dispute under Article 24(1) of the Charter to ensure the maintenance of international peace and security.
  Mr. George Thomson: I have nothing to add to the reply I gave to the hon. Member for Cheltenham (Mr. Dodds-Parker) on 26th April.
  Mr. Dodds-Parker: As there is a lull in this area, owing to the preoccupations of some of the protagonists elsewhere, would not this be a good moment to take an initiative on the Johnson Plan, which I am sure the Minister of State realises was accepted at the time by all the limitrophe Powers?
  Mr. Thomson: As I told the hon. Gentleman on the last occasion when he raised this matter in the House, Her Majesty's Government regard the Johnson Plan as a useful guide line in regard to the allocation of the Jordan Waters between the Arab States and Israel, and we will continue to pursue that point of view.
  Mr. Jackson: Would not the Minister of State agree that, with the great tension on the Syrian-Israel frontier, it would be valuable in a purely de facto sense to increase the number of United Nations observers along that line so as to minimise the danger of accidental clashes?
  Mr. Thomson: As my hon. Friend knows, the Government are generally sympathetic to playing our part in strengthening any of the United Nations peace-keeping operations, and we would certainly support all measures which the U.N.T.S.O. Chief of Star considered necessary for the sufficient execution of the duties of his organisation.
  Lady Tweedsmuir: What is the attitude of Her Majesty's Government to President Bourguiba's recent suggestion that in order to ease tension in this area certain United Nations resolutions should be applied, including partition?
  Mr. Thomson: That is a wider and rather different question, but Her Majesty's Government have said that they noted President Bourguiba's speech with interest.

  PERSIAN GULF (MINISTER'S VISIT)
  Mr. Dodds-Parkerasked the Secretary of State for Foreign Affairs if he will make a statement on his recent visit to the Persian Gulf.
  Mr. George Thomson: It was I, and not my right hon. Friend, who visited the Gulf recently, between 8th and 16th May. My main purpose was to make acquaintance at first hand with personalities and local conditions in this area where Britain has special treaty relationships and important economic interests.
  I visited five of the nine protected sheikhdoms on the southern coast of the Gulf. On my way back I was also able to spend a day in Kuwait where I had useful talks with the Prime Minister, and with other Ministers.
  During my visit to the States of the Southern Gulf I had detailed discussions with the Rulers and others about the ways in which Her Majesty's Government might give further assistance to promote economic and political advance. The current level of our aid to the Trucial States this year is just under £250,000. Since my return, Her Majesty's Government have offered to contribute to a newly-established Trucial States Development Office and Fund an additional £1 million. We are also anxious to modernise our own relationship with the Gulf States; I discussed various steps we

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  have in mind whereby we might transfer to them as soon as they are equipped to take them over certain functions involving foreigners which over the years we have come to exercise on their behalf. Finally. I discussed with the local Governments the possibilities for greater cooperation between the States themselves. I have since been glad to note that at the end of May the Deputy Rulers of Bahrain, Qatar and Abu Dhabi, and the Ruler of Dubai—that is to say the four major sheikhdoms in the area—met for the first time together in Dubai to discuss their common problems; among other things they reached agreement on a new unified currency.
  May I apologise for the length of my Answer?
  Mr. Dodds-Parker: May I congratulate the Minister personally on the success of his visit to that part of the world? I tabled the Question to him, but some fairy transferred it to his right hon. Friend. In view of the increase in subversion from outside into the area, is the Minister of State satisfied that internal security is all ready to take care of any future difficulties which are likely to arise?
  Mr. Thomson: It is always dangerous to prophesy about developments in that part of the world, but we have the problem of security in the area very much in mind. As the hon. Gentleman knows, internal security as such is the responsibility of the Rulers and not of Her Majesty's Government.
  Mr. Wall: I congratulate the hon. Gentleman on his reply. Will he do all he can to improve the already improving good relations between Britain and Saudi Arabia and between Saudi Arabia and the States he mentioned in his Answer?
  Mr. Thomson: Yes. The hon. Gentleman is quite right. Saudi Arabia's interests in this area are very considerable, and we hope to be associated with them in a constructive approach to the problems I have mentioned.

  EMBASSIES (COMMERCIAL SERVICES)
  Mr. Benceasked the Secretary of State for Foreign Affairs what further
  1182
  steps he is taking to improve the commercial services of British embassies.
  Mr. George Thomson: With the measures announced by my right hon. Friend the President of the Board of Trade on 27th January and 1st June last, the range of official services to exporters is now more comprehensive than ever before. We are continually seeking to improve the services provided by our embassies and consular posts. Recent steps include the revision of the system of training for officers entering commercial work, improved terms of service for locally engaged officers, provision of more office equipment and the institution of a standard filing system for all commercial departments.
  Mr. Bence: While thanking my hon. Friend for that reply, may I ask him to consider the fact that American Government agencies and embassies do not merely use their commercial attachés as sources of information? Their commercial attachés and embassies—it is the same with German embassies—are active protagonists for American and German interests. Will my hon. Friend see that our attachés are not merely officers waiting to give information to these people who call but are active in propagating the commercial interests of Britain because of our difficult balance of payments situation?
  Mr. Thomson: I will take careful account of what my hon. Friend has said. My impression is that our commercial officers overseas are at least as good as their competitors in other countries. It is the job of the Diplomatic Service officer overseas to help the exporter to sell goods. It is not the job of the officer to sell the goods himself.
  Sir G. de Freitas: Apart from improving the service, is my hon. Friend aware that one of the problems facing many of our High Commissioners and Ambassadors is that British businessmen do not appear to be aware of the extent and range of the commercial services available? Will the Minister once again remind organisations such as the F.B.I. of the existence of these services?
  Mr. Thomson: Yes, Sir. My hon. Friend has drawn attention to a very important aspect of the matter. To meet

  1183
  this problem an extensive advertising campaign to inform businessmen of the services is being undertaken.
  Mr. Eldon Griffiths: I was glad to hear the hon. Member speak of his desire to improve the training of officers in commercial matters. Will he accept that in many cases the Foreign Office, sometimes due to lack of staff, sometimes finds it necessary to place in commercial posts people who have had almost no training at all in that direction? Will the hon. Gentleman take steps to see that the training that he spoke of is pressed through urgently?
  Mr. Thomson: We are very conscious of the importance of training in this matter. We have some difficulties with regard to staff. We do not have as many people in the Diplomatic Service as we should like, but within the limits of manpower we are giving increasing attention to the problem of providing adequate training in these courses.

  UNITED NATIONS COMMITTEE ON COLONIALISM
  Mr. Biggs-Davisonasked the Secretary of State for Foreign Affairs having regard to the financial difficulties of the United Nations, whether Her Majesty's Government will move for the suspension of any further tours abroad by or on behalf of its Committee on Colonialism as a measure of economy.
  Mr. George Thomson: Her Majesty's Government do not consider that this would serve any useful purpose. Their attitude to tours abroad by the Special Committee on Colonialism, in the present financial difficulties of the United Nations, has been made clear by the fact that the British representative voted against the present tour on the grounds of the expense involved.
  Mr. Biggs-Davison: Could not Her Majesty's Government be more zealous about economy in the United Nations, particularly with regard to its less constructive activities? Can the hon. Gentleman mention one piece of informed and useful advice that Her Majesty's Government have received from this Committee on the administration of dependent territories?
  Mr. Thomson: On the question of economy in the work of the United Nations, I think that the amount of money spent on the United Nations in pursuing its constructive purposes is infinitesimally small compared to the amount of money that the nations devote to armaments. One has got to see it in that perspective.
  Sir Knox Cunningham: Can the hon. Gentleman give the House the cost of the recent trip by this Committee and can he say what countries paid for it?
  Mr. Thomson: Yes, Sir. The Secretary-General has estimated the cost at 109,000 dollars, and the United Nations pays the travelling expenses of the delegates.

  INDONESIA
  Mr. Hamlingasked the Secretary of State for Foreign Affairs what new initiatives he proposes to take with Indonesia to settle outstanding differences.
  Mr. Padley: There is little I can add to the Answer given by my hon. Friend the Minister of State to my hon. Friend on 3rd May, and my right hon. Friend the Prime Minister's statement in the Commonwealth and Colonial Affairs Debate on 1st June.
  Mr. Hamling: While appreciating that this is largely a matter for discussion between Malaysia and Indonesia, may I ask whether my hon. Friend would agree that our treaty guarantees to Malaysia put us in a very special position and that we could pursue an initiative that could do some good in easing the situation between Malaysia and Indonesia?
  Mr. Padley: We certainly recognise our special relationship and, no doubt, the subject will be fully discussed at the Commonwealth Prime Ministers' Conference. We are indebted to the interest shown by Pakistan and Ghana, as well as Japan, Thailand and the Philippines, in seeking to promote a cessation of Indonesia's aggressive attitude towards her neighbour, but in the end this matter depends upon Indonesia ceasing aggression.
  Mr. Maudling: The Question referred to settling outstanding differences with Indonesia. Does the Minister regard this

  1185
  as an adequate description of an instance of naked and unprovoked aggression against a Commonwealth country?
  Mr. Padley: As I indicated in one of my replies, we do regard this as unprovoked aggression.
  Mr. Philip Noel-Baker: Will my hon. Friend recognise that there is real danger it the continuation of this undeclared war between Indonesia and Malaysia? Will he consider again with his right hon. Friend whether the United Nations cannot be used to bring this to an end?
  Mr. Padley: We will certainly consider that. But of course the difficulty is that Indonesia has left the United Nations. The Malaysian Government are keeping the Security Council fully informed, most recently in a letter of 28th May, but I assure my right hon. Friend that we shall keep his view constantly under consideration.
  Mr. Webster: Can the hon. Gentleman give the House any information about reports of gunfire between the Indonesian Navy and shore batteries over the weekend?
  Mr. Padley: I think the hon. Gentleman had better put a Question on the Order Paper if he wants an answer to that.

  UNITED NATIONS PEACE-KEEPING COMMITTEE
  Mr. A. Hendersonasked the Secretary of State for Foreign Affairs whether he will make a statement on the progress made by the United Nations Special Committee on Peace-keeping Operations.
  Mr. Ennalsasked the Secretary of State for Foreign Affairs what proposals Her Majesty's Government have submitted to the United Nations Special Committee on Peace-keeping Operations.
  Mr. M. Stewart: The United Nations Peace-keeping Committee adjourned on 15th June after agreeing on an interim report to the General Assembly. It can be reconvened at any time to continue its work. We are in broad agreement with its conclusions so far as they go.
  We have played an active part in all discussions on peace-keeping that have been taking place in New York and have
  1186
  stressed the following points: Primary responsibility for the maintenance of international peace and security rests with the Security Council. However, the General Assembly also has power in this respect and the two bodies should be considered complementary and not competitive.
  It falls to the General Assembly to make financial assessments for the cost of peace-keeping operations in accordance with Article 17 of the Charter. The General Assembly may, however, select from a range of alternative methods of financing, which is appropriate to a particular operation.
  We believe that the Secretary-General of the United Nations should have at his disposal adequate staff for carrying out peace-keeping operations.
  We attach great importance to evolving procedures for peacekeeping by consent. This is the sort of operation which has in fact been undertaken by the United Nations, not to coerce any state but to assist in preserving peace and stability while a political settlement is being found.
  Mr. Henderson: While welcoming my right hon. Friend's statement, may I ask whether he would not agree that the discussions in the Special Committee have been bedevilled by the dispute over past liabilities, especially as regards the Soviet Union and France, as distinct from dealing with the problem of future disputes? Would not my right hon. Friend propose that the two should be separated so that the question of getting the United Nations out of the red should be treated as distinct from getting agreements on future organisation for peace-keeping?
  Mr. Stewart: Yes, Sir. I think that I would agree with my right hon. Friend on those points, and in this connection I would ask him to await a statement which I am to make at the end of Questions.
  Mr. Ennals: Is my right hon. Friend aware of how much we on this side of the House, and I hope on the other side, appreciate the constructive rôle played by the Government in this Special Committee, and also the initiative shown by my right hon. Friend earlier in offering a British contribution? Can my right hon. Friend say whether reports are correct that Britain has offered to make a

  1187
  voluntary contribution toward helping to solve the financial problems which lie behind this problem?
  Mr. Stewart: I am obliged to my hon. Friend. As to the latter part of his supplementary question I would ask him to await my statement at the end of Questions.
  Mr. Peter Thomas: Is the Foreign Secretary aware that reports have been received that the President of the Special Committee, Mr. Quayson-Sackey, has said that the Committee would reconvene in August? Is this so? If it is, would the right hon. Gentleman say that he hopes that the Committee will be able to reach a conclusion before the General Assembly meets at some time in the autumn?
  Mr. Stewart: I am not sure about its meeting in August, but I have every hope that the General Assembly will be able to resume its work in September.
  Mr. Longden: Can the right hon. Gentleman say what effect the report of the Special Committee, which seems very useful as far as it goes, will have in future on special agreements for peacekeeping provided for in Article 43 of the Charter?
  Mr. Stewart: I do not know that it particularly affects them. We want to see the machinery of agreements under Article 43 continued, but that I think is a parallel development.

  ATLANTIC NUCLEAR FORCE
  Mr. Martenasked the Secretary of State for Foreign Affairs what representations he has had from the Union of Soviet Socialist Republics about Her Majesty's Government's proposal for an Atlantic Nuclear Force.
  Mr. M. Stewart: The Soviet Government have made their views known to us on a number of occasions, and most recently during my talks with M. Gromyko in March.
  Mr. Marten: Can the right hon. Gentleman say whether it was made clear that the A.N.F. will lead to a greater proliferation of nuclear weapons? Does he believe that the A.N.F. proposals will improve East-West relations? What has happened to the A.N.F.?
  Mr. Stewart: The A.N.F. proposals are still being examined by our allies. The Russian Government have expressed objection to it. I have never held that that objection is well-founded. If the countries of the Warsaw Pact made comparable arrangements we should not regard it as endangering our security or damaging international relations.
  Mr. Paget: The A.N.F. having been introduced with the primary function of sinking the M.L.F., cannot it now sink, too?
  Mr. Stewart: My hon. and learned Friend expressed that view before. I disagree with him now, as I disagreed with him then.

  MIDDLE EAST (MINISTERIAL VISITS)
  Mr. Jacksonasked the Secretary of State for Foreign Affairs when he plans to make a visit to the Middle East.
  Mr. Fisherasked the Secretary of State for Foreign Affairs whether, in view of the recent statement by Her Majesty's Ambassador to the United Arab Republic that an official Ministerial visit to Cairo is under consideration, he will make a statement on Her Majesty's Government's plans for such a visit.
  Mr. George Thomson: We have the possibility of further Ministerial visits to the area, including Cairo, very much in mind. But the timing must be right and we are still considering the matter.
  Mr. Jackson: I thank my hon. Friend for that reply. Bearing in mind that today is a day on which a United Arab Republic Parliamentary delegation is arriving in this country, which I think regardless of politics the whole House will welcome, is not this a good time to plan for a visit to Cairo later on when at any rate differences of views between Britain and Egypt over the Yemen could be discussed and certainly practical measures for an increase of trade?
  Mr. Thomson: On behalf of Her Majesty's Government, I should like to welcome the important delegation of Parliamentarians from the United Arab Republic to which my hon. Friend referred. The timing of a possible Ministerial visit to the United Arab Republic is something

  1189
  which needs careful consideration, because it is important that if it takes place it should register a positive achievement.
  Mr. Fisher: In view of the terrorist activities inspired from Cairo which have resulted in the killing of British Service personnel and Arab civilians, is this a good time to make a Ministerial goodwill visit to Cairo? Can the hon. Gentleman also tell me why the director of Cairo Radio, which has been responsible for the most anti-British propaganda for years, is now, as I understand from the Press, the honoured guest of Her Majesty's Government in London?
  Mr. Thomson: The violence which is occurring in Southern Arabia and is supported by forces in Cairo is certainly one of the difficulties in the way of bringing about the visit to which both these Questions refer, but Her Majesty's Government are anxious to explore by any means they can ways in which these difficulties between our countries can be removed. It is in the light of that, that the timing of this visit has to be carefully considered.
  Sir B. Janner: In his negotiations for visits of this kind would my hon. Friend keep in mind the fact that Cairo, with its violent anti-British propaganda and anti-United Nations propaganda, and particularly with regard to Israel, should be given to understand that we will not stand for that kind of propaganda? Will he express to this individual who has come to this country that we highly deprecate the kind of propaganda emanating day by day from his Cairo Radio?
  Mr. Thomson: I think that everyone deplores the advocacy of violence which comes from Cairo Radio, just as everyone deplores the degree of support given to terroristic activities in Southern Arabia, but by far the best means of trying to find a way out of this situation is to allow people from the United Arab Republic to come here and talk with people here and find out for themselves how strongly public opinion feels about this matter and how much it is an obstacle to sensible and good relations between the two countries.
  Mr. Maudling: Is it really the fact that the director of Cairo Radio is now here, as my hon. Friend said, as honoured
  1190
  guest of Her Majesty's Government? It seems incredible.
  Mr. Thomson: I do not have exact information on all the members of the delegation, but I understand that one of the members is associated with information which comes from Cairo Radio.
  Mr. W. T. Williams: Whatever may be the advantages or disadvantages of visiting Cairo, may we press the Minister nevertheless to make a visit to the Middle East as soon as possible because, quite apart from propaganda from Cairo, there is a good deal of unrest and misunderstanding of British policy among countries which have hitherto been a great deal more friendly to us, the Lebanon and Jordan in particular? Does not my hon. Friend feel that a visit by him or one of his colleagues in the Department would be of advantage in making plain to these people what British policy is and Britain's continuing friendliness towards these States?
  Mr. Thomson: As I said, we have further Ministerial visits to the Middle East generally very much in mind. I recently visited the Gulf, and I had hoped to visit Beirut on my way back but, unfortunately, Parliamentary business here prevented that visit taking place. My right hon. Friend the Minister of Overseas Development has just returned from a visit to the Lebanon and Jordan, and further visits of this kind will be undertaken as opportunity offers.
  Sir G. Nicholson: Does the hon. Gentleman realise that the House has been deeply shocked by what it has been told about this official from Cairo Radio? Are we to understand that the hon. Gentleman himself was not aware of what is happening, and does not he realise that there comes a point beyond which turning the other cheek is just interpreted as weakness?
  Mr. Thomson: I was aware of the delegation which was arriving here and of its composition. I stick to my point that the best way to deal with these matters is to try to clear up misunderstandings and to let people know exactly how the British people feel about these matters.

  QUESTIONS TO MINISTERS
  Mr. Warbey: On a point of order, Mr. Speaker. As neither the Prime Minister nor any of the Commonwealth Prime Ministers can expect to be welcomed or even received in the capital of the Democratic Republic of Vietnam so long as we do not recognise the Government of that country, will my right hon. Friend as a matter of urgency answer my Question No. 41 on the Order Paper.
  Mr. Speaker: No point of order arises. We must maintain the rules.

UNITED NATIONS (FINANCES AND PEACE-KEEPING ARRANGEMENTS)
The Secretary of State for Foreign Affairs (Mr. Michael Stewart): With your permission, Mr. Speaker, and that of the House, I wish to make a statement on the present situation concerning United Nations finances and peace-keeping arrangements.
A United Nations Peace-keeping Committee was set up in February this year to review the whole question of peace-keeping operations and the present financial difficulties of the United Nations. As the House is aware, we played an active part in setting up this Committee and in its subsequent work.
So far, however, no arrangement has been reached on the settlement of the constitutional or the financial problems of the organisation. It is clear that the financial problem can only be solved eventually by voluntary contributions from member States.
In these circumstances, we have decided that it is essential to make a voluntary, unconditional, financial pledge to the United Nations. My noble Friend Lord Caradon has, therefore, informed the Secretary-General today that we pledge a sum equivalent to 10 million dollars. This decision arose from discussion with a number of other countries and, in the course of today, several other delegations will make similar voluntary unconditional pledges to the Secretary-General.
This contribution is designed to help restore the United States to solvency—
1192
[Laughter.] I ask the House to excuse me; I should have said, "restore the United Nations to solvency"—
Sir G. Nicholson: What about the United Kingdom?
Mr. Stewart: —and improve the atmosphere for further discussions. In this improved atmosphere, there is a better chance for some compromise on the peace-keeping problem to be worked out before the autumn. Our pledge represents, indeed, an act of faith in the United Nations. It is made entirely without prejudice to our position of principle, and we are fully aware that it does not immediately solve the constitutional problem.
There have been gloomy voices recently hinting that the United Nations has been going the way of the League of Nations. I am not on any account going to accept this. It is the policy of this Government to work to strengthen and support the organisation, and one of the practical ways in which we have demonstrated this earlier was our offer of logistic support for peace-keeping operations for up to six battalions last February.
We shall continue to do all in our power to ensure that the United Nations, far from being allowed to wither and die, emerges strengthened from its present difficulties and better equipped to serve the cause of international peace.
Mr. Peter Thomas: I thank the Foreign Secretary for his statement. I am sure that the whole House will welcome it, in particular the last part, and will appreciate the necessity for making this voluntary contribution.
Can the right hon. Gentleman say how many other nations have pledged themselves to make a contribution, and, if so, is he in a position to say which they are and how much they will be contributing? Can he say, for instance, whether the U.S.S.R. has agreed to make a contribution?
It appears that the Peace-keeping Committee, which has worked very hard, is far from reaching a solution. Unless a solution is found, is there not a danger that the General Assembly will either not meet or not be able to function properly next August? On 23rd February, I think, the right hon. Gentleman told us that he

1193
had some new ideas which he or Her Majesty's Government had in mind to put to the Committee, in consultation with experts at the United Nations. Have these new ideas been put forward, and, if so, is the right hon. Gentleman in a position to tell us something about them?
Mr. Stewart: Other nations will be associated with us, but I did not wish to give the House what might prove to be an incomplete list. Therefore, I would rather not answer the right hon. Gentleman's first question at present. The House will find that other nations are associated with us. I have no information that the Soviet Union is at present making a voluntary contribution.
As regards the longer-term problem of the mechanism for peace-keeping itself, the right hon. Gentleman will remember that I answered an earlier Question setting out the ideas which we had put before the Peace-keeping Committee. It is my hope and belief that the General Assembly will be able to resume its work. I do not want to disguise from the House that we should like to see the United Nations take a real step forward in its history on this question of how peace-keeping operations, when necessary, can be carried on. It does not look as though we shall be able at present to get as far as we could wish in that direction. But we shall at any rate, I think, be able to resume the Assembly's work.
Mr. A. Henderson: I warmly welcome the generous lead which my right hon. Friend has announced, but will he not agree that this approach by the method of voluntary contribution with the object of wiping off the £70 million deficit of the United Nations is far more likely to be effective than seeking to use, or having to use, the provisions of Article 19 of the Charter?
In view of this, will my right hon. Friend say whether diplomatic discussions will continue with the Governments of both the U.S.S.R. and France with a view to persuading them to join in this voluntary effort to wipe off the United Nations deficit?
Mr. Stewart: We thought about it on the basis of a certain number of Governments making this initiative in the hope that it would be followed particularly
1194
by the States which my right hon. and learned Friend has mentioned. We still adhere to the view that we have held about Article 19, but we felt that it was necessary, quite apart from anything else, to help the United Nations to solvency, and we thought that this method was the right step to that end.
Mr. Grimond: Is the Foreign Secretary aware that any steps which will strengthen the United Nations are to be welcomed? Is this contribution for the specific purposes of the Peace-keeping Committee, or is it to help the United Nations generally? When he talks about the position of principle, I take it that he has in mind that we should insist that other nations pay their normal contribution. I take it that this contribution is over and above our normal contribution. Can he tell us whether any of the nations which are already in default, apart from making any further contribution, have agreed to pay up what they owe to date?
Mr. Stewart: The answer to the last part of the supplementary question is "No". This contribution is for the general purposes of the United Nations. It is not tied to any particular item of expenditure.
The right hon. Gentleman also asked whether any of the nations in default had agreed to pay up. No, they have not.
Sir Geoffrey de Freitas: Since one of the greatest debtors is France, which happens to be an ally of ours, will not the Government make special representations to that country?
Mr. Stewart: My right hon. Friend will remember that this was the subject of very keen argument which, at one time, looked as if it might endanger the organisation. One has to consider very carefully, therefore, what representations one makes and how one makes them in this field. What we hope is that this act will make it easier for everyone to discuss the problem in a more relaxed atmosphere.
Mr. Maudling: The right hon. Gentleman is reluctant to specify the other countries involved in this initiative, but does he not appreciate that to judge whether this is bold or merely quixotic we must have more information about what other countries are involved?
Mr. Stewart: I hope that it will before long be a matter of public knowledge, but, if necessary, I would make a further statement to the House.
Mr. Mendelson: My right hon. Friend will do doubt be aware that there is widespread support for the action that he has announced on behalf of the Government. Will he also bear in mind that this dispute involving France and the Soviet Union, is also a political dispute and not merely a matter of paying contributions to the United Nations?
Will he, therefore, bear in mind that he has the full support of most of us in the patient efforts that he and the Government have made? Will he refuse to allow himself to be in any way inspired by those, very often not the best friends of United Nations, who are now particularly interested in Article 19, and will he continue his patient work to reach agreement no matter how long it takes?
Mr. Stewart: I should like to repeat that we adhere to our view about Article 19 and the advisory opinion of the International Court on certain payments. I would accept my hon. Friend's point, which I take to be that this is not merely a question of defaulting on payment. There is here a difference of view about the purposes of the United Nations and the legality of certain decisions. We take one view on that, and we adhere to it.
I will certainly follow my hon. Friend's advice about patience. That will certainly be needed. I think I should draw the attention of the House to this, that, unsatisfactory instrument as the United Nations is in many ways in reflecting all the imperfections of the world as a whole, if anything were to happen to cause the organisation to disappear and be replaced by possibly two or more groupings of like-minded nations on an ideological basis, that would be an extremely dangerous development for the world and one that we must seek at all costs to avoid.
Several Hon. Members Several Hon. Members rose—
Mr. Speaker: We cannot debate this now without a Question before the House.

OVERSEAS DEVELOPMENT (INTEREST-FREE LOANS)
The Minister of Overseas Development (Mrs. Barbara Castle): Her Majesty's Government have had under consideration for some time the terms on which aid is provided in the form of loans to the developing countries. The importance of the general question of the terms of aid was emphasised at the United Nations Conference on Trade and Development in Geneva last year, and one of the recommendations agreed without dissent was that in establishing repayment terms and interest rates, the overall repayment capacity of the borrowing country should be taken into account.
Her Majesty's Government have had the opportunity, since the conference, of discussing the problem with fellow members of the Development Assistance Committee of the Organisation for Economic Co-operation and Development.
The terms of aid provided by the United Kingdom have been progressively softened over the last few years. A substantial amount has always been provided in the form of grants. Since 1958 the maturity period of development loans has lengthened from a norm of 15 years to between 20 and 25 years. Grace periods on the repayment of capital during periods extending up to the first seven years of the life of the loan have been granted on a widening scale.
In 1963, we announced our readiness to grant waivers for periods of up to seven years of the interest payable during the early years of loans by countries whose position justified such a concession. This has had the effect, in some cases, of reducing the effective rate of interest payable over the life of the loan by nearly half, compared with the normal rate, which is based on that at which Her Majesty's Government can themselves borrow, plus a small management charge.
Her Majesty's Government recognise, however, that the value of the waiver is in some respect limited and that some more flexible means are needed of giving relief in certain cases. They have decided, therefore, to make loans free of interest to certain developing countries. This concession, combined with appropriate arrangements for the repayment

1197
of capital, will give us greater freedom in the determination of terms, and, in particular, will enable us to lighten the burden of debt service in the middle and later years of the loan.
The concession will be applied in selected cases, and with due regard to the economic position of the country concerned and to its capacity to achieve balanced and effective development. It will be understood that we naturally cannot afford to extend these very liberal terms to all developing countries. Since interest-free loans will take the place of loans which would otherwise be made under the waiver arrangements, there will not, of course, be any additional burden on Britain's balance of payments during the first few years of the loans.
When circumstances warrant it, countries which do not receive interest-free loans may receive waivers of interest for the initial years of the loan. We have decided to make a similar concession in appropriate cases to the Commonwealth Development Corporation. To help the Corporation to undertake a greater variety of projects, the Government has decided to waive the interest on selected projects during the period when the investment is fructifying, instead of merely postponing the interest as at present.
This concession will apply to certain agricultural and local development projects, both in cases in which the Corporation invests in the equity and in cases in which it makes loans.
Mr. Maudling: The right hon. Lady is, of course, right in pointing out that the terms of aid given by this country have been eased progressively in recent years, a fact for which this country has probably not been given anything like enough credit overseas. I should like to put three questions to her.
First, is she convinced that it is wise to go all the way to making the loans completely free of interest in view particularly of the importance of ensuring the proper and efficient spending of the money borrowed. Secondly, has any other country gone as far as completely interest-free loans? Thirdly, can she tell us a little more about the method of choosing between those countries which do and those countries which do not receive the concession, because my experi-
1198
ence is that once one gives this type of concession to one country, it is very hard to refuse it to others?
Mrs. Castle: I could not accept the last statement by the right hon. Gentleman, for the simple reason that we already discriminate between countries in giving waivers of interest. This is merely deciding to adopt an even more realistic approach to the needs of certain countries. The basis on which we shall decide whether a country qualifies for an interest-free loan will be the degree of need of the recipient country reckoned largely on the basis of income per head and the prospective burden of debt. In addition, we shall take into account the capacity of the country to achieve an effective and balanced development.
I cannot agree with the right hon. Gentleman that this will prevent us from securing effective management of our aid. We have no reason to believe that it will be more difficult to do this in the case of an interest-free loan than in the case where a waiver of interest is given during a certain period.
The only organisation currently giving interest-free loans is the International Development Association, which charges merely a small management charge of ¾ per cent. Canada has recently followed the Association's example. Of course, at one time the United States gave a lead in this respect, but had to withdraw because other countries did not follow suit. I am sure that all these countries and organisations will warmly welcome our move.
Mr. P. Noel-Baker: Is it not the case that the economic and social progress of developing countries is a major interest of our own country and, indeed, of all the other advanced nations of the world? Have not Her Majesty's Government done rightly in following the example set by the International Bank, which has found it wise to do this?
Mrs. Castle: I entirely agree with my right hon. Friend. The realities of the situation are that while we may seek to impose interest burdens on these countries, their economic situation means that they simply connot carry them. This has meant in many cases merely postponing events through refinancing operations,

1199
thus neither giving them interest-free loans nor getting our money back.
Mr. Frederic Harris: To what extent will the Government give interest-free loans for the remainder of this financial year? Can she name any of the countries which will soon enjoy this facility?
Mrs. Castle: I would not like to specify any particular country at this stage. It will be a matter for negotiation on the basis of the criteria I have mentioned. The application of the principle will start as from now.
Mr. Snow: Has it been considered necessary or relevant in this case to consult the International Monetary Fund?
Mrs. Castle: We have consulted the other donor countries, some of whom are also our creditors, about this move and it has been welcomed. Above all, it has been welcomed by the World Bank.
Mr. Geoffrey Lloyd: While I approve of the right hon Lady's efforts in this direction, particularly the help to the Commonwealth Development Corporation, may I ask her whether she also proposes to help the Commonwealth Development Finance Corporation, an important organisation which, like the C.D.C., will suffer from the Finance Bill?
Mrs. Castle: I have no statement to make on that at this stage.
Mr. Dalyell: What steps are the Government taking to initiate talks with other advanced countries which may similarly give interest-free loans?
Mrs. Castle: We have already had such talks and there is, I believe, no doubt that, when the Development Assistance Committee of the O.E.C.D. meets at Ministerial level next month, this whole question of the terms of aid will be one of the major items discussed and I hope that the step we have taken may encourage other countries to do the same.
Mr. Thorpe: Is the right hon. Lady aware that this will be welcomed by all who believe that economic progress depends on low interest rates? Since this concession will be of restricted application, will preference be given to Commonwealth countries which seek loans for development? Secondly, do her
1200
remarks about the Commonwealth Development Corporation mean, in effect, that it will be able to get interest-free capital for selected projects?
Mrs. Castle: I hope that this move will be welcomed by all who have a realistic approach to the needs of development. It will not be limited to Commonwealth countries. It will be available to all developing countries on the basis of the criteria I have just laid down. That will be the basis of qualification. It is not a question of giving preference to the Commonwealth as against non-Commonwealth countries, but of preference to the poorer; the needier nations as against those who can service a more commercial type of debt.
The proposal is not to give the Commonwealth Development Corporation interest-free loans, but merely to ensure that, at the end of the waiver period of interest which is currently allowed during the fructifying period, the borrowing country will have no retrospective interest to pay. At present, interest accumulates during the fructifying period at a compound rate and this falls as a heavy burden in about the eighth year.
Several Hon. Members Several Hon. Members rose—
Mr. Speaker: Order. This is a very wide subject, but we cannot debate it now.
Sir C. Taylor: On a point of order, Mr. Speaker. Are not we to be allowed to debate this statement properly at a later date? Are we to be given time to debate if if we cannot ask supplementary questions now?
Mr. Speaker: Order. I cannot answer the hon. Gentleman's question. I have to exercise a difficult judgment about when we stop these questions on statements.

COMPLAINT OF PRIVILEGE
Mr. Raymond Fletcher: May I draw your attention, Mr. Speaker, to a Press report which, in my submission, raises a matter of privilege? It appeared in the Sun on Saturday, 19th June, 1965. It is headed:
"No night sittings for me—M.P."

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I wish to draw your attention to the relative passage of the report. It read:
"A Labour M.P. who was ordered by doctors to rest after Wednesday night's marathon House of Commons sitting said yesterday:
'These all-night debates are a completely needless bore. I do not intend to take part in any more of them.' The M.R, 43-year-old Mr. Raymond Fletcher, was taken ill during the 21 hr. 38 min. sitting that ended at noon on Thursday. Doctors later told him that he must rest for an indefinite period."
Certainly not in the House.
"Mr. Fletcher, M.P. for Ilkeston, Derbyshire said: 'In future I shall only go to the Commons during the day. All-night sittings will be out of the question'."
That statement, Mr. Speaker, is totally untrue. I know the origin of it. It appeared in several other newspapers as well. It appeared in the Daily Express, The Times and the Daily Mail. The origin of this misreport is a telephone conversation I had with a Derbyshire news agency known as "Raymond's". What appears in the Sun and what I have just read out is totally untrue. I said nothing of the kind.
I am in no position, unfortunately, to do anything of the kind. The question of privilege arises, in my submission, because any hon. Member who makes a statement of that kind is guilty of arrogant conduct and is treating this House with contempt, and if one treats this House with contempt one arouses the contempt of the House against oneself.
It is on that ground that I submit that this report constitutes a prima facie case of breach of privilege.
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I do not complain about the inaccuracy of the report. I am an old Press man myself and I know quite well that one can no more expect total accuracy in the newspapers than one can expect total veracity in the law courts. On many occasions, I have been the subject of inaccurate reports, but I have not worried about them as long as my name has been spelt correctly.
That, I gather, is the normal procedure. But the case I am raising now, because of my reasons for raising it, in my submission, constitutes a prima facie case of breach of privilege.
Mr. Speaker: Would the hon. Gentleman be good enough to bring the newspaper to me?
Copy of newspaper handed in.
Mr. Speaker: I will give consideration to the hon. Gentleman's complaint in the light of the authorities and will rule upon it tomorrow.

SEVEN HUNDREDTH ANNIVERSARY OF PARLIAMENT
The Lord President of the Council (Mr. Herbert Bowden): I have to inform the House that Her Majesty the Queen has appointed 12 noon on Tuesday, 22nd June, in Westminster Hall, to be the time and place at which Her Majesty will be attended by this House to receive their address on the occasion of commemoration of Simon de Montfort's Parliament of 1265 and has given permission for the Commons to be accompanied by representatives of overseas Parliaments of the Commonwealth.
ORDERS OF THE DAY

  FINANCE (No. 2) BILL
  Considered in Committee [Progress, 16th June].
  [Dr. HORACE KING in the Chair]

Clause 72.—(SHORTFALL IN DISTRIBU- TIONS OF CLOSE COMPANY (INCOME TAX AT STANDARD RATE)).
4.1 p.m.
The Chairman: Before I call the next Amendment, I have two announcements to make. In addition to the list which I have had published in the "No" Lobby and in the Ways and Means corridor, I have, as the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) will be pleased to note, reconsidered and selected his Amendment No. 779.
The right hon. Member for Bexley (Mr. Heath) and his right hon. Friend made representations to me about Amendment No. 785. I am now proposing to take that with the Government Amendments No. 754 and No. 417. We are now coming to Amendment No. 745, with which it is proposed that we should take Amendment No. 464 and Amendment No. 77. Amendment No. 464 is in page 92, line 36, to leave out "shall" and to insert "may", and Amendment No. 77 is in page 93, line 5, to leave out from "say" to the end of Clause and to add:
"a reasonable proportion of its profits, as determined by the following subsections of this section.
(3) In determining under the last preceding section whether any company has or has not made such a distribution of its actual income as is therein mentioned, the Commissioners shall have regard not only to the current requirements of the company's business but also to such other requirements as may be necessary or advisable for the maintenance and development of that business.
(4) For the purposes of the said last preceding section, any such sum as is hereinafter described shall be regarded as income available for distribution among the members of the company and not as having been applied or being applicable to the current requirements of the company's business or to such other requirements as may be necessary or advisable for the maintenance and development of that business, that is to say—

(a) any sum expended or applied, or intended to be expended or applied, out of the income of the company, otherwise than
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in pursuance of an obligation entered into by the company before the fourth day of August, nineteen hundred and fourteen—

in or towards payment for the business, undertaking or property which the company was formed to acquire or which was the first business, undertaking or property of a substantial character in fact acquired by the company; or

(ii) in redemption or repayment of any share or loan capital or debt (including any premium on such share or loan capital or debt) issued or incurred in or towards payment for any such business, undertaking or property, or issued or incurred for the purpose of raising money applied or to be applied in or towards payment therefor; or

(iii) in meeting any obligations of the company in respect of the acquisition of any such business, undertaking or property; or

(iv) in redemption or repayment of any share or loan capital or debt (including any premium on such share or loan capital or debt) issued or incurred otherwise than for adequate consideration; and

(b) any sum expended or applied, or intended to be expended or applied, in pursuance or in consequence of any fictitious or artificial transaction:

Provided that this subsection shall not operate so as to make the said last preceding section apply as respects any company unless it appears to the Commissioners, not only that income of the company has been or is to be expended or applied for one or more of the purposes mentioned in this subsection, but also that the company has not in fact distributed a reasonable part of its actual income in such manner as to render the amount distributed liable to be included in the statements to be made by the members of the company of their total income for the purposes of surtax.
(5) For the purposes of subsection (4) of this section, share or loan capital or debt shall be deemed to be issued or incurred otherwise than for adequate consideration if—

(a) it is issued or incurred for consideration the value of which to the company is substantially less than the amount of the capital or debt (including any premium thereon); or

(b) it is issued or incurred in or towards, or for the purpose of raising money applied or to be applied in or towards, the redemption or repayment of any share or loan capital or debt which itself was issued or incurred for such consideration as is mentioned in paragraph (a) of this subsection or which represents, directly or indirectly, any share or loan capital or debt which itself was issued or incurred for such consideration,

and references in this subsection and the last preceding subsection to money applied or to be applied for any purpose shall be deemed to include references to money applied or to be applied in or towards the replacement of that money".
Mr. Patrick Jenkin: I beg to move Amendment No. 745, in page 92, line 35, to leave out "If" and to insert:
"With a view to preventing the avoidance of the payment of income tax through the withholding from distribution of income of a company which would otherwise be distributed, where it appears to the Commissioners of Inland Revenue that".
May I begin by expressing my gratitude for the latitude, Dr. King, with which you have agreed to the selection of Amendments, particularly—
The Chairman: In case I forget, I should say that we are not selecting the hon. Gentleman's similar Amendment No. 784, in Schedule 17, page 211, line 7, at the end to insert:
7. A company may in respect of any financial year during the whole of which it is a close company elect by notice in writing to the inspector within twelve months of the end of such financial year that it shall be assessed to income tax as though it were a partnership consisting of its participators and directors and that it shall be exempt from corporation tax for that financial year and in such circumstances the company's income shall be deemed to accrue to its participators and directors as partners in such shares as may be just having due regard to their rights to participate in the income of the company or to remuneration from the company.
Mr. Jenkin: That was the second barrel of my gun. I should be very happy to fire the first at hon. Members opposite.
We start the proceedings of the thirteenth day of the Committee stage of this Finance Bill and I am bound to say that as we plough our way forward the matters with which we are concerned seem to become more and more complex. We have a long way to go, but I hope that on the subject of close companies we shall be able to make fairly swift progress today.
With my Amendment we come to the heart of this part of the Bill, which deals with close companies. Clause 72 contains the sting which imposes Income Tax where a company does not make a reasonable distribution. The Clause imports the concept of shortfall, and this is the word which appears throughout.
The pattern is broadly that of the Surtax legislation originally in Section 22 of the Finance Act, 1931, and re-enacted in Section 245 of the Income Tax Act, 1952, but it has to be recognised—and
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I am sure that the Committee is well aware of this—that although the general pattern of those Sections has been followed, there are now a number of significant differences, and it is to some of those differences that the Amendment is directed.
First, in the Clause the direction is mandatory. There are cases where a direction of less than the norm of 60 per cent. is regarded as permissible. The Amendment No. 464 is to substitute the word "may" for the word "shall" in subsection (1) so as to indicate and make it clear that the Revenue does not have to make a direction if it does not consider that appropriate. That is the first difference. Under the old Income Tax Act, with Section 245 companies this was always regarded as being discretionary.
Secondly, for the first time there is now provided what one might call a standard, so that unless a company can show to the contrary—and we are dealing with trading companies—it will have to distribute at least 60 per cent. of its net profits after payment of Corporation Tax. This, as it were, sets a maximum, but in certain respects it could also be said to establish something in the way of a norm and it is the fear of a number of us on this side of the Committee that what is intended to be a maximum will turn into the starting point, or the norm, where assessments are being made.
The third difference—and I appreciate that the Amendment of the Chancellor of the Exchequer may have gone some way to relieving our worries on this score—is that the burden of proof has been shifted to some extent. Under the old Section 245, the burden of proof was squarely on the Commissioners to establish that the company had not made a reasonable distribution of its income. As the Bill is now drafted, the burden is clearly shifted to the taxpayer to establish that he has made a reasonable distribution. The Chancellor's Amendment may have gone some way to move half way back, but not the whole way. Our Amendment makes some difference.
The fourth distinction between the old Sections and the Bill is that under the old Sections administration was entirely in the hands of the special commissioners, I mean the assessing special commissioners, who have their headquarters at Thames Ditton, which were described not

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unfairly, and may still be described, as not unlike a concentration camp or prison hutments, whereas under the Bill administration is to be in the hands of local inspectors.
There are thus these four differences, that it is mandatory, that there is the 60 per cent. norm, that the burden of proof is largely on the taxpayer, and that the administration is not now centralised but in the hands of local inspectors.
All the time the Chief Secretary has been trying to persuade the Committee and the country that these provisions in some way represent a concession to close companies. He says that the difference is that the norm of 60 per cent. has to be compared with a maximum possible distribution of 100 per cent. under the old provisions. But that is misleading and does not represent the facts of the case. In the small hours of Thursday morning I wrote something a good deal more pungent when I came to that comment, but, in the hope of keeping proceedings this afternoon sweet, I have moderated my language.
When a Surtax direction was made, a company paid Income Tax and Surtax, the Profits Tax liability being removed. A company did not pay Income Tax, Surtax and Profits Tax, so that in a sense Surtax and Profits Tax were alternatives. Under the new provisions, a company starts by automatically paying Corporation Tax and is then obliged, if a direction is made, to pay Income Tax on the distribution, and the Surtax, and one has to bear in mind that there is also a potential liability to Capital Gains Tax on retentions.
Mr. Harold Lever: But is not the fair comparison what actually happens under a direction under this provision and a direction under the old Section? Was not the direction under the old provision more onerous in toto than any direction which could be made under this?
Mr. Jenkin: The hon. Gentleman is, for the first time in the history of this Committee, supporting his right hon. Friends. With respect, this is the point. One might perhaps put down a Question to find out just how many trading companies ever had 100 per cent. Surtax direction imposed. I think very few.
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In the vast majority of cases the revenue accepted something substantially less. The sort of standard on which the thing has tended to group over the years has been that the company would be left with a third of its profits as retentions and would be expected to distribute the rest of them on that basis.
There is no doubt about it that if the 60 per cent. norm is applied a company is substantially worse off. One cannot adopt a new system of corporate taxation which is intended for ordinary companies, to penalise distributions and to encourage retentions and, at the same time, in the case of these close companies, impose compulsory distributions and not expect them to be worse off. The two things are wholly inconsistent and that is why the Chief Secretary's constant reiteration that it represents a concession to these companies has been taken with several handfuls of salt by all those concerned with its administration.
It is against this background we come to the Amendment. The fears of my hon. Friends and myself about this new set-up as it applies to close companies are twofold. The first fear is that the inspectors who will have the administrations of these classes for the first time, will tend to regard the 60 per cent. provision as the starting point and they will feel, "Now, at any rate, we will make an assessment of 60 per cent. unless we are satisfied that something less should be allowed."
It will be a sort of guiding light and it will be up to the company to establish less. This must be comparative with provisions that have applied previously where the amount has been at large. In spite of what the Chief Secretary says about the 100 per cent. being notional, the maximum amount of the distribution has been at large and the commissioners have always been prepared, as a first step, to discuss with the companies their business needs and from that to arrive at what a reasonable distribution should be. This is starting at the other end and we are afraid of what the effect that this might have.
The second point arises from the change of administration. There is bound to be a margin of discretion with the Inland Revenue inspectors, whoever they may be, as to how the section is to be administered. Inevitably, they will have

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to exercise their own personal judgment on this and this will lead to wide variations in treatment between different tax districts. Hitherto it has all been dealt with by the commissioners. Now it is to be deal with by the inspectors.
I now come to the Amendment on the Notice Paper. We would like to state firmly, since it does not appear in the new legislation and did in the old Section 245, that the whole of these Sections, from Clause 69 to 74, are all anti-avoidance Sections and have no other purpose. Section 245 of the Income Tax Act started with a provision to this effect and so does our Amendment. It starts off:
"With a view to preventing the avoidance of the payment of Income Tax through the withholding from distribution of income of a company which would otherwise be distributed."
It is important to get this on record. We must do so, otherwise the Inland Revenue and the taxpayer at large would lay themselves open to all sorts of activity by those who conduct their operations through these small companies. This would make it quite clear that the Sections should not be used as some sort of fiscal device to squeeze private companies until, as some people say, the pips squeak.
The second point is one of more substance and would require the local inspectors to obtain the sanction of the special commissioners before they put a direction into effect. The Amendment reads:
"… where it appears to the Commissioners of Inland Revenue that."
We would envisage that the inspector should refer a case where he and the taxpayer have not been able to reach agreement on the proper distribution. The commissioners would have to be satisfied that a prima facie case was made out. If the taxpayer has tried to play canny with the Revenue and has not disclosed all the material facts then it is quite right that the powers should be there and available.
But there may be perfectly genuine cases where the inspector and the taxpayer cannot agree on what is a reasonable distribution and where in the interests of standardisation and further reasons which I have mentioned, it would seem to be desirable that the inspectors should get prior sanction of the commissioners before making a direction.
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4.15 p.m.
We have three objectives in mind in suggesting this. First, it limits the possibility of unreasonable assessments, unreasonable distributions being demanded by tax inspectors, particularly in the early years, when they have not had any experience in dealing with these matters and when they may be over-enthusiastic and overworked. In those circumstances, one needs to have some sort of long-stop to make sure it is not always the 60 per cent. provision which is automatically applied, leaving the taxpayer to appeal against it.
The second objective is that this would ensure some measure of standardisation. There is a wide measure of discretion to be exercised in administering these classes and by requiring that the matter should be referred to the special commissioners one could, to some extent, ensure standardisation between the practices in different tax districts.
One could envisage, and I am not being fanciful, that companies would choose to set up their registered offices in tax districts where it was recognised that tax inspectors took a reasonable view of these things and to avoid districts where the inspectors took an unreasonable view.
The Chief Secretary to the Treasury (Mr. John Diamond): I am sure that the hon. Gentleman the Member for Wanstead and Woodford (Mr. Patrick Jenkin) will realise that inspectors are continually on the move so as to avoid anything like this happening.
Mr. Jenkin: I recognise that. But they do stay for a number of years in a particular place, perhaps four, five or six years, and in the early years it will be difficult for them to establish any sort of standing practice against which to set their sights.
Mr. Raymond Gower: It might be feasible that a company would follow a good inspector around.
Mr. Jenkin: They would be following a very good precedent. It is well known that firms of moneylenders follow lenient county court judges around the country because they recognise that some county court judges are more tender to moneylenders than others.

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This provision of requiring the special commissioners to be satisfied has the effect of shifting, to some extent, the onus on to the Revenue. They must first make up their minds that avoidance is being perpetrated, that there is excessive retention and only if they are so satisfied, and they must be reasonably satisfied, can the commissioners give the inspector the go-ahead. This is a limited but valuable safeguard. It is limited because in the last resort the Revenue must have the right to assess the company and to leave the taxpayer to prove that he has, in fact, made reasonable distributions. This is valuable in that it makes sure that the Revenue has an opportunity to satisfy itself that it is right that the whole provisions of the classes should be put into effect.
Finally, I would remind the Committee that this is an anti-avoidance provision and that, as such, the Revenue must be satisfied avoidance is being perpetrated. The taxpayer has to prove he is making reasonable distributions. This is rather like the criminal in a court of criminal law having to satisfy the jury that he is innocent, that there is otherwise an assumption of guilt. I am certain it would be wrong that we should import anything of that sort up to a certain point in a taxing Statute.
I suggest that for the reasons which I have given this is a reasonable Amendment. It does not detract from the avoidance provisions of the Bill, but it puts some matters right, and I hope that the Government will be able to consider it sympathetically.
Mr. Harold Lever: I observe that when I candidly and objectively find it right and appropriate that I should praise a Government action, this gives rise to howls of indignant rage from some hon. Members opposite, as if they had come to depend upon me as an ally for all kinds of irresponsible criticism. There is nothing in my attitude which justifies this. I have spoken with complete candour when I have been critical of the Government, and I propose to go on doing so.
Sir Tatton Brinton: On a point of order. Could the hon. Gentleman speak with complete clarity? He is very difficult to hear.
Mr. Lever: I am grateful to the hon. Gentleman, because I do not want any of my words to be lost.
I was protesting against the attempt to elevate matters of administrative convenience, good sense and good business sense and reasonable fairness in the administration of tax legislation into political issues or to make them matters of ideology. This is an entirely spurious and bogus point of view.
When my right hon. Friend the Chancellor of the Exchequer listens, as he often has done throughout these lengthy debates, to criticism from the front and, sometimes less conveniently, from the rear, and has, in his open-minded and fair way, come to see that some improvement man be made, I lament very greatly that hon. Members opposite feel that they have lost a political weapon and that they cannot exacerbate further the relationship between the Government and business people who are concerned with this legislation and vent their indignation on my right hon. Friend by personal insult and abuse.
Hon. Members: Oh.
Mr. Lever: I have attended these debates, and every time that my right hon. Friend weighs up a matter carefully, and then makes a concession which he thinks will be an emollient and will help the legislation to be acceptable to the Committee and to the taxpayer, the invariable result is that the right hon. Member for Bexley (Mr. Heath), or one of his team or relay of the Conservative Party doing duty at that point, tells the Chancellor that he must have been utterly incompetent for putting the provision in question in its original form in the first place. As I have pointed out before, he is caught on the fork of the right hon. Member for Bexley.
I welcome the steps taken about this Clause, to which my attitude broadly is this. It should have been even more improved than it has been, but, in view of the Amendments which have been made by the Chancellor of the Exchequer, it is probably, on balance, less harsh to business people than the existing legislation which has been operated so long without complaint or without excessive complaint by the business community and

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certainly without any attempt having been made to amend it during the 13 years of office of the Conservative Party.
The old position was this. Under Section 245, if the commissioners thought that a dividend should have been paid greater than that which had been paid, they made a direction, and if the taxpayer thought it right that he should have an impartial decision of the special commissioners on this point and exercised his right under the Statute to appeal and lost, every penny of the company's income was deemed to be Surtaxable income in the hands of its members. This was particularly objectionable as many a citizen would compromise his claim inevitably because it was too much of a gamble to go before the special commissioners and have his rights judicially established.
I assert that when a citizen has a right he should never be penalised by having it judicially established by the machinery of the Statute. Here no such penalty is exacted on the citizen and I am happy to welcome the removal by the Chancellor of the Exchequer of a gross injustice which must have affected many business people for many years, namely, that they were told, and constantly had to be told by their advisers, that they could fight the issue but that if they did not settle with the Inland Revenue and lost, 100 per cent. of the profits would be deemed to be the income of the shareholders and, hence, Surtaxable.
Sir T. Brinton: I am sure that the hon. Gentleman is wrong on this point, which has come up before. The liability to be assessed on 100 per cent. of one's profits was the case until the Chancellor of the Exchequer, I think in 1961, took away the Surtax umbrella, and from then on one was assessable only on what the Revenue maintained one should have paid. Is not that the case?
Mr. Lever: The hon. Gentleman said that he was sure that I am wrong. There is nothing more distasteful to me than to remove any certitude about anything, but in this case, reluctant as I am to disturb the complacent situation in which the hon. Gentleman has been all these years, I can do it with less reluctance because the evil situation is to be remedied
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by the Government, since in this Clause that can no longer happen.
The hon. Gentleman will find that this is so. It is not a matter of dispute or of opinion. Until now, if a citizen was served with a direction under Section 245, and if he appealed to the commissioners and lost, the whole of the income was deemed to be the income of the shareholders for Surtax purposes. This is a very unfair rule because directors of companies might say, "We cannot pay a dividend this year", and the special commissioners might say, "You could have paid 10 per cent. this year".
They are deemed to have paid a 100 per cent. dividend because the commissioners said that 10 per cent. was appropriate. Equally, up to now, if a company paid 40 per cent. and the special commissioners thought that they should have paid 60 per cent., the consequence was they paid Surtax, not on 60 per cent. but on 100 per cent.
All that illogicality of an oppressive character is being brought to an end. I a sure that right hon. and hon. Members opposite wish to be fair to the Chancellor of the Exchequer and to the Government in this matter, and I should welcome it if they would at least express some satisfaction that this oppressive illogicality, which, alas, has been in our fiscal system for a long time, is now to be brought to an end. I am very grateful that this is so.
I leave it to my right hon. Friend the Chief Secretary to do the arithmetic, because that is not my strongest point, but I think that the Committee will find that something approaching a quarter of the gross income of a company can always be retained after tax and added to the company's capital, no matter what direction is made on the company or how severe the consequences. About 24 per cent. of the company's income net will remain in the company. That was not so before.
Mr. Patrick Jenkin Mr. Patrick Jenkin rose—
Mr. Lever: If the hon. Gentleman wants to commit himself, let him do so.
Mr. Jenkin: Would not the hon. Gentleman agree that under Section 245 the normal practice was that companies were allowed to retain on average about 33⅓ per cent.?
Mr. Lever: I was not talking about the normal practice under Section 245. I was talking about the worst which could happen under the new legislation, which is that something approaching a quarter of the company's profits will be available net of all tax and left in the company to be added to the assets of those who own it. Under this "dreadful" legislation, which is so often said to be inspired by malice against the business community and whose intention is to destroy family and private companies, the worst which can happen is that 24 per cent. of the profits, after all tax, can remain in the company and be added to the company's assets. Under the old legislation, nothing of the kind could be guaranteed.
4.30 p.m.
The worst which could happen under the present legislation is a great deal more severe. I do not know the figures. I shall not pledge myself on the arithmetic, but it is considerably less than 24 per cent.—probably only half that figure—which could be left in the worst circumstances under the present legislation. I am dealing with the worst circumstances first. It is interesting, if we are trying to get an insight into the mind of the Government, of the Chancellor and his Ministers and to see whether there is some justice in the complaint that the Government are trying to destroy private companies, to start off by examining the facts.
The first fact which I wish to establish is that every director of a family company or a close company knows today that, in the worst circumstances under the new legislation, he will be able to add probably over twice as much to the company's assets as would be the case in the worst circumstances under the existing law.
Mr. Gower: Will the hon. Member deal with the fears of those who feel that what was done, certainly not as general practice, but rather in exceptional cases, will now tend to be the general practice?
Mr. Lever: I will deal with that.
The next question is: what is likely to happen in the general run of cases? We are assured that, in the general run, no such thing as a 100 per cent. of distribution was the rule. That is absolutely true,
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and nobody would challenge it, but why should anybody suppose that 60 per cent. will become the rule now? I will submit that this will not be so, for two reasons.
I will take the first point and go back to the original situation under the present legislation. Under the present legislation, the reason that the rule is not 100 per cent. is that the Commissioners of Inland Revenue thought it reasonable that companies should have money for their business in pursuance of the provisions of the Act. Of course, if a company made a profit and did not pay it all out in dividends, the special commissioners would decide whether this was justified. It was not as an act of philanthropy in the past that they did not declare 100 per cent. available. It was done in conformity with the law and with the 1952 Act.
The present position is that we can call it a concession—the Opposition now call it a concession—that if the special commissioners did not enforce 100 per cent. dividends as the rule—as they could have done in certain circumstances—it was because they were obliged by Statute to have regard to the requirements of the business. They will still be obliged by Statute to have regard to the requirements of the business. It is not the case that, in the past, they were feeling generous to shareholders and will now be told to be ungenerous. They will be in exactly the same position in deciding what might be paid under the new law as they were under the old, except in one respect, that of burden of proof, which I shall come to in a moment.
Leaving aside the question of the burden of proof, the special commissioners who behaved decently and fairly to taxpayers under the existing law will be obliged to behave fairly to taxpayers under the new law in precisely the same manner, with the added advantage for the taxpayer that the special commissioners were compelled in the past by Statute and the illogicality of the Statute to be harsh and oppressive to taxpayers, who brought the matter to trial. When the taxpayer lost, even though the special commissioners thought that a 60 per cent. would suffice, a 100 per cent. dividend was automatically exacted. Under the new law, the special commissioners will be turned away from the worst circumstances to

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the average run of case. They will be governed by the same principles as before, but they will not be obliged—as they were before—to inflict penal consequences on the taxpayer who lost his case on appeal.
It seems that there is a greatly exaggerated excitement about this Clause in the mind of the Opposition, and this is genuinely so. I can well understand their concern. It is very appropriate that they should be concerned about it, because we have often talked about double taxation and about the fact that the House of Commons is here as a watchdog. The House has to see that there is no oppression of the citizen. I do not complain—I do not think that the Government should complain—when the Opposition are vigorous to see that the taxpayer is not oppressed by oppressive legislation.
I am sure that, with these Amendments, it has become clear that this Clause, far from arousing the taxpayer's anxiety, will be a boon to him. This is important, because it is not only the enforcement of the law which matters, but the taxpayer's state of mind. The average businessman wants to get about his business without having to worry his head about whether he will be subject to a penal direction which will cause him anxiety. I hope that it will go out from the Committee—I hope that the Opposition will play their part in insuring that it does—that in many important respects this Clause is an advantage to the businessman, compared with the ones it replaces.
The other points mentioned did not seem very valid. There is no guiding light of 60 per cent.; there is, as I see it, an absolute limit of 60 per cent. I deny that it is a guiding light for inspectors of taxes. The question of standardisation between districts is also a false point, because, of course, one can never standardise any court which has to have many judges. We cannot standardise the behaviour of our High Court judges, nor could we do it with the special commissioners. If special commissioners or inspectors of taxes sit on all these cases, we shall have to recruit a substantial team to do this work.
It is one of the facts of life that if one has 100 judges one will have 100 different directions in the operation of the law. We have to provide a particular guiding principle which seems fair and
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reasonable and I think that the Chancellor has done that in this Bill.
The other point—that we need a "long stop" to protect people and that the special commissioners should give the direction and not the inspectors—is a bad point basically by reason of practice. The suggestion is that if we do not have this long stop, inspectors of taxes will pepper the citizen with these directions and they will be left to appeal. If the inspectors are foolish enough to do this, they will bring the whole operation of the Clause to a very convenient standstill. It is not conceivably possible that any tribunal of special commissioners could be set up by the Government which could cope with the appeals. They already have the greatest difficulty in getting these appeals heard in a reasonable time under the present law.
If the inspectors were to pepper the citizen with unfair directions from which there would be hundreds of appeals, the first time the Revenue would collect any taxes in respect of 1966 would be about 1975, because there would be such a queue of cases waiting for trial and confirmation. Head offices would soon see that an inspector was issuing too many directions in relation to his area or to the kind of profits which were coming in and he would have a polite note. I know nothing of the procedure—
Mr. Anthony Barber: Would the hon. Member say what it is that he finds objectionable about the Amendment?
Mr. Lever: I do not find the Amendment objectionable. What I object to are the speeches and comments of hon. Members opposite. I would find the Amendments not unreasonable in themselves. They did not enlist my passionate enthusiasm. I hate to admit this in public, though it is well that I do so now, but I cannot swear that I have examined every comma and every phrase in the Amendments. Therefore, I do not want to commit myself in detail on this. I do not find them obnoxious. What I think ought to be said, and has not been said by the Opposition so far—I think that they have a moral duty to say it—are the kind of things which I have been saying in relation to this Clause and not the kind of things which were said so ably by the hon. Member

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for Wanstead and Woodford (Mr. Jenkin), in implying that it was oppressive.
I conclude on a slightly cavilling note. My own Amendments are down and I am still hopeful that they will catch the attention of the Chair at some point. This is not altogether to be regarded as a certainty. The net effect of my Amendments—
The Chairman: If the hon. Member's Amendments are selected by the Chair, and he is called, he will be able to talk about them. He should not talk about them now, however.
Mr. Lever: The last thing in my thoughts, Dr. King, was to talk about my Amendments before they are called.
I was about to mention the one point on which I have a degree of sympathy with the Opposition. That is the question of the onus of proof.
I wish that the Government would budge on this matter and give a great deal of satisfaction to many people as well as myself. I am told that the reason for disturbing the existing rule, whereby the onus of proof is on the Revenue and not on the taxpayer, is that it does not make any difference in practice. If it does not make any difference in practice, for goodness' sake leave the rule as it is. It makes a great deal of difference emotionally for the taxpayer to feel that the onus of proof is on the Revenue.
I cannot understand why my right hon. and hon. Friends dig their heels in on this matter. We have worked the system adequately under the old rule with the onus of proof on the Revenue. It ought to be on the Revenue. Practice has shown that to be reasonable and there is no reason why it should not continue that way.
I add just one argument why the onus should be on the Revenue. An onus of proof means, in the end, that if there is any reasonable doubt in the matter the benefit is given to the one who is the beneficiary of the onus of proof. If the onus of proof is upon the taxpayer and there is doubt in the matter, if the special commissioners honourably enforce the legislation, as I think they will—because they are one of the most immaculate and fair-minded tribunals in the land—if the
1220
special commissioners think that possibly the money is required for the purposes of a business but the onus of proof has not been discharged and there is substantial doubt in the matter, it means that the benefit of doubt must be given to the Revenue, the Surtax direction must be made, the Income Tax direction must be made and, as a result, money must be paid out from the company which may—I put it no higher—reasonably be needed by the company but probably is not needed by the company.
If there was doubt whether the company would be prejudiced by the payout or retention of the funds, undoubtedly the benefit of the doubt should be given to the taxpayer, because it would not be a disaster if the Revenue did not get the Income Tax and Surtax but it might be a disaster to the company if the Revenue got it.
Much as I agree with my right hon. and hon. Friends about the beneficial character of the Clause, with that one saving criticism, I beg them to look again at this matter and to place the onus of proof where it always has been without disturbing the financial solvency of the State or turning the world upside down. Why not put the onus where it was before, reassure many taxpayers and business men throughout the country and make the Clause a real advance in our fiscal legislation?
Mr. Geoffrey Lloyd: In supporting the Amendment of my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) I should like, first, to welcome what the hon. Member for Manchester, Cheetham (Mr. Harold Lever) has just said about the onus of proof. This is an important matter. Many hon. Members in the Committee regard it as important and there is no doubt that multitudes of small and medium sized businesses throughout the country regard it as an important point.
In supporting my hon. Friend's Amendment, I should like to bring to the notice of the Chief Secretary an example, which is not a bad one, of the kind of anxieties which seriously afflict a large number of serious business people all over the country. The firm in question is a confirming house which provides credit for firms overseas purchasing goods from the United Kingdom. It has furnished me

1221
with these figures, which I will give as simply as I can. I am sure that the Chief Secretary, with his experience, will seize them quickly.
Over the last 10 years to 1960, the firm's profit was £1,175,000, of which £545,000 was paid in tax—it is a Surtax company—£155,000 was distributed in dividend and £475,000 was retained. The company went on well, but in 1961 it unexpectedly incurred a heavy loss of £351,000 in South Africa.
The managing director is anxious as a result of making the following calculation. Admittedly, he has made his calculation on the basis of a 40 per cent. Corporation Tax. I know that the Chief Secretary has continually insisted on a figure of 35 per cent., but he will understand that because his right hon. Friend the Chancellor mentioned a figure of 40 per cent., everybody in business is calculating on 40 per cent. because that is the only safe conservative thing to do. At least, I make it clear that the figure is based upon 40 per cent. Corporation Tax, plus 60 per cent. compulsory distribution.
4.45 p.m.
Had Corporation Tax been enforced in those years, the company calculates that there would have been a profit of £1,175,000, minus Corporation Tax of £470,000, leaving £705,000, of which 60 per cent. distribution would have meant distributing £423,000, leaving a balance of £282,000. That is £193,000 less than the £475,000 which the company had in hand at the end of 1960 and out of which it was enabled to meet the loss of £351,000. I am sorry to inflict these figures on the right hon. Gentleman, but I am sure that he seizes the point. The main point of it is perfectly clear.
Perhaps I may make the point more simply by quoting the letter from the managing director, who states:
"This is a private company which over the years has been successful by virtue of the fact that succeeding generations of management have steadfastly pursued a policy of prudent husbandry—a consistent policy of building up reserves combined with conservative dividend payments. However, five years ago this company took a very serious loss in South Africa which substantially exceeded its capital. Had it not been for the prudent and cautious policy referred to, this company would have been unable successfully to overcome its difficulties and would have been
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bankrupted. Had the proposed legislation been in force since 1945, there is no doubt that it would have failed, whereas it not only withstood the heavy blow suffered, but has successfully made a comeback to a sound financial position."
This is the kind of anxiety which many serious people feel.
Mr. Harold Lever: Why should the firm suppose that after this legislation is passed the special commissioners should enforce a greater dividend than they would have accepted prior to this legislation? These retentions were possible only because the special commissioners allowed them. Why should they not allow them after the Clause has been passed into law?
Mr. Lloyd: This is one of the reasons why I raise the point. It may give the Chief Secretary the possibility of making it clear that that is not the intention of the Government under the Clause, although my hon. Friend the Member for Wanstead and Woodford, in moving the Amendment, was quite clear that he had anxieties about the fact that it might become law. This is the point about which we are anxious.
If I may develop one further final point which is strictly related to the matter, I think that the Chief Secretary has waved aside too easily the point about the transference of the administration of these provisions from the special commissioners to the local inspectors. It is not my purpose to say anything against the local inspectors; I well know that they are an extremely efficient and good body of public servants of the best internal revenue service in the world. The point is, however, that the special commissioners, in their special section dealing with these matters, have built up an expertise such that business people have known that when they have consulted them they were consulting people who thoroughly understood the points.
With the best will in the world, I must point out to the Chief Secretary that it is asking a lot of the local inspectors to think that they could possibly become experts in a matter like this, which involves the distribution policy of companies, within a very short space of time. This is wholly alien to any of the work that they have hitherto been asked to do. It is an entirely new departure.

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The Chief Secretary is, I am sure, well aware that the distribution policy of a company is one of the central features of the strategy of a company's development. It is an extremely important point. It is something on which business people and boards of directors spend a great deal of time. It is not exactly a matter in which one can always say by rule of thumb exactly what should be done. It is something in which the creative instinct of business men is of great importance. Business men have the feeling that they may have to submit a case to people—local inspectors—who are not at all practised in this kind of thing, whereas they would have confidence in the special commissioners. I hope that the Chief Secretary will be able completely to relieve these anxieties, although he is likely to find it difficult to do so.
Mr. George Y. Mackie: I wish to stress the importance of the case of the very small company just starting up; the man who is transferring his business from being on his own to a limited liability company—not to limit his liability, but to help him to build up his company. It is to people of this sort that we in my constituency and the parts of Scotland with which I am particularly concerned are looking to replace the established industries which are dying. These are the people who can bring new life, industry and energy to these areas.
The hon. Member for Manchester, Cheetham (Mr. Harold Lever) was concerned to defend the Chancellor's good name and to express the Chancellor's concern for the private section of business, particularly the small company. If the hon. Member for Cheetham agrees on the question of the onus of proof, I suggest that he has gone a long way towards agreeing that the Chancellor has begun to damage his name by making it appear to the small company that while the big company can retain all its profits if it wishes to do so after the payment of Corporation Tax, it is mandatory on the small company to prove that it may not distribute up to 60 per cent. of its profits.
I know many companies which are concerned about this matter. I will instance one. It is an engineering company in the north-east of Scotland which
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employs 300 people and exports its products throughout the world in competition with the Germans, Americans and others. The company began in a small way, with the directors virtually sleeping beside the machines and working them after the men had gone home. Far from wanting to distribute all their profits, they took very little money themselves; hardly enough to live on.
People of this type are extremely valuable to us. I hope that the Chancellor did not mean what he has been understood to mean in his references to this subject. If he did mean it there would appear to be at least a sign of incompetence on his behalf and an indication that what the right hon. Member for Bexley (Mr. Heath) said was right. The Chancellor must go some way to assist, by means of the taxation system, the energetic and, perhaps, some might say, slightly stupid individuals who do not want to enjoy the fruits of their labours but are more interested in their businesses. If we are to continue to have these people the Chancellor must encourage them to plough money back, borrow more money and go on doing their good work.
I could instance many cases of companies throughout the north of Scotland, the area which I know best, where these energetic activities are taking place—companies which are providing the only sign of real life in the area—where the big, established old industries have grown too fat to develop or have become too lazy and, which, perhaps, need something done in the Surtax direction to slim them down.
The people who matter are the ones who are starting new industries from scratch. If the Chancellor would accept the suggestions, certainly the Amendment dealing with the onus of proof, and say that it is reasonable for such people to plough money back and build up their businesses, he would go a long way to keeping these people energetically in business. After all, the right hon. Gentleman should be only too pleased to tell such people that they can have their money until they are dead or sell out.
Mr. Diamond: It might be convenient to the Committee if I answered the debate thus far. If any hon. Member wishes, at the end of my remarks, to

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pursue any matters further, he will be at liberty to do so and I, will attempt later to clear up any further points. I am encouraged by the desire of the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin), from which I do not dissent, that we should make progress consistent with the thorough discussion of important points. This is one such point.
I come immediately to the question asked by the hon. Member for Caithness and Sutherland (Mr. George Y. Mackie) to put the matter in its appropriate philosophical background. The Government are most anxious that the very kind of encouragement to which he referred should apply universally. Everyone should be encouraged to plough back in the real sense of that term—that is, the development of his business by using his realised profits for the purchase of new plant and so on so as to get greater efficiency and more productivity. These are the very things which my right hon. Friend wishes to encourage, and I repeat "universally".
There is no distinction to be drawn, as the hon. Member for Caithness and Sutherland drew, between the big and small company. It is the desire of my right hon. Friend that all companies, big and small, should adopt the practice of ploughing back as much as possible. The hon. Gentleman said there should be a kind of tax system to encourage this, and we are bringing in Corporation Tax to do that very thing. It would be wholly inconsistent with the whole philosophy, background and approach of Corporation Tax if we said, on the one hand, that we want to encourage plough-back and, on the other, that we do not want to leave businessmen with the money they need to buy new plant to expand. I will, therefore, explain why the present situation serves those requirements best and deals fairly with all companies.
Mr. Eric Lubbock: If what the right hon. Gentleman says is true, how did this 60 per cent. compulsory distribution figure get into the Bill in the first place?
Mr. Diamond: The answer is that it does not exist. I hope that the hon. Gentleman will allow me to make my
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speech, when I am sure that I will remove any anxieties he may have.
I assure the Committee that all the fears, which have been widely expressed—not only in the Committee, but throughout the country—are based on misapprehension, not only of the intention of the Government, but because of misunderstanding of the enactment proposed. The Amendments which my right hon. Friends are introducing do nothing to alter the law, but make it more clear and comprehensible. However, we are not dealing with those Amendments at present.
Starting on that basis, I will endeavour to explain why it is wholly consistent with our attitude that there should be every possible encouragement to plough back, by which I mean utilising realised profits, cash funds, to purchase new plant, premises and so on and to have such money available for working capital to expand, extend and be more efficient. It would be wholly wrong, however, if such a procedure were to be used by companies which wished merely to avoid taxation. We are at one in wishing to take steps to prevent avoidance. So I repeat that there is a stage between distribution and plough-back. That is retention; idle, passive retention.
A company which has made profits, has realised cash, may do three things with it. First, it may distribute it by way of dividend to its shareholders. Secondly, it may plough it back, buy new plant and machinery and so on. Or, thirdly, it may leave it idle in the bank or invest it in, say, portfolio investments because it has no business use for it. It is that third use which has not come out clearly in previous legislation and which is the new idea we are inserting in this legislation.
It is that which we want to avoid, as well as pure tax avoidance. The legislation therefore moves on the basis that businessmen shall be encouraged to either distribute by way of dividend or, and we hope more so, to plough back—not as the right hon. Member for Bexley (Mr. Heath) said, to grow fat; that is what this legislation is here to avoid. This is the survival of the fittest and not the fattest.
5.0 p.m.
Mr. Gower: The right hon. Gentleman has dealt with the stages of distribution, retention, and what he calls ploughing back, but can he relate his argument to the provision of reserves to meet the sort of situation mentioned by my right hon. Friend the Member for Sutton Coldfield (Mr. Geoffrey Lloyd)? That is something that cannot be easily foreseen even by the tax inspectorate.
Mr. Diamond: Yes, I shall come to that. I have made very careful note of what the right hon. Gentleman said, and I will deal with it. In fact, if it is helpful to the Committee I will deal with it at once.
Sir Douglas Glover: I am very grateful to the Chief Secretary for giving way, as he has done, because I have a great deal of sympathy with his argument on this matter. It is in the case of the firm that is getting fat that the onus-of-proof point worries me. A firm may plough back its profits this year, next year, and the year after, but it will take a lot of explaining to the inspector of taxes. It may take the view that in five years' time it will have enough capital to build a factory, but that is something very difficult to explain. Such a company may have Surtax charged before it has the capital it wants.
Mr. Diamond: Both the hon. Member for Barry (Mr. Gower) and the hon. Member for Ormskirk (Sir D. Glover) have expressed the same anxiety about what I have referred to, for the sake of simplicity, as using realised profits in the form of cash to invest. What they both ask is, "What about adding to your reserves against the need for a further cash investment of a large sum in a year's time, or two or three years' time?"
The answer is, of course, that there will be no difficulty in satisfying the inspectors on this point, because we are using exactly the same form of words and exactly the same criteria as have hitherto applied, and which have satisfied the constituent of the right hon. Member for Sutton Coldfield (Mr. Geoffrey Lloyd). The right hon. Gentleman demonstrated that because this particular company, which needed working capital in the form of cover for its liabilities and guarantees, was able to satisfy the Surtax commissioners—it being
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a Surtax company, as he said—it was entitled to withhold profits amounting to about £500,000 out of £1⅛ million over a period of 10 years. It was able to do that for that very reason.
I say to the right hon. Gentleman, and I am sure that he realises it, that the same criteria are being adopted, the same words have been imported into this legislation, and the same judgment will be made. The right hon. Gentleman was trying to compare the result of applying those criteria with the maximum distribution that any individual company could be required to make under the proposed legislation. That does not represent a fair comparison. The fair comparison is practice in the past with practice in the future, and I say that practice in the future must coincide with practice in the past in this respect because the same words are being used and the same criteria are therefore involved.
I am grateful to have the opportunity to repeat that the 60 per cent. is a method of eliminating from discussion a whole host of cases. No longer will it be necessary, as it is today, for a company to satisfy the Revenue that it has made a reasonable distribution if it has distributed 60 per cent. of its net profits, because there is no longer any opportunity of argument. The law will state that a 60 per cent. distribution ends the argument. That is what it is about. I say that it is a relaxation, and it is a relaxation—that is the whole purpose. A vast number of companies that might otherwise have been put to the trouble of, perhaps, no more than writing a letter to the inspector of taxes explaining the position—or having an interview with him—will no longer have that trouble. They will be completely out of the way.
I repeat that the figure is 60 per cent. net; that is to say, with a 40 per cent. Corporation Tax, it means a 36 per cent. distribution only, and with a 35 per cent. Corporation Tax, it means a 39 per cent. distribution only. That is the amount of the distribution that will put an end to all possible argument. One bears in mind the way the thing works. A company makes a profit, it decides on its dividend policy, it sends the balance sheet to the inspector, and, at the moment, a letter goes with it, saying, "The reason why the dividend is only so much is as

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follows." That will happen in the future.
It is only when there is disagreement between the Revenue and the taxpayer on whether there has been reasonable distribution that the rest of this provision comes into account. It is only then that consideration has to be given to the 60 per cent. In those circumstances, there is no possibility of the 60 per cent. being regarded as a norm. It is the ceiling. It is the maximum. It is the figure which removes a whole host of cases. I therefore hope that hon. Members will no longer have any anxiety on this score.
I repeat that, (a), it was the intention and the instruction to the Revenue that there should be this kind of relaxation; (b) the words of the Clause carry this out and. (c), the only difficulty arising out of this is the question of the onus of proof, because under the present situation we have a penal sanction. Because it is a penal sanction, the courts have not interpreted these words which the Amendment seeks to introduce as themselves putting the onus of proof on to the Revenue—because it has been held that the words are purely descriptive, and there is a decided case on the point.
It is because of the penalty that the courts have said that, where we have a penal provision of that kind, it is only right that the onus of proof should be put on the Revenue. That, in practice, has been the position. In practice, what has happened is that there has been discussion between the Revenue and the taxpayer. In practice, the same thing will happen.
Some hon. Members have expressed anxiety that it will happen with a gentleman called an inspector instead of with a gentleman called a special commissioner. I doubt very much whether there is anything in that point at all—I really do. If there was, we would be only too happy to deal with it. But it will meet the convenience of the taxpayer if, instead of having to go to some part of London—it is Wimbledon, I think, with regard to this particular section—from all over the provinces and from Scotland—because in this unusual respect Scotland does conform to our fiscal legislation—the taxpayer could call on his local inspector of taxes, who is continually talking to businessmen all day long.
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I do not understand the argument that the inspector of taxes is not aware of the needs of business. Talking to businessmen about their problems, seeing their balance sheets, is his daily nourishment. It is that with which he is conversant in particular. He does not see one single aspect of the matter, as may the special commissioners, who are concerned purely with Surtax on companies, but sees the whole field. I should have thought that on every possible ground he would be the right man to go to, bearing in mind that if there can be no final agreement there is the same appeal machinery open on all sides.
Mr. Patrick Jenkin: Before the hon. Gentleman leaves this point, will he not accept that there is some merit in the suggestion that where the taxpayer and the inspector have been unable to agree the inspector should seek the prior sanction of the special commissioners before proceeding further?
Mr. Diamond: When there is a dispute with the inspector of taxes it is open to the taxpayer to appeal to the general commissioners or to the special commissioners. The general commissioners are versed in the activities of the business community, to which the hon. Member has referred. These are the people whose criterion he said is the right criterion. They are the people who should know about these matters. It would be most unfortunate to deny to the taxpayer the right to air his case before that kind of body.
Mr. Jenkin: Speaking from memory, is it not right that under Section 245 the appeal lay only to the special commissioners? Secondly, is there any distinction to be made between the assessing special commissioners—the Wimbledon people—and the general commissioners?
Mr. Diamond: The point I am making is that we are not denying any rights of appeal to anyone, but are adding to them by allowing the taxpayer to appeal to the general commissioners if he desires. That is the very body described by the hon. Member when speaking on his Amendment, to which at the moment that kind of opportunity does not lie. We are giving the taxpayer a convenient opportunity which does not exist at the moment.
Mr. Harold Lever: There are two sets of people called "special commissioners", but they are two entirely different bodies. I am not sure that my hon. Friend has persuaded me and I have an open mind on this matter. What he is saying is that without prejudice to the right of the taxpayer to appeal either to the special or to the general commissioners against an assessment, he thinks there should be no assessment until the special commissioners who are very experienced in this matter of assessing what is a reasonable percentage and are more detached and sophisticated than the local inspectors should be able to deal with the affair. That was the point which I thought the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) was seeking to make and it is a point to which I should like to have an answer.
Mr. Diamond: I got the point and my Friend is quite right, but I was trying to deal with the matter in stages. The hon. Member for Wanstead and Woodford was talking about appeals. The taxpayer must have the right of appeal to the general commissioners and the special commissioners. If he says that prior to the inspector of taxes making an assessment he should refer to some other body which had previously had considerable experience in this field, I think that is quite unnecessary and would not add anything at all. I can assure the hon. Member that if I thought it would add anything I should be only too happy to agree, but it would merely clog up the machinery for no useful purpose whatever.
It is far better that the inspector and a dissatisfied taxpayer should have the opportunity of meeting at the same table and talking to each other much more than they do at present. That facility, plus the fact that a whole section of queried cases under the present legislation will be removed by the 60 per cent. formula, will make life a great deal easier and simpler for businessmen in future. I hope that the hon. Member will now allow me to deal with the question of onus of proof.
5.15 p.m.
Mr. Robert Maxwell: Before my hon. Friend deals with the onus of proof, will he bear this in mind? I am sorry to disagree with my hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) on this
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issue, but the onus of proof in this matter must lie with the taxpayer, not with the Revenue, for a very simple reason. The taxpayer or businessman is peculiarly in possession of and has knowledge of why he wishes to retain surplus. The tax inspector and the commissioners do not know this. That is the reason why onus of proof should lie with the taxpayer and not with the inspector. Even in criminal law one has to be proved guilty by the prosecution except where the individual is peculiarly in possession of all the facts. Then it is up to him to prove the contrary. For that reason the businessman and the taxpayer should be required to bear the onus of proof.
Mr. George Y. Mackie: Hon. Members might be more satisfied about this if we were to have a copy—or, even better, a tape recording—of this afternoon's proceedings, sent with a copy of the Act to those concerned.
Mr. Diamond: I speak with knowledge of the official duties I am privileged for the time being to carry out. I wish to deal with the question of onus of proof and I welcome the intervention made by my hon. Friend the Member for Buckingham (Mr. Maxwell). On the ground of common sense, of consistency, of common law and of criminal law, I should have thought there could be only one answer to this question, and that is what is provided in the Bill. On the ground of common sense we have the situation, which my hon. Friend so clearly pinpointed, that knowledge of the circumstances will be peculiarly within the possession of one individual, one authority alone. It will not be possible for the inspector of taxes unaided to know what is in his mind.
Mr. Harold Lever: How have they managed so far?
Mr. Diamond: My hon. Friend follows an argument without it being expressed with such ease that he jumps to a conclusion before allowing me to get there. If he will allow me to state the arguments, then with the greatest pleasure I will answer any question he puts to me.
The practice at the moment is that it is the taxpayer, often through his professional representative, who makes his case to the special commissioners, because, of course, he is the only person who knows his case and it is to his interests to

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establish it. The technical onus is on the Revenue only when there is a dispute and it goes to the courts because of the penal provision to which my hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) referred.
On the ground of consistency it would be only right to continue that situation in practice under which it is the individual taxpayer who says, "I am proposing to issue guarantees in respect of South Africa. They may go bad on me. Things are difficult in South Africa and I may be caught out. I need extended assets to cover my liabilities." The reply given to the company to which the right hon. Member for Sutton Coldfield referred would be, "We understand that" and the same understanding would be applied by any inspector of taxes or special commissioners.
They could not possibly know that a particular business was proposing years ahead to develop in a particular way unless the taxpayer said so. How can an inspector know that plans are already laid for a particular factory to be established in three years' time and for the business to be extended? How could the inspector know that 100 per cent. of those profits would be needed over the three years? There is nothing in this legislation to compel any company to issue 1 per cent. by way of dividend. If it needs the whole of the profit to be ploughed back it can plough back every single penny. That is the purpose of this legislation.
Mr. Geoffrey Lloyd: The right how Gentleman is a little wrong in saying that the company would say to the inspector, or to the special commissioners, as it was in the past, "Times are difficult in South Africa. Therefore, we are having to look ahead". It was not like that. The company did not realise that things would be difficult. If it had realised that things would be difficult, it would never have made the investment. It came on the company unexpectedly. This is what may be more difficult to establish with the local inspector of taxes than with the special commissioners.
Mr. Diamond: Neither the right hon. Gentleman nor I know exactly what conversations took place. One assumes that the representations were made generally—"Having regard to the needs of my business, it is necessary to retain so
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much", and over the 10 years so much was accumulated. It might, in other circumstances, be a particular project, such as building a new factory, which might take one or two years or more, for which funds must be accumulated for the future.
Once the decision has been made and properly minuted and the matter is moving, there is no reason why the company should not start putting funds by for the purpose. The company must plan on what it is likely to spend in the future, what it will make in net realised profits in the future and, therefore, what it can afford to distribute. The company may come to the conclusion that it cannot afford in that year to distribute a penny.
Therefore, this is within the knowledge of the taxpayer alone. On grounds of common sense and of consistency, it is right that he, the taxpayer, should have the responsibility of explaining the circumstances. I go further and say that I am advised that this is a principle of the common law. My hon. Friend the Minister without Portfolio is here to assist me in this, in case, which I hope will not prove to be so, the Committee does not find it sufficiently satisfying to listen to what I shall say. Where a matter is peculiarly within the knowledge of an individual, the onus of proof is put upon him. I go further and say that I am advised, also, that it is an accepted principle of the criminal law, and there are several examples of it. Where the circumstances are peculiarly within the knowledge of an individual, he has the onus of proving his case.
Therefore, on all these grounds, it will work well and sensibly and as both sides of the Committee would want it to, avoiding fatness, encouraging fitness, encouraging plough-back, and placing the responsibility where it properly lies, if we accept the Bill as it is proposed. I therefore hope that it will not be thought necessary to pursue the Amendment.
Mr. Barber: I rise at this stage only because it is probably for the convenience of the Committee that I should do so. I have no intention of deterring any of my hon. Friends who wish to follow me. Obviously, I would not dream of doing that. Later, we shall debate the whole question of the 60 per cent. which appears in the Bill, and there is an Amendment

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to delete 60 per cent. and insert 40 per cent. We shall most certainly have various points to make on the general policy concerning close companies when we debate the Question, "That the Clause stand part of the Bill". I have been most disappointed at the Chief Secretary's reply.
Mr. Maxwell: Why?
Mr. Barber: I will explain why.
We have been debating these two very moderate Amendments for more than an hour. If, when my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) moved the first Amendment, the Chief Secretary had said, "These Amendments may not be worded exactly as we would like them, but, nevertheless, we think that they will do no harm and may do a certain amount of good and we are prepared to introduce something similar on Report", the whole matter could have been disposed of within about 20 minutes. We could then have got on to the general principles concerning close companies which still have to be considered.
I can see the necessity for some special provision dealing with closely controlled companies to prevent the avoidance of tax. The Chief Secretary knows full well that, whatever may be the merits of the particular proposals in this group of Clauses, it is nonsense to say, as he said, that there is consistency between the general policy of the Corporation Tax, which is to encourage retentions, and the particular policy relating to close companies, which is to insist on a certain limit of distributions.
The Chief Secretary said that, under the proposals of the Chancellor of the Exchequer in the Bill, a close company, if it can show good reason, need not distribute even 1 per cent. of its profits. This is true, but this was the position also under the 1952 Act. There is no change.
The Chief Secretary went on to talk about the opportunity to appeal. He talked about the opportunity of taxpayers to discuss these various matters with inspectors of taxes. If these two Amendments were accepted, they would not affect any of the rights of appeal to the special commissioners or to the
1236
general commissioners; nor would they affect the opportunities for individual companies to discuss these matters with inspectors of taxes.
Mr. Maxwell: Why are the ears of right hon. and hon. Members opposite deaf on this issue? Why do they continually charge the Government with inconsistency? Where does the inconsistency lie? The Government are introducing a Corporation Tax which will simplify matters. Someone running a close company might use profits to invest in new plant, to pay better wages, to buy or build a better factory. If the close company is accumulating the money, surely the Government are justified in knowing why it is accumulating it. How is that inconsistent? Surely after all these weeks we on this side, and the country generally, are entitled to know where the inconsistency lies, if it is not just propaganda.
Mr. Barber: I do not wish to detain the Committee. The interventions of the hon. Member for Buckingham (Mr. Maxwell) and of the hon. Member for Manchester, Cheetham (Mr. Harold Lever) at times seem to be designed to prolong our proceedings.
The hon. Gentleman is talking about distribution. He will know, if he has looked at the Amendments, that we are not concerned with that point. That point arises on the next series of Amendments. I certainly do not want to take up the time of the Committee unnecessarily. I will only add very briefly, in answer to the hon. Gentleman, that there seems to me to be something inconsistent between the general policy of the Corporation Tax, which it has been said time and again is to encourage retentions, and the particular policy of these provisions relating to close companies, which is to insist on a certain distribution. I am not saying that on the merits this is necessarily wrong. I am saying that the two policies seem to me to be inconsistent.
I am sorry that the hon. Member for Cheetham has left the Chamber. He said that when he rose to speak he was greeted by howls of indignant rage from hon. Members. This was not so. For our part, this was not our greeting. Our greeting was merely one of surprise that he should, for a change, be supporting the Government—particularly that he

1237
should be supporting the Government when the Committee is discussing an Amendment as reasonable as this.
However, he is not here at the moment. Therefore, I will not weary the Committee by referring to the various points he made. He said in passing that he had not considered every comma of the Amendment. The brains of a lawyer are not required for an analysis of the Amendment. To use the phrase of the Chief Secretary in another context, the Amendment is simplicity itself.
What is the purpose of the legislation concerning close companies which we are now considering? Is it to give some relief to the taxpayer? It is not. Does it have some subtle and deep economic purpose? It does not. Is it to prevent the avoidance of tax. The answer is, "Yes". As the whole purpose of this legislation is to prevent the avoidance of tax, why will the Government not accept the words in the Amendment, which read:
"With a view to preventing the avoidance of the payment of income tax through the withholding from distribution of income of a company which would otherwise be distributed, where it appears to the Commissioners of Inland Revenue that"?
5.30 p.m.
The right hon. Gentleman, at an earlier stage, interrupted me to say that the arrangements for considering these matters would be the same as before. Of course, this is true so far as the appeal procedure is concerned, but it is by no means true from the point of view of the consideration of these matters in practice. While I can see the advantage of the managing director of a company being able to go just round the corner and talk to an inspector of taxes, I think that the right hon. Gentleman was less than fair when he appeared not to appreciate the disadvantages of switching from consideration by a central body of special commissioners to the inspectors of taxes throughout the country.
After all, uniformity is of great importance in these matters, and it is well known by those people who were concerned with them in practice that when they discussed these matters with the special commissioners they received a uniform approach. There was a body of practice built up and they knew pretty well what was likely to be the reaction of the special commissioners to the individual cases with which they were concerned.
1238
As my right hon. Friend the Member for Sutton Coldfield (Mr. Geoffrey Lloyd) so rightly said, the question of distribution policy is of the utmost importance to companies. It is not an easy matter to determine. With the greatest respect to the inspectorate, one wonders whether it will really be able to deal with these very important questions as well as they could have been dealt with by the special commissioners.
Mr. Joel Barnett: Surely the right hon. Gentleman will appreciate that under the original arrangement an accountant would have to go with a director, often together with counsel and a solicitor. This involved four reasonably busy people having to go to Wimbledon to deal with the matter, when it could have been dealt with locally by the local inspector of taxes.
Mr. Barber: I can meet that argument by saying that I recognise that under the legislation as it is now drawn up in the Bill, because there will be so many additional cases involved, it is necessary that these matters should be considered by the local inspectors and not by the special commissioners. For practical reasons it would not be possible for all these cases to be considered by the special commissioners. I accept that this must be so. But it is because we are faced with this position that it seems to me that the words which we propose to insert at the beginning of Clause 72, which make it necessary for an inspector, before he proceeds, to ensure that the matter is considered by the Commissioners of Inland Revenue, are of importance.
In other words, if of necessity one is changing to a system whereby the inspectors of taxes rather than the special commissioners deal with the matter in the first instance, I think that in the interests of uniformity and for the various reasons which were referred to by my hon. Friend in moving the Amendment, it is highly desirable that there should be this provision whereby the case has to be referred to the Commissioners of Inland Revenue before action is taken.
What seems to me to be the most compelling reason of all for accepting the Amendment is that the words in the Amendment are almost identical with the

1239
opening words of Section 245 of the Income Tax Act, 1952. I see the point made by the Chief Secretary concerning the difference between the provisions in Section 245 and the provisions in the Bill. Nevertheless, I should like to read the opening words of Section 245. I do this in the light of the fact that the Chief Secretary has made great play of the undoubted fact that many of the provisions which were applicable to the old Surtax companies are also applicable to close companies. He said, in particular, that the criteria concerning retentions are broadly the same in the Bill as they are in this Act.
The opening words of Section 245 of the 1952 Act are:
"With a view to preventing the avoidance of the payment of surtax through the withholding from distribution of income of a company which would otherwise he distributed, it is hereby enacted that where it appears to the Special Commissioners that any company to which this section applies has not"
distributed to its members a reasonable part of its actual income, the commissioners may issue a Surtax direction.
Compare those words with the words in this Amendment, which read as follows:
"With a view to preventing the avoidance of the payment of income tax through the withholding from distribution of income of a company which would otherwise be distributed, where it appears to the Commissioners of Inland Revenue that".
These words are almost identical. The right hon. Gentleman said that he did not think they added much. But what possible harm can they do if they are accepted? This is what worries me. After listening to the right hon. Gentleman, I am beginning to think that there is something subtle underlying his rejection of this Amendment, because it can do no harm whatsoever. Whatever views one may have about the onus of proof—and certainly I would not wish to go as far as the hon. Member for Cheetham went—nevertheless I would have thought it was reasonable to accept the Amendment, which does something, albeit in a modest form, for the aggrieved taxpayer.
In those circumstances, in the light of what the Chief Secretary said, I could not possibly advise my hon. Friend to
1240
withdraw the Amendment and I hope that we shall take it to a Division.
Sir T. Brinton: I support my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) in pressing for the Government's agreement to the acceptance of this Amendment. The Government owe the business community every reassurance that they can give. The original wording of the Clause struck an absolute chill in the heart of every businessman who was affected by it. I appreciate that there are many hon. Members opposite who have never even run a whelk stall, but those of us who have to run something like that, or something bigger, do, in distinction to what is often suggested, keep a sharp eye on the taxation that we are likely to incur as a result of Government action.
The importance to the business community of reassurance is this. They started out with the assumption—and it will take a long time to get it out of their heads—that this Clause was a very direct attack on the smaller companies and those in which there was any considerable family interest. One point which has not been made today, curiously enough, is that the reason why it is essential that the Clause should be drafted to reassure people is that the Government have brought into its ambit a very large number of companies which were not in the original net under Section 245 of the 1952 Act.
I must here declare an interest. My own company is a close family company, and it was and still is a Surtax direction company. In my own industry two at least of the very largest manufacturers in the country now find themselves caught by Clause 72. In their opinion, certainly one of them and probably the other as well, both nationally-known household names, suddenly find themselves caught by this Section with the prospect that their investment decisions will be affected by the action of the tax inspector or the commissioners. These people need all the reassurance that can be given to them, and this Amendment is designed to provide some reassurance.
Moreover, on the question of onus of proof this would also be of great reassurance to the business community. I thoroughly agree with the hon. Member for Manchester, Cheetham (Mr. H. Lever) that if the onus of proof can be

1241
put even theoretically on the Revenue in such cases it would be some consolation to these companies. Obviously, it can be done. I accept what the Chief Secretary said—that ultimately, in practice, the managing director has to justify his attitude when an attempt is made to raise an assessment on him, but there is a distinct difference between having the onus placed upon him and having it placed upon the Revenue.
The Chief Secretary made a great point of the fact that the only reason for the onus being placed on the Revenue under Section 245 of the 1952 Act was the penal nature of the tax which might be incurred in the event of the case going against the taxpayer. What worries me and many other businessmen is that as far as the Revenue is concerned it is probable that the amount which might be in question would be greater under this Clause than it was under Surtax direction.
Here we have a pay-out which bears a rate of tax equivalent to something like 60 per cent. additional on the money which otherwise would have been retained. The amount which the Revenue will have at stake in any argument under this Clause will be greater than it ever had in the usual case under Surtax direction. The Revenue has a duty to collect the maximum amount of tax and it would naturally occur to any businessman that there is a strong temptation to the tax inspector to take a stricter view under this Clause than was taken of Surtax direction under Section 245.
I accept that the Government have greatly alleviated the apparent intention behind the Clause by means of Amendment No. 707 without altering the position and we ask them for this further concession. We ask them to accept this small alteration in the onus of proof.
Mr. Alan Hopkins: It will be useful possibly to go back to the real nature of close companies. The Chief Secretary will be aware that the vast majority of them are small and are mostly family companies employing 20 to 30 people. These companies suffer a disadvantage compared with the larger ones, and certainly with public companies, in that the source of funds available to them, other than the initial capital put in by the families, is limited
1242
to bank borrowing. It is not open to the small private company to go to an insurance company or some other institution to raise a substantial sum of money in the form of debentures or something of that kind for expansion of its business.
Under the rules operated by the special commissioners in Wimbledon, if a private company which is clearly a close company in furtherance of an expansion programme has incurred a substantial bank overdraft it is unlikely that any requirement will be made about the distribution even of a token dividend from the company's profits. As I read Clause 72, it seems fairly certain that the burden of proof will be largely changed from what it is at present. In the first place, the benefit of the expertise in Wimbledon will no longer be available. I can understand the point made by the Chief Secretary, but this new proposal is an imposition on a businessman, who normally leaves it to his accountants to go to Wimbledon to clarify his position and obtain a clearance. There is no advantage in going to the local inspector, who may even be a busier man than those in Wimbledon.
It is possible to get a tax clearance in Wimbledon where there is all the expertise. If the Chief Secretary will not give way, I hope that it will be made quite clear that the local inspector of taxes, upon whom will now fall the burden of determining whether or not the company is a Surtax company and what level of distribution must be made by it, will have in mind the same rules as now apply in the minds of the special commissioners in Wimbledon.
5.45 p.m.
I declare an interest in that I am a director of three close companies. This is a real worry to people, particularly where a business is expanding and a great deal of that expansion is paid out of the profits of the business. There is the worry lest the present position should be challenged. I do not intend to go over the ground which has been covered so ably by my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin), but there is a real point behind the Amendment and if the Chief Secretary could think again about it life would be made much easier for the businessman.
Mr. Maxwell: I am glad that the Chief Secretary will not yield to this Amendment. I agree with the right hon. Member for Altrincham and Sale (Mr. Barber) that the words are extremely reasonable, but I should like to give the basic reason why the Amendment should not be accepted.
The purpose of the Budget is to encourage investment. Even hon. and right hon. Members opposite must admit that the country needs more investment if we are to right our balance of payments and become more competitive in exports. It is no good hon. and right hon. Members opposite saying that they agree that we need more investment and yet, every time that the Government introduce legislation which is likely to encourage businessmen to invest, make special pleas why they should be given exemption. Where is the patriotism and good sense of hon. and right hon. Members opposite that they try to have an Amendment of this kind accepted?
Businessmen who have been owning and running close companies have been too long largely concerned with building up cash balances or assets which they could sell sooner or later for capital profits. The purpose of the Budget is to say once and for all to businessmen who run those companies, "You are as free as the birds in the air to do what you like as long as you use the cash for productive investment, not for stashing away and paying out as capital gains."
Mr. Harold Lever: I hesitate to interfere with any flow of oratory on general matters which is not interfered with by the Chair, but I must draw my hon. Friend's attention to one point. None of us is attempting to defend the stashing away of cash. The narrow point we are discussing is whether the Revenue should prove that the taxpayer has been avoiding tax by retaining money in the company or whether the taxpayer should have the onus of proof. What we are worried about is only the question of onus of proof. The question of principle which my hon. Friend has been enunciating does not arise.
Mr. Maxwell: I mentioned the question of onus of proof in an earlier intervention. As a businessman, I am peculiarly in possession of the facts about what I wish my company to do in the
1244
next year or two, and, with the best will in the world, neither the tax inspector or the special commissioners can decide this. It is for me to explain to the tax inspector that I have certain commitments or plans for which I need these retentions. Since the inspector has been very reasonable with Surtax direction companies in the past in allowing this, where the taxpayer could make his case, and since the wording used in the Bill is almost identical with previous wording, why not leave it at that?
To suggest that the purpose of the Amendment is to introduce these words with the idea that the Clause is to deal merely with tax avoidance is not true. The purpose of the Clause as it stands is to encourage close companies to use their cash and resources to invest in the first instance. Right hon. and hon. Members opposite may not like it, but that happens to be true. If they care about the health of British enterprise and our economy, they should not be taking up two hours of this Committee's time on a matter which we could have disposed of in 20 minutes. The purpose of the Budget is to encourage investment. It will not interfere in any way with the freedom of any businessman to do precisely as he wants to do except stash money away and use it for non-productive purposes in the hope that, one day, he will get it out as a capital gain.
Sir Lionel Heald: I must make a few observations about onus of proof. I should yield to no one in admiration of the Chief Secretary's knowledge of anything to do with taxation, but, when we come to questions of law, some of us are entitled to have views of our own. With great respect, I put it to the right hon. Gentleman that he has confused two matters. There is the onus of proof as regards specific facts, and there is the general onus of proof in a case, and an understanding of this is elementary to an examination of the question. We are concerned here with the general onus of proof, the benefit of the doubt. The facts having been proved by the people who can prove them, the commissioners have then to decide their view. It is very important to understand what will happen if the matter is left in doubt. On the question of onus of proof, there is a Latin expression, "Praesumitur pro negante"—the facts

1245
known to one person alone cannot be proved by another. Clearly, if a fact is not proved by someone who knows, it cannot be proved at all.
Mr. Maxwell: Hear, hear.
Sir L. Heald: That is quite different from the general onus of proof, and I am sure that, although he may not realise it, the hon. Member for Buckingham (Mr. Maxwell) does not really mean to say say "Hear, hear". He ought to accept the view of his hon. Friend the Member for Cheetham (Mr. Harold Lever) which I share.
Mr. Gower: I make a final appeal to the Chief Secretary. He has complained about unreasonable and unjustified fears entertained by businessmen concerned about close companies. He can remove some of these fears by accepting the Amendment. Businessmen suspect that he wants to do more than he says he is doing. He has said already that it would be wrong for this procedure to be used by companies to avoid taxation. Businessmen accept that, but they suspect that these provisions will do far more. They suspect that these provisions will hit close companies very harshly, more harshly than other taxation will hit larger companies.
All the right hon. Gentleman has to do to remove these unjustified fears is to accept the Amendment and insert a provision which has a respectable antecedent, a provision which has been enshrined in another similar Statute. If he does that, he will go a long way to remove or make unnecessary some of the fears which are felt.
The very fact that cases are now to be moved to inspectors rather than to the special commissioners gives rise to doubt. I share the view which has been expressed that the special commissioners have a long experience in dealing with these matters, and when the Chief Secretary
says, in effect, that inspectors will soon acquire similar experience and soon become equally able in dealing with these matters, he gives rise to a further fear. Some people see in this a sinister hint, that there are likely to be many more cases than under the old practice. Are there to be so many more cases, and, if so, why? The only answer is that this provision is going to be rather harsh on the companies which it affects.
The Chief Secretary has brought his hon. and learned Friend the Financial Secretary with him, and he said that, perhaps, his answer about onus of proof was not satisfactory. I hope that, in the light of what has been said by my right hon. and learned Friend the Member for Chertsey (Sir L. Heald), he will feel that it is quite unsatisfactory. It is no answer to say that, because a penal sanction has been removed, the change of practice is justified. If the previous practice as regards onus of proof in the former case was right, it is right now. The Revenue has all the big guns in dealing with the fairly small company. It has all the advantages except specialised knowledge of the matter in question.
The right hon. Gentleman must realise that in matters of this sort judgment is of great importance. The case put to him by my right hon. Friend for Sutton Coldfield (Mr. Geoffrey Lloyd) was not that the man had prior knowledge of the difficulty which would arise in the future. It was that the person running the affairs of his company in a careful and frugal way, based on his experience, made a provision which he might not have made had he been pressed by an inspector of taxes to make a disproportionate or very large distribution. I hope that the right hon. Gentleman will take all these matters into account.
Question put, That "If" stand part of the Clause:—
The Committee divided: Ayes 206, Noes 199.

Division No. 188.]

AYES

[5.58 p.m.

Abse, Leo

Benn, Rt. Hn. Anthony Wedgwood

Brown, Rt. Hn. George (Belper)

Allaun, Frank (Salford, E.)

Bennett, J. (Glasgow, Bridgeton)

Buchan, Norman (Renfrewshire, W.)

Aldritt, Walter

Bishop, E. S.

Buchanan, Richard

Allen, Scholefield (Crewe)

Blackburn, F.

Butler, Herbert (Hackney, C.)

Armstrong, Ernest

Blenkinsop, Arthur

Callaghan, Rt. Hn. James

Atkinson, Norman

Boardman, H.

Carmichael, Neil

Bacon, Miss Alice

Bowden, Rt. Hn. H. W. (Leics, S. W.)

Carter-Jones, Lewis

Bagier, Gordon A. T.

Braddock, Mrs. E. M.

Castle, Rt. Hn. Barbara

Beaney, Alan

Bray, Dr. Jeremy

Coleman, Donald

Conlan, Bernard

Hunter, A. E. (Feltham)

Pearson, Arthur (Pontypridd)

Corbet, Mrs. Freda

Irving, Sydney (Dartford)

Peart, Rt. Hn. Fred

Craddock, George (Bradford, S.)

Jackson, Colin

Pentland, Norman

Crossman, Rt. Hn. R. H. S.

Janner, Sir Barnett

Perry, Ernest G.

Cullen, Mrs. Alice

Jay, Rt. Hn. Douglas

Popplewell, Ernest

Dalyell, Tam

Jeger, George (Goole)

Price, J. T. (Westhoughton)

Davies, G. Elfed (Rhondda, E.)

Johnson, Carol (Lewisham, S.)

Probert, Arthur

Davies, Ifor (Gower)

Jones, Dan (Burnley)

Pursey, Cmdr. Harry

Davies, S. O. (Merthyr)

Kelley, Richard

Randall, Harry

Diamond, John

Kenyon, Clifford

Rankin, John

Dodds, Norman

Kerr, Dr. David (W'worth, Central)

Rees, Merlyn

Doig, Peter

Lawson, George

Rhodes, Geoffrey

Donnelly, Desmond

Leadbitter, Ted

Richard, Ivor

Driberg, Tom

Lee, Rt. Hn. Frederick (Newton)

Roberts, Albert (Normanton)

Duffy, Dr. A. E. P.

Lever, Harold (Cheetham)

Robertson, John (Paisley)

Dunn, James A.

Lever, L. M. (Ardwick)

Rodgers, William (Stockton)

Edwards, Rt. Hn. Ness (Caerphilly)

Lewis, Arthur (West Ham, N.)

Sheldon, Robert

English, Michael

Lewis, Ron (Carlisle)

Shinwell, Rt. Hn. E.

Ennals, David

Lipton, Marcus

Shore, Peter (Stepney)

Ensor, David

Lomas, Kenneth

Short, Rt. Hn. E. (N'c'tle-on-Tyne, C.)

Evans, Ioan (Birmingham, Yardley)

Loughlin, Charles

Short, Mrs. Renée (W'hampton, N. E.)

Fitch, Alan (Wigan)

McBride, Neil

Silkin, John (Deptford)

Fletcher, Sir Eric (Islington, E.)

MacDermot, Niall

Silverman, Julius (Aston)

Fletcher, Ted (Darlington)

McGuire, Michael

Silverman, Sydney (Nelson)

Fletcher, Raymond (Ilkeston)

McInnes, James

Slater, Mrs. Harriet (Stoke, N.)

Floud, Bernard

McKay, Mrs. Margaret

Slater, Joseph (Sedgefield)

Foley, Maurice

Mackenzie, Gregor (Rutherglen)

Small, William

Fraser, Rt. Hn. Tom (Hamilton)

Mackie, John (Enfield, E.)

Snow, Julian

Freeson, Reginald

McLeavy, Frank

Soskice, Rt. Hn. Sir Frank

Galpern, Sir Myer

MacMillan, Malcolm

Steele, Thomas (Dunbartonshire, W.)

Garrett, W. E.

Mahon, Simon (Bootle)

Stewart, Rt. Hn. Michael

George, Lady Megan Lloyd

Manuel, Archie

Stonehouse, John

Ginsburg, David

Mapp, Charles

Stones, William

Gourlay, Harry

Mason, Roy

Summerskill, Hn. Dr. Shirley

Greenwood, Rt. Hn. Anthony

Maxwell, Robert

Swingler, Stephen

Gregory, Arnold

Mayhew, Christopher

Symonds, J. B.

Griffiths, David (Rother Valley)

Mellish, Robert

Taverne, Dick

Griffiths, Rt. Hn. James (Llanelly)

Mendelson, J. J.

Taylor, Bernard (Mansfield)

Griffiths, Will (M'chester, Exchange)

Mikardo, Ian

Thomas, George (Cardiff, W.)

Hale, Leslie

Millan, Bruce

Thornton, Ernest

Hamilton, James (Bothwell)

Miller, Dr. M. S.

Tinn, James

Hamilton, William (West Fife)

Milne, Edward (Blyth)

Urwin, T. W.

Hannan, William

Molloy, William

Varley, Eric G.

Harper, Joseph

Morris, Alfred (Wythenshawe)

Wainwright, Edwin

Harrison, Walter (Wakefield)

Morris, Charles (Openshaw)

Walden, Brian (All Saints)

Hart, Mrs. Judith

Morris, John (Aberavon)

Walker, Harold (Doncaster)

Hattersley, Roy

Murray, Albert

Wallace, George

Hazell, Bert

Neal, Harold

White, Mrs. Eirene

Henderson, Rt. Hn. Arthur

Newens, Stan

Whitlock, William

Herbison, Rt. Hn. Margaret

Noel-Baker, Francis (Swindon)

Wilkins, W. A.

Hill, J. (Midlothian)

Norwood, Christopher

Willey, Rt. Hn. Frederick

Hobden, Denis (Brighton, K'town)

Oakes, Gordon

Williams, Clifford (Abertillery)

Holman, Percy

Ogden, Eric

Williams, W. T. (Warrington)

Horner, John

O'Malley, Brian

Willis, George (Edinburgh, E.)

Houghton, Rt. Hn. Douglas

Oram, Albert E. (E. Ham, S.)

Winterbottom, R. E.

Howarth, Harry (Wellinborough)

Orme, Stanley

Yates, Victor (Ladywood)

Howie, W.

Oswald, Thomas

Zilliacus, K.

Hoy, James

Owen, Will

Hughes, Emrys (S. Ayrshire)

Padley, Walter

TELLERS FOR THE NOES:

Hughes, Hector (Aberdeen, N.)

Park, Trevor (Derbyshire, S.E.)

Mr. George Rogers and

Hunter, Adam (Dunfermline)

Pavitt, Laurence

Mr. John McCann.

NOES

Agnew, Commander Sir Peter

Bossom, Hn. Clive

Cooper-Key, Sir Neill

Alison, Michael (Barkston Ash)

Bowen, Roderic (Cardigan)

Cordle, John

Allason, James (Hemel Hempstead)

Box, Donald

Costain, A. P.

Anstruther-Gray, Rt. Hn. Sir W.

Boyd-Carpenter, Rt. Hn. J.

Courtney, Cdr. Anthony

Astor, John

Boyle, Rt. Hn. Sir Edward

Craddock, Sir Beresford (Spelthorne)

Awdry, Daniel

Braine, Bernard

Crosthwaite-Eyre, Col. Sir Oliver

Balniel, Lord

Brewis, John

Cunningham, Sir Knox

Barber, Rt. Hn. Anthony

Brinton, Sir Tatton

Curran, Charles

Barlow, Sir John

Brooke, Rt. Hn. Henry

Davies, Dr. Wyndham (Perry Barr)

Batsford, Brian

Brown, Sir Edward (Bath)

d'Avigdor-Goldsmid, Sir Henry

Bell, Ronald

Bruce-Gardyne, J.

Dean, Paul

Bennett, Sir Frederic (Torquay)

Bullus, Sir Eric

Deedes, Rt. Hn. W. F.

Bennett, Dr. Reginald (Gos & Fhm)

Burden, F. A.

Digby, Simon Wingfield

Berkeley, Humphry

Buxton, Ronald

Dodds-Parker, Douglas

Berry, Hn. Anthony

Cary, Sir Robert

Douglas-Home, Rt. Hn. Sir Alec

Bessell, Peter

Chichester-Clark, R.

Drayson, G. B.

Biffen, John

Clark, William (Nottingham, S.)

Eden, Sir John

Biggs-Davison, John

Clarke, Brig. Terence (Portsmth, W.)

Elliot, Capt. Walter (Carshalton)

Birch, Rt. Hn. Nigel

Cole, Norman

Elliott, R. W.(N'c'tle-upon-Tyne, N.)

Black, Sir Cyril

Cooke, Robert

Emery, Peter

1248

1249

Errington, Sir Eric

Legge-Bourke, Sir Harry

Ramsden, Rt. Hn. James

Eyre, Reginald

Lewis, Kenneth (Rutland)

Rawlinson, Rt. Hn. Sir Peter

Farr, John

Lloyd, Rt. Hn. Geoffrey (Snt'nC'dfield)

Renton, Rt. Hn. Sir David

Fisher, Nigel

Lloyd, Ian (P'tsm'th, Langstone)

Ridley, Hn. Nicholas

Fletcher-Cooke, Sir John (S'pton)

Lloyd, Rt. Hn. Selwyn (Wirral)

Ridsdale, Julian

Foster, Sir John

Longden, Gilbert

Roberts, Sir Peter (Heeley)

Fraser, Ian (Plymouth, Sutton)

Lubbock, Eric

Robson Brown, Sir William

Gammans, Lady

Lucas, Sir Jocelyn

Roots, William

Giles, Rear-Admiral Morgan

McAdden, Sir Stephen

St. John-Stevas, Norman

Glover, Sir Douglas

MacArthur, Ian

Sharples, Richard

Godber, Rt. Hn. J. B.

Mackenzie, Alasdair (Ross & Crom'ty)

Sinclair, Sir George

Goodhew, Victor

Mackie, George V. (C'ness & S'land)

Spearman, Sir Alexander

Gower, Raymond

McMaster, Stanley

Stainton, Keith

Grant, Anthony

McNair-Wilson, Patrick

Stanley, Hn. Richard

Grieve, Percy

Maitland, Sir John

Steel, David (Roxburgh)

Griffiths, Peter (Smethwick)

Marten, Neil

Stodart, Anthony

Grimond, Rt. Hn. J.

Maude, Angus

Stoddart-Scott, Col. Sir Malcolm

Gurden, Harold

Maudling, Rt. Hn. Reginald

Studholme, Sir Henry

Hall-Davis, A. G. F.

Mawby, Ray

Talbot, John E.

Hamilton, M. (Salisbury)

Maxwell-Hyslop, R. J.

Taylor, Edward M. (G'gow, Cathcart)

Harris, Frederic (Croydon, N.W.)

Maydon, Lt.-Cmdr. S. L. C.

Taylor, Frank (Moss Side)

Harris, Reader (Heston)

Meyer, Sir Anthony

Thomas, Rt. Hn. Peter (Conway)

Harvey, John (Walthamstow, E.)

Mills, Peter (Torrington)

Thompson, Sir Richard (Croydon, S.)

Harvie Anderson, Miss

Mills, Stratton (Belfast, N.)

Thorneycroft, Rt. Hn. Peter

Hawkins, Paul

Mitchell, David

Thorpe, Jeremy

Heald Rt. Hn. Sir Lionel

Monro, Hector

Turton, Rt. Hn. R. H.

Heath, Rt. Hn. Edward

More, Jasper

van Straubenzee, W. R.

Higgins, Terence L.

Morrison, Charles (Devizes)

Walder, David (High Peak)

Hill, J. E. B. (S. Norfolk)

Munro-Lucas-Tooth, Sir Hugh

Walker, Peter (Worcester)

Hobson, Rt. Hn. Sir John

Murton, Oscar

Walker-Smith, Rt. Hn. Sir Derek

Hordern, Peter

Nicholson, Sir Godfrey

Wall, Patrick

Hornsby-Smith, Rt. Hn. Dame P.

Noble, Rt. Hn. Michael

Walters, Dennis

Howard, Hn. G. R. (St. Ives)

Nugent, Rt. Hn. Sir Richard

Ward, Dame Irene

Hunt, John (Bromley)

Onslow, Cranley

Weatherill, Bernard

Hutchison, Michael Clark

Osborn, John (Hallam)

Webster, David

Iremonger, T. L.

Page, R. Graham (Crosby)

Whitelaw, William

Irvine, Bryant Godman (Rye)

Pearson, Sir Frank (Clitheroe)

Williams, Sir Rolf Dudley (Exeter)

Jenkin, Patrick (Woodford)

Peel, John

Wills, Sir Gerald (Bridgwater)

Jennings, J. C.

Percival, Ian

Wilson, Geoffrey (Truro)

Johnson Smith, G. (East Grinstead)

Peyton, John

Wood, Rt. Hn. Richard

Johnston, Russell (Inverness)

Pickthorn, Rt. Hn. Sir Kenneth

Woodhouse, Hn. Christopher

Kerr, Sir Hamilton (Cambridge)

Pike, Miss Mervyn

Yates, William (The Wrekin)

Kershaw, Anthony

Pitt, Dame Edith

Younger, Hn. George

Kilfedder, James A.

Pounder, Rafton

King, Evelyn (Dorset, S.)

Powell, Rt. Hn. J. Enoch

TELLERS FOR THE NOES:

Kirk, Peter

Prior, J. M. L.

Mr. Martin McLaren and

Lancaster, Col. C. G.

Pym, Francis

Mr. Dudley Smith.

Langford-Holt, Sir John

Quennell, Miss J. M.

The Temporary Chairman (Mr. Grant-Ferris): The next Amendment that I shall call is No. 707, in the name of the Chancellor of the Exchequer. It might be for the convenience of the Committee if I say that with it we can take the Amendment to the Chancellor's proposed Amendment—to leave out "sixty" and to insert "forty"—which is in the name of the right hon. Member for Bexley (Mr. Heath), but which, I understand, will be moved by the hon. Member for Nottingham, South (Mr. William Clark), and also Amendment No. 629, in page 93, line 5, after "say", insert:
"in the case of a trading company sixty per cent. of the distributable investment income and of the estate or trading income for the period and in any other case",
Amendment No. 78, in line 34, after "are", insert "not", Amendment No. 79, in line 34, leave out "not", Amendment No. 100, in line 36, after "business", insert:
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"and provided that in such consideration by the Commissioners the position of companies in development areas will receive special consideration.",
Amendment No. 80, in line 37, after "are", insert "not", and Amendment No. 81, in line 38, leave out "not".
It will be in order for the hon. Member for Nottingham, South to speak on his Amendment to the Chancellor's proposed Amendment at any time during the discussion when he catches my eye and move it formally at the end of the debate.
Mr. Diamond: I beg to move, Amendment No. 707, in page 93, line 5, to leave out from "standard" to "a" in line 8, and to insert:
"; and the required standard is the distributable income for the period, less so much of that income (not exceeding, in the case of a company which is neither a trading company nor a member of a trading group, the amount of the estate or trading income) as the company shows could not be distributed without

1251
prejudice to the requirements of the company's business:
Provided that the required standard shall in no case exceed the company's distributable investment income for the period plus sixty per cent. of the estate or trading income of the period, and for the purpose of this proviso in its application to".
Perhaps it will be convenient, Mr. Grant-Ferris, if I move this Amendment shortly. A number of other discussions will take place and any point that I do not cover now can be referred to later on.
This Amendment puts the required standard for distribution in a different way. In effect, it makes it clear that the calculation proceeds not as was feared but on a normal practical basis of ascertaining what are the needs of the company. It then brings in the 60 per cent. of net trading income and the 100 per cent. of investment income as the greatest amount which can be required to be distributed under the Clause. I am sure that I do not need to delay the Committee on the question of 100 per cent. of investment income. That is the situation at the moment and it will continue to be the situation because, of course, it cannot ever be claimed that it is necessary to build up reserves of investment income prior to investing. Therefore, one is not concerned with anything less than 100 per cent. of investment income; but one may be so concerned with trading income, which means net trading income after payment of Corporation Tax.
The second Government Amendment brings in what is now paragraph 10 of the 17th Schedule. It is clear that it had escaped attention. I think that it was the right hon. Member for Bexley (Mr. Heath) who made the point that it was tucked away in a Schedule and that, as it had already been provided for, it was better to put it into this Clause and thereby get rid of any misunderstandings which had accumulated around this provision.
The third Government Amendment means that the substance of subsection (5) will be written into subsection (2). The remaining Amendments are consequential. I will listen very carefully to the comments about to be made on the Amendments under discussion with them.
Mr. William Clark: I understand, Mr. Grant-Ferris, that it would be convenient and probably more in order, if the Amendment to Amendment No. 707 were moved at the end of the discussion. If you agree to that, then I will speak now to the Amendment to the Amendment, which would reduce the figure proposed from 60 per cent. to 40 per cent.
It would be as well to find out, if we can, why the Government decided on a 60 per cent. distribution as being the norm, if one might put it that way, of distribution for close companies.
Mr. Diamond: "Ceiling" would be better.
Mr. Clark: We can call it "ceiling" if the right hon. Gentleman does not like "norm". The position at the moment is that, if one has a profit of £100, under present legislation one pays 15 per cent. Profits Tax which leaves in hand £85 on every £100. The right hon. Gentleman will agree, I am sure, that under Section 245 of the Income Tax Act, 1952, it is usual, if one distributes about 40 per cent. of one's profit, for the Special Commissioners not to make a direction.
It is fallacious to say that the penalty of 100 per cent. distribution was there. Of course, we accept that there was a penalty of 100 per cent. Distribution; that is in the example I am giving of £85. But no professional man advising his client would allow him to put in any accounts to the Inland Revenue showing no distribution at all. He would advise his clients, "You are a Surtax company. If you do not put in some distribution you will be penalised and the penalty could be £85." According to my example, therefore, it would be 100 per cent.
Secondly, there has been built up a practice between accountants, taxpayers and the Special Commissioners that, where about 40 per cent. was distributed, this would leave sufficient to overcome Surtax direction. If we follow that in my example we get, under present legislation, £100 profit less Profits Tax of £15, leaving £85. Forty per cent. of that is £34. Consequently, if one were to advise the client to distribute 34 per cent. no Surtax would arise.

1253
Under the new legislation, £100 provides 40 per cent. Corporation Tax, which leaves one with 60 per cent., of £60. If one had 60 per cent. distribution as a ceiling, this would leave £36 to be distributed. That is why the Government decided on a 60 per cent. distribution.
6.15 p.m.
I think that we have to look a little further to see what would be the practical effects of this Corporation Tax on such a comparison. Under the old system, one had £100 profit and from that profit one was entitled to deduct certain charges which are now not to be liable as deductions under this Bill; these are, for example, rent to a participator and certain interests to participators which were allowed under the present legislation.
One had abatement of Profits Tax at one-fifth of the difference between £2,000 and £12,000 gross profit. To consider the difference and take it into account between the old and the new legislation in this sense is misleading, because one does not have the deductions under the new legislation that one had under the old.
If, under the old system, one had £100 profit and charges were £20, which is not out of line with what charges normally are, this gave a profit of £80, on which Profits Tax of 15 per cent. was paid. This was £12, leaving £68. On that, one got a Surtax direction under Section 245 of about 40 per cent. If one takes 40 per cent. of £68, the total is £27, which must be distributed, and if the accountant had said that £27 is a distribution to obviate a Surtax direction this leaves the company with £41 actual profit on which it then pays 8s. 3d. in the £, making a total of £17, leaving it, on each £100, some £24 retention even after the Surtax direction.
Under the present legislation, we have £100 profit less the charges which are not to be allowed, which gives £80 profit. One will have to add Corporation Tax.
Mr. Harold Lever: Why does the hon. Gentleman say that charges will not be allowed before calculating profit, whereas in 99·9 per cent. of cases the interest charge will be allowed?
Mr. Clark: I should be ruled out of order if I anticipated the Schedules. The hon. Gentleman the Member for Manchester, Cheetham (Mr. Harold Lever) should realise that there is a fundamental difference between the application of Corporation Tax and the application of the old Profits Tax. For one thing, one has not the abatement between £2,000 and £12,000. One has a lower abatement but not a one-fifth abatement. One is not to be allowed now to pay legitimate charges to participators. However, I am sure that we can return to this point when we reach the Schedules. The Committee will appreciate the effect of the difference between 40 per cent. and 60 per cent. distribution on a company.
I should like to carry on with the figures which I was giving before the hon. Member for Cheetham interrupted. With a profit of £100, less charges of £20, giving £80, 40 per cent. of the £100—because charges are not allowed under this legislation—would give a net profit of £40. With the 60 per cent. distribution, which is £36, that leaves £4 retention as opposed to £24 retention under the present legislation. I urge the hon. Member for Cheetham to do a little arithmetic when he will see that even if he does not accept the figure of £20 for charges which are disallowed and taking even £10 or £5, the retentions are lower.
The tax payable under the old system was £12 Profits Tax, £17 Income Tax and Income Tax and Surtax of £13 on the Section 245 direction, a total tax of £42. The Chief Secretary can deny my figures if he wishes. Under the new system, with £100 profit, the Corporation Tax is £40 and Income Tax and Surtax—and for the purposes of calculation I have taken the same proportions in both examples, so that Surtax is at 10s. in the £—are £18, so that there is a total of £58 in tax as against £42 under the old system.
How can anybody—even adjusting those figures slightly—say that that is not penalising the small company? It is all very well for the Chief Secretary to say that there is the long stop of being able to prove to the local inspector of taxes that the 60 per cent. is far too high, but with his experience the right hon. Gentleman knows that the inspector will take the easy way out and raise an assessment of 60 per cent. distribution.

1255
There will be an argument between the inspector and the accountant and eventually the figure may come down.
Mr. Diamond: In view of his remark, the hon. Gentleman will not mind my saying that he must now be making a political speech and not drawing on his own practical professional experience.
Mr. Clark: The same point was made very validly by one of my hon. Friends in the last debate when he said that with so many inspectors throughout the country without the specialised knowledge of the special commissioners, they would often take the easy way out of saying that there should be a 60 per cent. distribution. I assure the Chief Secretary that this is not a political point, but purely an economic argument. I do not think that any hon. Member, particularly on this and subsequent Amendments, will make merely political points.
Mr. Maxwell: Is the hon. Gentleman saying that an inspector of taxes would act contrary to the national interest and instructions from the Treasury to encourage investment?
Mr. Clark: The hon. Gentleman, who listens and absorbs what he thinks he will absorb, has not listened to my examples. I showed that retentions under the new legislation would be much lower than under existing legislation, even if the figures are slightly adjusted. That is to penalise the small companies.
I have a few more examples which are relevant and I hope that the Chief Secretary will give some thought to them, as he always does. I have worked out these figures with great care. A married man, who is the director of a close company and who holds the requisite shareholding and so on and who has an earned income of £8,500 and an unearned income which has nothing to do with the company of £500, has a gross income of £9,000. Because of the disallowance of directors' remuneration, which we obviously cannot debate now, Corporation Tax will be on the difference between £8,500 and £3,500, namely, £5,000, and I have taken a rate of 8s. for ease of example and that gives £2,000 Corporation Tax. As a married man with an income of £8,500 plus unearned income, his Income Tax will be £2,748—I will not weary the Committee with the computation, but in fact it is
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£2,748 17s. 6d. His Surtax liability is £647 5s. His total tax is thus £5,396 2s. 6d. I am sure that the Chief Secretary would not suggest that the director of a close company earning £8,500 a year was being excessively paid.
On the last £1,000 of earned income of that director—and I think that the Committee will appreciate that it is the marginal rate of tax on any income level which provides the incentive or disincentive—he will pay Corporation Tax at 8s. giving £400, Income Tax of £366 and Surtax of £224, a total tax of £991 4s. 9d. which is an effective rate of 19s. 10d. in the £. I would have thought that that example alone would prove to the Chief Secretary that he will have to look at this matter again.
I will give another example of a man with an earned income of £7,500 and an unearned income of £10,000. Again I will not weary the Committee with all the computation. The effective rate of tax on his last £1,000 of earned income is 23s. 9d. There are other examples of a similar nature.
Mr. Maxwell: How many people in the country would fall under this provision?
Mr. Clark: The hon. Member speaks with his usual naivete. I know that he has great knowledge in these matters, but when he cannot understand, he always asks how many people are affected. All I can tell him is that the examples I have given would concern everybody earning £8,500 per annum in a close company, or £7,500 in a close company with an investment income of £10,000.
This provision will affect the growing companies, those companies which start from small beginnings. How else do we get public companies? How do we get the electronics companies, or whatever they may be, unless they start from small beginnings? This is another example of the Government's desire to have something which looks very nice on paper, but which they have not thought through.
Some of their own figures which they have quoted in answer to the debates have been difficult to understand. Last week the Chief Secretary gave us some figures about Capital Gains Tax. He covered himself and said that he would not give his certificate on the figures. I am sure

1257
that he would not. He said that some Amendments which had been suggested from this side of the Committee would cost £23,500,000, but Capital Gains Tax will produce only £12 million in the first year so how could those proposals cost £23,500,000?
Mr. Diamond: As the hon. Gentleman has quoted a figure, we ought to get it right. I did not say the first year and I did not say Capital Gains Tax. I made it quite clear that we were talking about Corporation Tax and a company which pays Corporation Tax on its capital gains.
6.30 p.m.
Mr. Clark: I accept that. But the Amendment moved by my hon. Friends dealt with Capital Gains Tax. When the Chancellor in his Budget speech said that 8s. 3d. in the £ plus the 15 per cent. Profits Tax was exactly the same as a rate of 35 per cent. Corporation Tax, he did not at the same time say that included in the Corporation Tax was the Capital Gains Tax element of Corporation Tax. This was never made clear and I am sure that between now and Report the Chief Secretary will deal with this.
To return to the reason why we want to reduce the ceiling of 60 per cent. to 40 per cent., it has already been proved by the various examples I have given that the 60 per cent. is not going to result in more retentions. If one makes the implication of Profits Tax exactly the same as Corporation Tax this would be true. This has not been done, however. This is why businessmen throughout the country are fearful of the effects of Corporation Tax. It is all very well for the Chief Secretary to make sympathetic noises and say that the small man has no need to worry, that he is going to help, and he wants them to plough back, the 60 per cent. is a ceiling and so on. Frankly, the ordinary businessman does not, as yet, accept this. The Chief Secretary must answer this, because a 60 per cent. ceiling is, in my opinion, higher than the ceiling we have at the moment and it is quite fallacious to say that the ceiling at the moment is 100 per cent. In practice it is only about 40 per cent.
The Chief Secretary says that no company is going to be penalised providing it does not distribute a lot of its profit if it is a large company. Close companies
1258
have to distribute a lot. For large companies, he says, one cannot distribute so much and they encourage one not to distribute. One cannot have it both ways. The Chief Secretary says that if one pays 51 per cent. of one's profit one does not lose under Corporation Tax. This is true, but what he has not said is that one does not pay a dividend on one's profits. One declares a dividend on one's share capital. It is dependent upon one's profits, but if a company has a profit of £100 at the end of the year and its capital is £1,000 it declares a 6 per cent. dividend and in fact distributes 60 per cent. of its profits. One would not have thought that a 6 per cent. distribution was high, particularly in view of the fact that another Government Amendment, which will be dealt with shortly, gives 7½ per cent.
I do not think that, as yet, the Government have made out a case, not only for the underlying principles of Corporation Tax, but, particularly, for the distribution of 60 per cent. We want to reduce it to 40 per cent. but we are not, obviously, arguing the 40 per cent. providing the Government will accept the validity of the argument. No one wants tax avoidance but what we do not want is for the Government to say that there are some people avoiding paying tax and that they will therefore make jolly sure that everybody pays more tax.
That is exactly what is going to happen under Corporation Tax. The other day the Chancellor said that we were turning the corner. I should have thought that, with this Corporation Tax, we were just about round the bend. We really cannot understand why the Government are so partisan in their approach to this. The last Amendment, which was a very reasonable Amendment, proved this. I hope that when the Chief Secretary answers this he will either refute the examples I have given or else prove conclusively that a 60 per cent. distribution is going to help small businessmen and to help them more than they are helped at present.
Mr. Harold Lever: Before referring to my own Amendment, I think that out of courtesy I might spare a word for the hon. Gentleman the Member for Nottingham, South (Mr. William Clark), who has just spoken. I observe that he invited the Committee to allow its flesh

1259
to creep and the businessmen's flesh to creep on the assumption that the interest charges that a private company or a close company pays will be disallowed. Even if the hon. Member is right the complaint should not be directed to this Clause, but to a later Clause.
When I say we should ignore the disallowance of interest charges in order to evaluate the quality of this Clause I must surely be on impeccable logical grounds because the whole case based upon the disallowance vanishes if, on the later Clauses, the Chancellor voluntarily, or upon the insistence of this Committee, in effect disallows the disallowance or corrects the disallowance of interest charges. In that situation the terrifying examples will only have force if we find that the Chancellor obdurately refuses to make the necessary modifications.
Dealing with interest charges, I have reason to suppose the Chancellor will do nothing of the kind. If we ignore that aspect of that, unless my arithmetic is wrong, and I am always ready to be corrected on arithmetic, it seems that even on the allegations of the hon. Member for Nottingham, South he has no cause for complaint. For my part, from my humble position on this side of the Committee, I welcome the zeal of hon. Members on both sides of the Committee in making quite sure that the taxpayer is not oppressed by the tax gatherer. I think that is one of the fundamental functions of this House and I shall never complain at anyone showing an excessive zeal in defending the taxpayer provided that it is an open minded zeal and not in search of party advantage.
On the basis of 40 per cent. Corporation Tax and an Income Tax of 8s. in the £ and a 15 per cent. Profits Tax, a company which earned £100 under the old legislation paid £55 in Income Tax and Profits Tax and £21 in dividends. Its total outgoings were £76 leaving it with the sum of £24 net. Under the new, penally wicked legislation, proposed by my right hon. Friend which upsets all of this in a most revolutionary manner, what would occur would be that a company would earn £100, pay £40 Corporation Tax and a maximum of £36 in divi-
1260
dends and, amazingly, would be left with precisely the same sum of £24. I am willing to be proved wrong. It seems that on any showing if this is right then this Clause marks an advance in the interests of the taxpayer and is not to his disadvantage.
Mr. William Clark: The hon. Gentleman will agree that if, under the new system, some of the payments are not allowed for Corporation Tax purposes, which will come on later as he says, then, quite obviously, the retentions cannot possibly be the same. I welcome with gratitude his avowed intention to support us if the Chancellor does not change his mind on Corporation Tax.
Mr. Lever: All I am inviting the hon. Member to realise is that his criticism is directed to the wrong Clause and the wrong thing. It is no good saying that the Clause is wrong, assuming that a penal and oppressive enactment occurs later. The answer is to fight the penal and oppressive enactment of disallowing interest charges later. I would not hesitate to say that this would be penal and oppressive and that we should fight it and take counsel together on how to persuade the Chancellor and my right hon. Friend the Chief Secretary and his legal advisers to withdraw this penal and oppressive Clause. I am sure that they would do, because they are not penal and oppressive men.
At present, we are not discussing those Clauses. We are discussing this Clause and one has no right to charge this Clause with being badly drafted if it becomes harmful and oppressive only in the light of subsequent badly conceived matters in relation either to directors' salaries or to interest payments. I sympathise a good deal with the hon. Gentleman's argument that there is something to be said for specialised people deciding these issues and not the Income Tax inspectors. The Thames Ditton special commissioners—lately removed to Wimbledon, I believe—enjoy a high reputation among professional men—lawyers, accountants and businessmen—for their impartiality, sophistication and general understanding of the taxpayers' needs. It may be that my right hon. Friends will think that there is something in the idea of arranging a similar specialisation under these Clauses.

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I would say one word of consolation in case the matter is decided against them because I am inclined to the Opposition's view of this point. If the Chancellor of the Exchequer adheres to the view that the inspectors should deal with the matter, he might bear in mind how the special commissioners came by their flexibility, understanding and general expertise in dealing with these matters, namely, by practice.
It is not unreasonable to suppose that in precisely the same manner, after a reasonable time, the very fair-minded inspectors of taxes will be in the same position as the special commissioners. It is a confusion of the term which I tried to elucidate a little while ago, but the special commissioners about whom we are talking are nothing but inspectors of taxes exercising a specialised function.
Mr. Patrick Jenkin: The hon. Gentleman will recognise that the Section 245 legislation has been in existence since 1921 and that, therefore, the special commissioners have had a long time in which to acquire their present expertise and, further, have dealt with every case in the country. No doubt the hon. Gentleman can do more quickly than I the multiplication sum involved in multiplying 44 years by the number of tax districts to show how long it will take the inspectors to acquire the same amount of expertise.
Mr. Lever: In spite of the exceptionally rare compliment to my arithmetical powers, I am unsympathetic to the hon. Gentleman's point of view. We can discuss this point without a great deal of excitement or heat because, although I lean to the Opposition's view about the special commissioners, this does not seem to me a matter of great fundamental importance.
What seem to me to be much more important are the matters dealt with by my Amendments, the effect of which would be to throw the onus of proof on the Revenue before any direction was made. I will read the Clause as it would be if it were amended because I think that the very sound of the Clause in its proposed amended form has a note of sweet reasonableness and good sense which might commend itself to the Committee and, perhaps, to my right hon. Friends:
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"Where, on an appeal by a company against an assessment made by virtue of this section, the Commissioners concerned are satisfied that the company could make distributions up to the required standard"—
that is, 60 per cent.—
"without prejudice to the requirements of its business, the Commissioners may direct that there shall be disregarded so much of the shortfall as they are satisfied could be avoided without prejudice to those requirements."
Although I am responsible for that version of the drafting I can hardly think of anything fairer or more reasonable to govern this matter, if it is not immodest to say so, than just to take out the "nots" and, if I may make a pun, untie a great many other knots of a different kind for my right hon. Friend the Chancellor.
By my proposal the commissioners concerned have to be satisfied that the company could make the distribution without prejudice to the requirements of its business. Surely that is what my right hon. Friend wants. He does not want a dividend to be forced from a company, although the commissioners are not satisfied that it will prejudice the company. Surely my right hon. Friend wants the commissioners to be satisfied that all will be well with the company after the direction has been made. Why should not the Revenue satisfy the commissioners on this point?
My right hon. Friend the Chancellor has given two reasons—both of them bad, I regret to say—for rejecting this notion of putting the onus of proof on the Revenue. My hon. Friend the Member for Buckingham (Mr. Maxwell), who injects a note of boyish enthusiasm into the argument which is often missing when he is not here, makes the point which is misconceived about the onus of proof. I hope that he will do me the honour of listening to me and then, as he is an open-minded man, he may come to the conclusion that he was wrong and that the purposes which he seeks to fulfil will be fulfilled by my Amendments.
6.45 p.m.
The first objection to the idea of throwing the onus of proof on the Revenue is that, though it was there before, it was there because of the penal nature of the Section and because the penal nature was all that was required by the Revenue to enforce the Section without having the onus of proof thrown on the taxpayer.

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We are left to believe by that reasoning that as the Revenue would be completely in the dark about the facts, which, it is said, are
"peculiarly within the knowledge of the taxpayer"—
it does not matter whether there is a penal Section; it can act blindly by threatening penal action so that the taxpayer will have to settle.
This is not a convincing argument. Not only is it not convincing in logic; it has no relation to practice. The idea that the Revenue has been condemned to grope blindly and to collect Surtax because the taxpayer was the victim of a penal Section is a complete figment of the Treasury's imagination. It is very reassuring to know that the Treasury has imagination. We always think of it in a more prosaic vein, but this is a most inappropriate time to give vent to our thoughts. That does not seem to me justifiable.
When the courts decided that the onus of proof was on the Revenue, they did so because of the words used and not because of the extent of the powers conferred on the Revenue. If my right hon. Friend does not think that that is the case, I invite him to accept similar words and I will take a chance that the courts will give a similar interpretation to a Clause worded in a similar way in spite of the very different consequences which we both agree will result from a direction being made. Therefore, that argument will not do.
The second argument which is advanced is that these matters are
"peculiarly within the knowledge of the taxpayer".
I thought that that argument was demolished, but rather drily, by the right hon. and learned Member for Chertsey (Sir L. Heald). As he rightly says, this rule—
Sir L. Heald: The hon. Gentleman would not want it done wetly, would he?
Mr. Lever: I meant that the argument, presented in a dry and learned manner by the right hon. and learned Member, was appreciated by the legal members of the Committee and that to them his points were irresistible. I am afraid that there may be other hon. Members who
1264
found the argument too terse, although I found it overwhelming. Certainly, my hon. Friend the Member for Buckingham may gain by some extension of or gloss on the argument. There is evidence which makes me so suppose.
On the individual matters of fact which arise in the course of a trial of what is or is not a reasonable distribution, it is right, and normally follows by automatic presumption of law, that the onus of proving facts which the taxpayer is required to prove in order to persuade the commissioners that his dividend is reasonable and which are exclusively and peculiarly within his own knowledge, it is right should be on the taxpayer.
I am sorry to take time on this, but it is a matter of tremendous importance to taxpayers whose minds are greatly exercised about it. Let me take a simple case. If there is £10,000 worth of profit left in the bank after the company has paid its dividend and the onus of proof is on the Revenue, this does not place on the Revenue the onus of proving that every conceivable way in which that £10,000 may be usefully expended for the extension of its business will be denied to the company.
No such onus of proof would rest, or ever has rested, on the Revenue. If the taxpayer wants to assert that £10,000 in cash has been accumulated for a particular purpose known only to him, then, in any case, the onus of proof is upon him and he must prove his assertion, under the present law, to the reasonable satisfaction of the special commissioners. So, in my respectful submission, my right hon. Friend has totally disallowed the taxpayer's right to persist in this obstinate way on the onus of proof by the reason which he has advanced for it.
What he is saying is that the Revenue is in the kind of difficulty which arises under the criminal law, where facts are exclusively and peculiarly within the knowledge of the defendant, and the defendant has to prove those facts if he wants the court to act upon them. That will be the case now so far as these hearings are concerned.
What I want is that the general onus of proof—which in all criminal cases, if one follows this analogy, is on the Crown—should remain where it always has been, on the Inland Revenue. It

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will soon be seen that it is very important to make this distinction. Supposing that all the facts are not in dispute. The result of the onus of proof would be on a question of opinion—this is a matter of opinion—whether a distribution is reasonable or whether a company will be prejudiced. It is not a matter of factual knowledge within the knowledge exclusively of the taxpayer. This is a matter of estimation by the special commissioners and the Revenue is in as good a position to argue this matter to the satisfaction of the special commissioners as the taxpayer is.
If I am a taxpayer and I have money in a company and I say, as was said to the right hon. and learned Member for Chertsey by the constituent who wrote to him, that I have kept back £100,000, but that I wanted to keep large sums because my company is in the nature of a banking business, nothing is in dispute here. The only thing which would have been in dispute in that case would arise if the Revenue said, "You do not need this cash." The company might say, "We may need it. We are not pointing to any specific reason, but in our estimation it is desirable and reasonable to keep that cash in the business and it will prejudice the business if it is forced out."
Under the old law, the Revenue would have to prove, to the satisfaction of the commissioners, that no damage or prejudice would result to the company by that cash being forced out. Under the new law, if the onus of proof is thrown upon the taxpayer, it will be for the taxpayer to satisfy the commissioners. If the commissioners are left in a state of real doubt on the matter, they will be obliged, in my opinion, on this new wording to say, "We are sorry. We think that there is some doubt in the matter. It may be that we are injuriously and oppressively injuring this company. We have no wish to do so, but we are obliged by the Section—because the onus of proof is upon the taxpayer and he has not completely removed all substantial doubts—to make the direction." That cannot be right.
It will not do for the Chancellor or any of his representatives to tell us that the Inland Revenue will be in a state of great difficulty if this position over the
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onus of proof is not put right. One may seriously wonder how anyone has the cool nerve to advance any such argument to the Committee. One wonders how the poor special commissioners have managed all these years when the onus of proof has been firmly and totally laid upon them. I say that it will not do for the Chancellor to say that the Revenue will be impossibly prejudiced if the onus of proof stays where it always has been.
I am particularly unsympathetic when I remember that this whole Corporation Tax brings to a new height the standard rate of Income Tax where there is a full distribution and that a very high rate of tax results when there is a high rate of distribution. This is defensible and has been defended by my right hon. Friends only on the grounds that companies will not be obliged to pay it out and will be encouraged to retain it. If they are to be encouraged to retain it, any doubts about distribution ought to be resolved in favour of the taxpayer.
In all these circumstances, I beg my right hon. Friends once again to do the image of the Government a power of good by yielding upon this. There is a point where there is misplaced pedantry and misplaced obstinacy. In my opinion, this is it. This is the moment when my right hon. Friends ought to realise that a political decision has to be made here in the interests of the taxpayer. In my opinion, it will not cost the Revenue a brass farthing and will reassure many taxpayers who are at present in a state of apprehension on this matter. I particularly urge this on my right hon. Friends, because if my right hon. Friend does not give way to my request that he should keep the onus of proof where it always has been, there will be a real danger of the taxpayer feeling apprehensive that he will be the subject of oppressive use of this Clause.
If my right hon. Friend gives way and moves the onus back to where it always has been, I will be able to say without any kind of insincerity or reservation that this Clause marks a real and handsome advance towards the protection of the taxpayer in relation to matters of Surtax direction. What a pity it is that this Clause, so splendid in many of is conceptions, should be marred by a blot

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which can only be justified by bad arguments, worse logic and misplaced obstinacy.
Mr. J. Grimond: I feel that it would be ungracious if those of us on this side of the Committee who have benefited from the support of the hon. Member for Manchester, Cheetham (Mr. Harold Lever) did not, in return, give him support in his Amendments. I would not attempt either to duplicate the figures which have been provided on these Amendments by a spokesman from the Conservative Front Bench, or to emulate the hon. Member's knowledge of the legal side of these matters. However, I can certainly testify to the anxiety which has been caused to business. I have received many letters from people who are genuinely apprehensive about this change of onus. One man in particular, who admits the abuse which has been made in the past by some private companies and who is, in general, quite favourable to the proposals in this Clause, nevertheless feels that to alter the onus in this way will hamper his business.
I think that this is another example of the Government's tendency to put the suppression of tax avoidance before the encouragement of business enterprise. This has been mentioned before. I do not say that suppression of tax avoidance is not important—of course it is—but I hope that the Government spokesman will deal with some of the points made by the hon. Member for Cheetham. I think that he has demonstrated that it is not necessary to change the onus in this way, to take these steps to stop tax avoidance by close companies. It appears that many legitimate businesses, which are certainly not attempting tax avoidance, regard this as a threat to their expansion and efficiency.
We began this discussion on a proposal to reduce the rate from 60 per cent. to 40 per cent. The hon. Member for Cheetham pointed out that some of the objections to 60 per cent. would be overcome if Amendments were made in the later stages of the Bill. We are in some difficulty here. This may be true, but we are forced at this moment to debate the Bill as it is before us, and it would be wholly out of order to take into account putative amendments to Clauses which we have not yet reached—
Mr. Harold Lever: If the right hon. Member proceeds pedantically in this way, he will do his own argument an injury. The interest charges produce evil results which can be considered separately, but if the interest charges are removed, any argument based upon disallowance of interest will be fallacious. All that will happen is that the right hon. Member will be retrospectively made to look illogical, and even ridiculous, if the Amendments are made.
Mr. Grimond: I do not want to be made to look retrospectively illogical. But the hon. Member for Cheetham looks illogical now. This may be an important, illogical difference between us, and we have had many illogical arguments on this Bill, but it is a difficulty under our present procedures.
I agree with the hon. Member about this. I believe that the Chancellor's Amendments to this part of the Bill are a great improvement and it may be that taken in conjunction with such further concessions as the right hon. Gentleman intends to make, a reduction of from 60 to 40 per cent. may become much less necessary. The Committee should, however, bear in mind the points already made that the top rate of 60 per cent. is not as favourable as the Government have sometimes represented it to be.
7.0 p.m.
I do not know how the Chancellor will ultimately treat interest and other things which are chargeable to these companies. Again, I think it is true that directors' loans, for instance, can in some cases be made a method of tax evasion. There is a real difficulty here.
Mr. Harold Lever Mr. Harold Lever indicated dissent.
Mr. Grimond: The hon. Member shakes his head. The difficulty with him is that he is so busy in maintaining Cheetham's balance that he is anxious not to associate himself either with too many criticisms of the Government or, indeed, with too many favourable remarks to them. Perhaps I might set the hon. Member's mind at rest by saying that when we come to the further discussions on charges and interest which are chargeable against these companies, I take it that we will have his wholehearted support.
Mr. Harold Lever: More than a shake of the head is necessary. Nobody is suggesting that directors' loans have been used for tax avoidance. What the Bill clearly has in mind is that under the new system of taxation an obvious form of tax avoidable may be directors' loans.
Mr. Grimond: I hardly ever differ from the hon. Member on matters of this kind, but I have a letter from a director who claims to have operated directors' loans as a means of tax avoidance, although he goes on to excuse himself by other features of the tax system.
What the Committee should impress upon the Government is, first, that the change of onus is a serious matter and that we should support the Amendment—
Mr. Maxwell: It just is not possible to avoid tax by a director's loan account. It simply would not be allowed. I wonder, therefore, whether the writer was trying to mislead the right hon. Gentleman.
Mr. Grimond: If he was, he has misled a lot of other people, too.
On the serious question concerning the onus of proof, I hope that the Government will give way. On the point of a reduction of from 60 to 40 per cent. in the tax, this ties up with the general state in which the Clauses are left at the end of the day. All I can say is that if the Committee finds them unsatisfactory when they have all been examined, perhaps we shall have a further opportunity of examining them again on Report with the help of the hon. Member for Manchester, Cheetham (Mr. Harold Lever).
Sir Peter Roberts: If the Government persist in maintaining the onus of proof as they now have it, obviously the Amendment from this side of the Committee to reduce the 60 per cent. level is necessary. I agree entirely with the arguments which have been put forward. I want, however, to ask the Financial Secretary a question. None of us wants to assist tax avoidance, as is shown by the views that have been expressed concerning the onus of proof to deal with people who deliberately try to take advantage of any opportunities. They are very few.
The much larger proportion of people who are trying to run their businesses
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want to ascertain the proper proportion that they can get through the special commissioners, whose guidance they accept so that they may put the figures in their accounts. That is the normal way of doing business. All I want to assure myself is that it is the intention of the Government that that sort of procedure which has been used by the special commissioners will continue with the inspectors of taxes.
The problems which I have in mind concern the finances of a close company which wishes to ascertain the level at which it can make a distribution. It is an old Section 21 company. The existing position is that the company's accountant makes inquiries of the special commissioners, shows them the draft accounts, states that he recommends that the board should pay a distribution of £X and asks for guidance. The result is that before the final meeting of the company, the accountant can go back to the directors, tell them that he has had unofficial discussions and say that if they put in £X amount of dividend, he believes that it would be acceptable. All this happens before the annual general meeting of the company and before the accounts are published.
Sometimes, when a company's accountant does not go to the special commissioners, being a Section 21 company it puts a figure in its accounts and pays out its dividend. It may not be until a year later that the Wimbledon office writes to say that the distribution has not been sufficient and that a Surtax direction will be issued. Once that happens, the machinery operates right the way through and there can be an appeal. That is what one wants to avoid. The whole object of running the system as we now have it is that it is possible to go to the special commissioners, get guidance in advance, pay the dividend and more or less know that there will not be a Surtax direction thereafter.
If I am right so far, what will happen under the new procedure? Will it be that an accountant goes to the inspector of taxes and says, "The end of the company's year is in two months time. We want to have a board meeting in a month's time to finalise the accounts"? My experience is that when one goes to the local inspector of taxes with one's problems, a letter arrives to say that they

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will be looked at and a month later one telephones to discover what is happening. There is almost automatic delay on the part of the overworked inspectors of taxes.
The speedy procedure of Wimbledon may well slow itself down when it is operated by inspectors of taxes, so that the time when the accounts for the year have to be finalised and published passes before they can be completed. In such a case, the board of the company would have no informal advice and must insert its own figure. Once it puts in its figure and it is published, the procedure which we have been talking about starts to operate. This might not happen until six months later There might be an appeal and eventually, if the matter goes wrong, complications will arise of going to all the various shareholders, some of whom may not be the five participators. There might be hundreds of other shareholders. All the tax problems of those individual shareholders must be gone through by the inspector of taxes to see whether a charge should be made. That is what I want to avoid. Obviously, no company wants to do it, nor, I believe, do the inspectors of taxes.
We know that under the proposed arrangements there must be a period of a month within which an answer must be given and also a two-month period. As I understand it, that does not apply to the unofficial approaches which accountants at present make to the special commissioners by means of which the board of a company is given the opportunity of putting a figure in its published accounts.
This is the crux of my question, because this is what will happen in 99 per cent. of cases. Will the Government give instructions to the inspectors of taxes that if an unofficial approach is made by an accountant on behalf of a company, they will give guidance as has been done in the past? Will they give guidance in time for it to be put into the published accounts? If this is not done, I believe that the complications and the extra work which will be forced upon inspectors of taxes will be far greater than the Financial Secretary imagines.
One has only to consider the case of one of the bigger companies, some of which have a large number of share-
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holders. It may be that only certain of them are Surtax payers and that certain of them are recipients of various assets. As I understand, the Inland Revenue will have to look at every shareholder's holding to assess whether or not it is a close company. The problems involved will be enormous.
The question I ask is, therefore, a practical one and the Government must have thought about it and understood it. Is the right hon. Gentleman able to say that the Government will give instructions to the inspector of taxes, as to the Wimbledon offices, and can we be assured that action will be taken to assess the amount so that an answer can be obtained before the finalising of the accounts? I appreciate that such an answer might be quite unofficial, something like, "We have looked at the accounts and it appears that the figure of such and such is reasonable". If we can get a practical assurance of that type it will be helpful, otherwise the Government will create a most awful situation.
I do not believe that the average board wishes to put in its accounts a figure which will be challenged—that is, unless it is trying to be a tax avoider. I am not arguing about that. I am talking of the reasonable people who, I fear, will be penalised because of this provision. I hope that the right hon. Gentleman will give an assurance that instructions will be given to inspectors to give priority to this matter, since there are times when at certain offices one cannot get a reply for some months. I hope that we can be given some guidance on this important matter.
Mr. Diamond: It might be convenient if I now reply to the comments which have been made and, in so doing, I hope to remove some of the anxieties which exist.
The hon. Member for Nottingham, South (Mr. William Clark) raised the question of the 40 per cent. or 60 per cent. As has been demonstrated by hon. Members on both sides of the Committee, in the normal case—and we will come to the abnormality shortly—the effect of the proposal in the Bill is that what has been practiced hitherto will now become the ceiling. In other words, we go from practice in the normal case to ceiling. I do not know how much more generous

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the Committee would want the Revenue to be, bearing in mind the Revenue's responsibility for seeing that everybody pays his fair share of taxation.
In short, a vast number of cases will be removed and in all the normal cases one might criticise the Revenue for going too far under the previous legislation, but certainly not for not going far enough. Therefore, I could not entertain the suggestion that there should be a ceiling which is well below the normal level of distribution in the straightforward case.
The hon. Member for Nottingham, South—who, I regret to see, is not in his place, but I am sure that he will acquit me of any discourtesy in replying in his absence—did what he has done on other occasions, and introduced the abnormality. As my hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) wisely said, this does not help the argument. To answer the hon. Member for Nottingham, South, if he had in mind the kind of abnormality where a director was so running a company that there was being returned to him in the apparent form of interest what in fact was a dividend, then we immediately see that the tax includes the tax on the dividend. What is in the hon. Gentleman's example interest is, in fact, dividend—in effect, a return on the capital.
However, one does not get the matter much further by illustrating the exceptional case. Therefore, I repeat that the Government have gone very far in removing the whole of the cases which are comparable under the new tax system with the average case at present and which, after argument, is treated as being exempt from a Surtax direction.
7.15 p.m.
I come to the question of general guidance which the hon. Member for Sheffield, Heeley (Sir P. Roberts) raised. I am grateful to him for participating in this discussion, because he always speaks on the basis of a practical businessman running companies and the difficulties which arise. They are exactly the difficulties we want to remove. The hon. Gentleman's attitude is exactly the one we want to encourage. We want businessmen to know where they stand, completely free of uncertainty. The hon. Gentleman was talking about the straightforward man, just as I am. He was not speaking about the tax dodger, although,
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unfortunately, there are quite a few tax dodgers, against whom we must act so that those who are not tax dodgers are not called upon to pay an excessive share.
The hon. Member for Heeley asked if there could be general guidance in advance of finalisation. The answer is, "Yes". We will certainly see that, as far as possible, general guidance is given. This cannot be taken—and the hon. Gentleman did not ask for it to be taken—in the form of a legal clearance certificate, but there is general helpful guidance and that is what we want to give.
In a great variety of companies today a dividend is declared, the matter goes before the Surtax commissioners for discussion and, as a result of that discussion, an additional dividend relating to the period in question is agreed. This is generally how the matter is settled; by an additional dividend bringing up the level of the earlier dividend which was, admittedly and deliberately, too low to allow room for an additional dividend. We would not wish, in practice, to put any bar to the smooth running of straightforward businesses and boards of directors and their having as clear an indication as possible, with the information available at that time to the board and the inspector. I assure the hon. Gentleman that I will see to it that everything possible is done in terms of administration, to achieve that result.
Mr. Barber: Would the right hon. Gentleman give a further assurance, flowing from what my hon. Friend the Member for Sheffield, Heeley (Sir P. Roberts) said? Is he able, in view of the increased burden that is likely to be imposed on the tax inspectorate, to give an assurance that informal guidance of the kind my hon. Friend referred to will be forthcoming as quickly as it has been in the past from the special commissioners?
Mr. Diamond: That was implicit in the assurance for which the, hon. Member for Heeley asked. He was anxious that this information should be available between the time of preparing draft accounts and the publishing of them, which may be a matter of up to six months. I therefore repeat that it was in my mind in saying what I said to the hon. Member for Heeley that time was an essential consideration.

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We are, I am afraid, left with the question of the onus of proof. I will take the Committee, step by step, through what will now happen. There will be the preparation of the accounts. The accounts will be submitted to the inspector of taxes in the ordinary way and there will be discussions with the inspector, verbally or by correspondence, as to whether the proposed dividend is adequate. Representations will be made by, or on behalf of, the taxpayer demonstrating that it is as much as could be afforded.
Or it may be that the alternative tactic is adopted, which is regularly adopted, of saying, "I recognise that this is a modest dividend to start with and I recommend an additional dividend to £X". The inspector perhaps then says that it should be a figure of £Xx, a discussion takes place and agreement is reached. If agreement is not reached the assessment is raised and the taxpayer, if he does not want to pay that assessment, goes to appeal.
Then the facts must be established. But he must establish the facts, because the facts are within his own knowledge. It is not possible for the inspector of taxes to say what the facts are; what the future intentions of the businessman are with regard to developing his business. It is not possible for anyone other than the businessman himself to say, "I could not distribute more because I needed the balance for these perfectly good reasons and needs of the business".
Therefore, it is inevitable, if I may say so, in common sense and not just because of the law—and on that I will give way immediately to my hon. Friend—in a general principle, because we are dealing purely and exclusively with the limited problem of proving this particular piece of factual evidence, namely, that the money is needed for a particular kind of expansion, and that the expansion is afoot or in contemplation—
Mr. Harold Lever: Since it is inevitable that this onus should be thrown on the taxpayer, thereby implying that unless it is thrown on the taxpayer the Revenue simply could not prove its case, will my right hon. Friend tell me how the Inland Revenue operated in this
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parlous position where the inevitability of the onus being thrown on the taxpayer was not recognised in all the years past?
Mr. Diamond: The answer to that is (a) what I have previously said, and (b) what my hon. Friend has also previously said: the threat of the penal sanction of declaring 100 per cent. of the undistributed profits.
Mr. Harold Lever: My right hon. Friend has not understood my question. It is not what happened before in cases that did not come before the special commissioners—where the threat worked—butsince my right hon. Friend thinks it impossible for the Revenue to prove its case if the onus is put upon it, what happened where the question did come for hearing before the special commissioners? The Revenue, faced with this impossible task, presumably lost every single case it brought, and if it presumably lost every single case it brought, on this assumption no one would dream of settling a case with the Inland Revenue because they would know that all they had to do was to lodge an appeal, and that it was an impossibility for the Revenue to discharge this onus.
Mr. Diamond: I do not think that my hon. Friend is applying his mind to the different procedures that exist at present, and are proposed in the future. I gather that in relation to the future procedures he is now satisfied that in order for the appellant, as he would be, against an assessment raised by the Revenue, to prove that the assessment was excessive in terms of distribution, it was necessary for the appellant to produce the information which only he had. I therefore gather that my hon. Friend is satisfied there.
In the past, the procedure has been different. As my hon. Friend realises, there has been a direction by the Surtax commissioners who, by using the implied—not the explicit, but the implied—threat of 100 per cent. distribution, have been able to extract from the taxpayer the whole of the relevant information, because it was in the taxpayer's interest to produce that information—
Mr. Harold Lever: I do not want to keep breaking in on my right hon. Friend—
Mr. Diamond: I know that my hon. Friend does not, and I do not want to keep giving way either, so we are at one, as we always are—
Mr. Harold Lever: I am entitled to make my point.
Mr. Diamond: My hon. Friend is fully entitled to make his point. I did not know that he felt that he was fully entitled to intervene whenever and as often as he felt so disposed.
Mr. Harold Lever: This is the ordinary courtesy of Committee debate.
My right hon. Friend has so far persisted in misunderstanding the point I have made. Sooner or later he must answer it—and not the point I am not making—and I must ask him to do so. His case is that before the special commissioners the Revenue, if my Amendment is accepted, will not be able to discharge the onus I would throw upon it. What I have submitted to him is that that is exactly and precisely the onus at present upon the Inland Revenue under the old system.
So any taxpayer who, under the old system, came before the special commissioners, was not obliged to produce any documents under any threat of 100 per cent. or any other distribution. He would simply say, "The onus of proof is on the Inland Revenue. I will not produce any documents—you must discharge the onus." If my right hon. Friend is right, the Revenue cannot discharge that onus because the facts are within the knowledge of the taxpayer. In those circumstances, how can that be right? All I urge my right hon. Friend to do is to recognise that if he accepts my Amendment, the Revenue will be in precisely the same position as it is under the existing legislation when such a matter comes before the special commissioners.
Mr. Diamond: I do understand, as far as I am capable of understanding, what my hon. Friend says. I have understood it all the way through, because he makes his point with clarity and persuasiveness. There is a limit to my capacity to comprehend, and it may be that that limit has been reached. All I say to my hon. Friend, and I hope that he will not take this amiss—because he took an earlier intervention amiss—is that I understand,
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I think, what he is saying. I think that he is mistaken. I am advised that he is mistaken. I am not relying on my legal knowledge—I am advised by those who are there to advise Her Majesty's Government on these matters that my hon. Friend is mistaken, but—
Mr. Barber Mr. Barber rose—
Mr. Diamond: Do let me finish; I am still in the middle of a sentence if it helps the right hon. Gentleman—but inasmuch as it is possible that notwithstanding my desire and willingness to understand my hon. Friend's point, and inasmuch as we are completely at one in the desire to remove misapprehension, if there is a misapprehension, I will gladly—and this is what I wanted to say, and why I did not want to delay my hon. Friend—once more consult those who are there to advise us, because I do not wish to be guilty of the charges of blind obstinacy which were thrown at me.
I will see whether there is any doubt as to the view previously held, and whether there is any real need to amend the legislation as it is at present proposed. If there is, I will unhesitatingly come back on Report with whatever Amendments might be appropriate. Nevertheless, I repeat that this has been very carefully considered. It is not a question of doing anything inadvertently, but part of the deliberate machine of making the tax collection work smoothly and fairly, and of eliminating all possible trouble for the straightforward business man and taxpayer.
I do not think that I have been wrongly advised, but I tell my hon. Friend that I will look at the point once more, take further guidance on it and, if it is necessary, bring forward an Amendment on Report. But I must repeat that, at the moment, I am advised that the legislation as it stands serves the purpose it was intended to serve.
Mr. Barber: We have spent a very considerable amount of time on the question of onus of proof, and listening to the difference of view of the hon. Member for Manchester, Cheetham (Mr. Harold Lever) and the Chief Secretary. I do not share the view of the hon. Member, for a particular reason, but this dispute has taken a very considerable amount of our time. My experience has

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been that when the Committee has discussed these sort of matters at this stage of the Finance Bill, it has sometimes helped if one of the Law Officers has been available to deal with such difficult questions as onus of proof.
I do not suggest for a moment that we should now delay our proceedings merely because a Law Officer is not here, but later, when we come to the Question, "That the Clause stand part of the Bill", it might be convenient to the Committee if one of the Law Officers were available to deal with the matter, when it would be cleared up once and for all.
As I understand it from the Chief Secretary, if the point is not cleared up now we shall want to return to it on Report. I thought that I was perfectly clear on the position but, having listened to the Chief Secretary, I now wonder whether I was right in taking a view different from that of the hon. Member for Cheetham.
7.30 p.m.
Mr. W. R. van Straubenzee: My right hon. Friend the Member for Altrincham and Sale (Mr. Barber) has reminded us of the inordinate amount of time we have necessarily taken, largely in discussion from the benches opposite, on this matter. I think it would be useful to move away from the very important, but limited, point which been discussed so much because these Amendments which we are discussing together deal with much wider matters as well as with the important question of the onus of proof.
The first matter to which I draw the attention of the Committee arises on Amendment No. 707. What I think is fascinating to inquire into is why this Amendment has been proposed. It is very important first to make quite clear that the impression given in some sections of the technical Press that Amendment No. 707 writes a very substantial concession into the Bill and that in some way the tax applied to close companies has been very substantially recast and quite new provisions are put into the Bill, is not an accurate impression. I can derive authority for that statement from the Chief Secretary himself, who not only explained this briefly—I make no complaint about the brevity—in moving the
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Amendment, but at a much earlier stage was the person more than anyone else who made the point that the same provisions were contained in Clause 10.
What interests me is why this has been moved. I think that the reason is in the background of the presentation of this tax. The Chief Secretary said at an earlier stage of our discussions on this Amendment that very widespread anxiety had been caused to many people outside the House by this proposal. That was the masterly understatement of the year. Those of us who are lucky enough to have contact with one or other aspect of the business world have hardly known a time at which so much time has been taken up in innumerable large and small board rooms trying to make up their minds about the effect of the close company proposals on individual companies. Quite an inordinate amount of utterly wasted time has been taken up by individual companies and their innumerable advisers and often it has taken them from other work at a time when we need every effort in every individual company to work on something of a constructive nature.
If it was necessary to extricate these provisions and almost entirely reproduce them from an obscure Schedule to the body of the Bill it was because by the inept presentation of these provisions the Government have no one but themselves to blame for the resultant confusion in the business world. At least we can say that there is merit in bringing them out into the open in this way, but there would have been a deal more merit if they had been better presented in the first place. I repeat that it is most important to make the point that Amendment No. 707 moved by the Chief Secretary does not in fact recast the tax substantially from the position it held originally when the Bill was presented.
There has not been a major concession on this matter made by the Chancellor. Those who advise companies and run companies affected would be well advised to look again closely at this point.
Mr. Diamond: The hon. Member is of course right in saying that these provisions were, as he suggested, tucked away in a Schedule, but he is not right in saying that the position was not made clear. The White Paper, Command 2646—I

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refer not to the more detailed part but the summary at the beginning, which surely is the minimum that any interested party would read—states at the top of the page 6, under the heading:
"Closely-controlled companies
… (ii) Shortfall in distributions.
A closely-controlled company which makes inadequate distributions will be charged Income Tax on the shortfall, except to the extent that it can show that retention of profits is necessary or advisable for the maintenance and development of its business …"
Right in the opening paragraph that is made absolutely clear.
Mr. van Straubenzee: Subsequently, when individual boards and advisers sought to give substance to that point—and, what was very much more important, those who write about these matters—found it extremely difficult to look at the different Clauses and Schedules of the Bill as one constructive whole. The result—this is indisputable, because the Chief Secretary himself says so—was very widespread confusion about the corporate effect of these provisions.
Mr. Diamond: Why?
Mr. van Straubenzee: The Chief Secretary ask why. Is he asserting that here there was a malicious attempt by the Press to denigrate these proposals? In the kind of technical Press of which I am thinking in this instance I do not think that considerations of that sort were generally applied.
Mr. William Clark: A conspiracy?
Mr. van Straubenzee: As my hon. Friend says, a conspiracy.
We have spent much time on these Amendments, important as they are, and we have much more to go through. It seems strange at a time when it is generally agreed by many reports of one kind and another that one of the difficulties of what will become close companies will be the raising of necessary money for development that the average dividend covered by quoted companies should be thought sufficient for a company which by definition cannot go to the market for its finance. I think it will be found that if, as I suspect, the 60 per cent. does become the norm at least in the first instance—I must honestly say to the Chief Secretary that nothing in
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his fervour so far has ruled that thought from my mind—the provisions will prove in a large number of cases to be quite insufficient for an expanding business.
Many of those in this Committee—there has been one example among hon. Members opposite—in favour of these proposals are frankly people who have got into the "club" already themselves and are not sufficiently thoughtful of those thrusting, growing small companies upon which in so many technical fields our prosperity depends. It may be that in future years we shall be able to look back upon the Chief Secretary's words and say that he was proved entirely right and that our anxieties and fears were entirely unjustified, but at present that is not the view which has found general acceptance in very wide business circles.
Therefore, it seems that a very strongly argued case can be made for the Amendment to the proposed Amendment, proposed by my hon. Friend the Member for Nottingham, South (Mr. William Clark), which in essence would have the effect of ensuring that if one has to have a designation of this sort approximately at least a third of the profit would be available for plough back. This, I should have thought, was far more in line with the kind of procedures which have been applied up to now. [HON. MEMBERS: "No."] This must be a matter for judgment. If confess that I have found it very difficult to take careful advice on this point and to some extent I draw on my own modest experience, but, in consulting a number of people who deal very extensively with these matters, I find that they dispute fairly strongly some of the figures given about the working of the close companies system as it is at present. For these reasons, on the assumption that there is to be this figure, a strong case has been established for the Amendment to the Amendment, a case on which I very much hope that the Committee will have an opportunity of expressing itself in due time.
Mr. Barnett: I believe that the way in which the case was presented by the hon. Member for Wokingham (Mr. van Straubenzee) is one of the reasons why businessmen have been confused. Much of what the hon. Gentleman said will be picked out for headlines and will lead

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to confusion in the minds of businessmen. I frankly admit to being prejudiced in favour of the ordinary, average, decent taxpayer. I would want to see him helped in every possible way. I believe that, if politics were to be separated from the issue, both sides of the Committee would want to see a fair and reasonable system applied to close companies in particular.
I want to take up, first, the arguments presented by the hon. Member for Nottingham, South (Mr. William Clark) on the question whether the distribution should be 60 per cent. or 40 per cent. I believe that on further examination the hon. Gentleman would agree that the case he presented was without foundation. He first assumed a Corporation Tax of 40 per cent., whereas, if an equal comparison were made with the existing system, a 35 per cent. rate should be taken. Then he disallowed from his £100 example £20. Again, this is a supposition which cannot carry any weight. In logic, the case must be argued as it exists, not as it might exist in some extreme example. The hon. Gentleman went on to say that this will affect growing companies. He gave some examples of the amounts of distribution to directors. Perhaps we shall have an opportunity on Report to look again at directors' remuneration, for I certainly am not satisfied with the situation as it still exists.
But it would be very rare that a director in a close company would want to take £11,000. In by far the largest number of cases of very small companies, about which hon. Members have been speaking and in which there are perhaps just a husband and his wife, the directors would not want to take more than £5,000 between the two. They would want to keep inside the Surtax limit and plough the rest back. One of the confusions in the minds of many hon. Members is the difference between retention and plough back.
The hon. Member for Nottingham, South, took as his example the situation, in the case of his £100, where under the existing system 60 per cent., which is the maximum, would have to be distributed. He then took the 40 per cent. in the other case as it exists on average today. There is no reason to suppose
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that companies will not under the new close company situation also be able to distribute as little as 40 per cent.—indeed much less. Most close companies which are ploughing back their profits, as opposed to retaining them merely to avoid Surtax, will be able to pay no dividend at all, not even 1 per cent. It is completely misleading to cite as an example the existing situation of a 40 per cent. company and the new situation which might apply of a maximum of 60 per cent. This misinterprets the situation which will apply in practice.
In practice, the Surtax commissioners rarely give the 100 per cent. direction. Very rarely is 100 per cent. of profits distributed, because no adviser would allow a company to find itself in that position. Equally, no adviser would allow his company under the new situation to pay the maximum of 60 per cent. He would be able to negotiate either with the Surtax commissioners or, as is now the case, with the inspector.
7.45 p.m.
Mr. Harold Lever: Is it as rare as my hon. Friend supposes that 100 per cent. was exacted under the old legislation? Surely under the old legislation 100 per cent. was automatically exacted in cases of liquidation—in the last year before liquidation and in several other such contingencies. It was not as rare as is alleged that 100 per cent. was exacted.
Mr. Barnett: In all cases of liquidation, naturally. Just what percentage there are of cases where companies are in liquidation is a question which my hon. Friend would perhaps want to ask my right hon. Friend the Chief Secretary.
I want now to deal with the question whether this matter should be dealt with by inspectors or by the Surtax commissioners. This is perhaps a limited point, but in practice it is important. The hon. Member for Sheffield, Heeley (Sir P. Roberts) made the valid point that inspectors are busy people and that there might be unnecessary and unreasonable delay. I want here to pay credit to both inspectors of taxes and to the commissioners. I have dealt with both. Both types of people are very reasonable men and women, because there are women inspectors of taxes, too. Speaking as a provincial Member—there are more provincial Members than there are London

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—I would far rather deal with my local inspector, if only as a matter of convenience. In negotiation, as opposed to the simple straightforward case, it is necessary to go to Wimbledon. The accountant, a director and counsel have to go. As counsel cannot be taken without a solicitor, at least four people have to go all the way down to Wimbledon.
Sir D. Glover: The hon. Gentleman and the hon. Member for Manchester, Cheetham (Mr. Harold Lever) and I could get together and form a cabal on our own. I have disagreed with hardly anything that the two hon. Members have said. Does he not realise that his statement that four people must go all the way to Wimbledon implies that the case must be sufficiently complicated that it is what I would call a High Court case rather than a magistrates' court case? By saying that a director, the accountant, a solicitor and counsel are needed, he is in fact saying that the case being dealt with is one which should be put before an expert and not before the ordinary run of tax inspector in a district.
Mr. Barnett: With respect, I do not know that I would be at all happy in a cabal with the hon. Gentleman. I am not sure that he will agree with everything that I propose to say hereafter. I will come later to the question whether in difficult cases it would be better to deal with somebody with specialised knowledge. At present, even in the simple cases, the accounts must be sent down to Wimbledon to get clearance and agreement. The hon. Gentleman's mention of specialised knowledge overstates the case. Exactly what is meant by "specialised knowledge"? A set of accounts is studied and the decision must be taken whether 60 per cent. or 40 per cent., or 30 per cent. or 20 per cent., should be distributed. It is true that the Surtax commissioners deal with this type of thing and nothing else, but it is not accurate to suggest that it is necessary to have some specialised knowledge, other than being able to understand a set of accounts, to decide whether there should be 40 per cent. or 30 per cent., or 20 per cent. distribution. It is difficult to believe that the average inspector of taxes would not easily be able to decide with reasonable fairness, in conjunction with the accoun-
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tant involved, what was a reasonable distribution. I feel that it is to overstate the case to suggest that it would be better to have some body with specialised knowledge. However, I have known cases myself where there have been lengthy delays in getting replies from inspectors. After all, they are very busy people. I have seen their desks even more overloaded than my own and it sometimes takes them a long time to find a particular file, let alone to reply to correspondence.
At the moment there is a visiting inspector who goes around from one district to another in a sort of supervisory way, and it might be possible to have touring inspectors going from district to district, if necessary dealing simply with this point. But generally, with the cooperation of the inspectors and with the sort of recommendations which I understand my right hon. Friend suggests that he would give to the inspectors, I do not believe it would be very difficult to get the sort of co-operation needed with inspectors of taxes.
To deal shortly with the question of onus of proof, in practice most cases will be settled as between an accountant and the inspector. Therefore, any further disagreement will apply only in a very limited number of cases. Speaking for myself, as I said at the outset, I am prejudiced in favour of the taxpayer. But the case is overstated if it is said that the taxpayer is worried about the situation as it exists at present. The taxpayer does not understand whether the onus of proof works this way or that way. Under the existing system most taxpayers say to their accountant, "What is my tax liability?".
Mr. Patrick Jenkin: Would the hon. Gentleman not agree that what might have worried a large number of taxpayers is the sentence in the White Paper referred to by the Chief Secretary at page 24:
"The required standard is normally the whole of the distributable investment income for the period, plus 60 per cent. of the estate or trading income for the period"?
Does the hon. Gentleman not think that that is what worries the taxpayer?
Mr. Barnett: I suggest that there are very few taxpayers who have read it. [Laughter.] That is my opinion.
Mr. Kenneth Lewis: Would not the hon. Gentleman accept that many people who run small businesses have had clearly indicated to them by their accountants that they are worried? As a professional accountant, the hon. Member ought to understand that the businessman accepts the accountant's view of his accounts.
Mr. Barnett: I was saying that it is unlikely that the taxpayer had read that particular sentence, and I will stick by that. If it is suggested that the average taxpayer has read the 226 pages of the Finance Bill or of any other Finance Act I would not agree. I am sure that taxpayers read very little of these Measures. The question which taxpayers ask is, "What is my tax liability?" and they do not bother with the niceties of phraseology in Bills or White Papers.
Mr. William Clark: Would the hon. Gentleman say "Yes" or "No" to the question whether accountants are worried about this quotation from page 24 of the White Paper? I think he will agree that it is the accountant who advises the client. Whilst the taxpayer may not have read the 226 pages of the Bill, the accountant will tell his client "I think"—or "I do not think"—"you will be penalised under this particular provision."
Mr. Diamond: As we have had a selected extract—
Mr. Harold Lever: And misleading.
Mr. Diamond: —a misleading extract, as my hon. Friend has said, from a particular paragraph in the White Paper, may I ask the hon. Gentleman to read an earlier paragraph which states:
"… and the shortfall is not justified by the needs for the maintenance and development of the business."
Mr. Barnett: I thank my right hon. Friend. If an accountant, having read and understood the relevant provisions relating to close companies, were to suggest to his client that the close company legislation as such will adversely affect a growing company ploughing back its profits, I would suggest that the accountant was misleading his client, because this is not the case.
On the question of onus of proof, this is a very limited point, and if it gives
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the slightest satisfaction and makes the taxpayer feel a little better, I should like my right hon. Friend to give way on this. It will cost the Revenue nothing. It will help to dispel some of the confusion thta exists and, therefore, I hope my right hon. Friend will look at this again. Even if he feels that it is still not very important and that the point is covered anyway, all the more reason to bend over backwards to dispel some of the confusion, however mistaken, which exists.
There has been so much confusion on the effect on close companies that I want to make it clear, I would not be a party to any legislation which hurt this type of company. In the larger companies the rate of growth that one can expect is comparatively small, but the rate of growth that one can expect in a close company can be explosive. I therefore think it cannot be stressed strongly enough that close companies ploughing back their profits have a great deal to gain from this Bill.
Sir Frederick Bennett: Many of the remarks of the hon. Member for Manchester, Cheetham (Mr. Harold Lever) were so helpful, illuminating and fair that it seems churlish to make any criticisms at all.
However, before coming to the main theme of my remarks, I must say that he did not do justice to himself in the suggestion that if the Chancellor did not give way on the question of individual inspectors tackling these matters instead of the special commissioners, he would like to give the Committee a little consolation because as time went on the former would do better and gain the experience which they have not had up till now.
This is a little odd, because it suggests that hardship and unfairness to the taxpayer is all right so long as it lessens over the years. It follows that this would clear up during the years ahead—
Mr. Harold Lever: I never count hardship by numbers or by point of time. What I was suggesting as a consolation to those of us who lean in the direction of the hon. Member is that the special commissioners get their expertise very quickly.
Sir F. Bennett: I thought the hon. Gentleman accepted the fact that this is

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built up over a period of 40 years. In fact, expertise has been built up. Anyway, if the hon. Gentleman says that he is leaning in our direction I should like him to lean a little bit more heavily than he has done up to now.
The main reason why we are taking so long over this subject is, without any intention of discourtesy to the Chief Secretary, that he did not reply adequately to the various points made by my hon. Friend the Member for Nottingham, South (Mr. William Clark). He did only two things during his remarks which have led those of us who had not wanted to intervene to come in at this stage of the debate to try to obtain further clarification.
8.0 p.m.
First of all, he said about my hon. Friend's remarks that "as usual"—and I thought that that was a little discourteous—he relied on abnormalities to justify his case, but he did not say a word about what was abnormal and he did not refute or deal with any of the figures which my hon. Friend gave. Secondly, he dealt with the onus of proof in such a way that everybody in the Committee is now more confused than they were before he spoke. In the absence of Front Bench counter-arguments to my hon. Friend, all I have to deal with is the intervention by file hon. Member for Cheetham and the intervention by the hon. Member for Buckingham (Mr. Maxwell), who I am sorry to notice is not now in his place.
The hon. Member for Cheetham tried to say that the fears expressed by my hon. Friend the Member for Nottingham, South and the figures which he gave to illustrate those fears would be real only if at a later stage the disallowance charges were put in such a way that those fears would be realised. We have come to a point when we are having debates on the assumption that the Chancellor will do something later which at present he has shown no sign of doing. If this is to be the procedure, we can have no useful discussion on any Clause, because the reply to our arguments will always be that something better will be done later. We must have proof that the figures which my hon. Friend gave are unreal before we are told by the Government that we should not worry about them. To say that even if the figures are valid now they will not be valid by the time proceedings on
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the Bill are completed makes nonsense of debate.
The hon. Member for Buckingham did not rely on abnormality or the later good intentions of the Chancellor. He simply talked about how many people would be affected. He said that it would be a small number and therefore we should not worry about them. To say that is grossly unethical. It would be a most unfortunate tendency in this Committee and in the House if it were to be said of a Finance Bill that it does not matter what it does because only a limited number of people would be hurt by it. This is in direct contradiction of my experience in the many years that I have spent in the House of Commons during which time I have heard one Socialist Member after another dealing with any proposed reduction in direct taxation by pointing to the not only abnormal and unusual but wholly mythical bachelor on £100,000 a year and pointing out what would be done for him.
Apart from the detailed figures which my hon. Friend the Member for Nottingham, South gave, the theme behind his speech was the Government's attitude towards close companies. As far as I can understand, the Government's attitude at the moment, with such reservations of alterations as we may be able to extract in Committee, is that generally such companies should distribute as much as possible of their own profits.
Mr. Diamond Mr. Diamond indicated dissent.
Sir F. Bennett: If that is not so, I do not know what we are arguing about. Everybody in the country has noticed the serious difference between the Government's attitude towards close companies and their attitude towards large companies. The close companies must distribute as much as possible. The big companies must reserve as much as possible, and we have a situation in which these two things at one stage or another become wholly conflicting.
The simplest possible example can be gathered if one takes the definition of a close company as one in which 51 per cent. of the holding is in the hands of five separate people. Just one more shareholder, putting the control of the company in the hands of six wholly separate people, immediately stops the company

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being a close company and the Government say, "You must stop distributing profits and keep back as much as possible". Is it sensible to develop these two things, one with the other, and to say that on the one hand a company of just a certain size must behave in one way and another company of just a certain other size must behave in another way?
This leads one to the inevitable conclusion that the Government, although wanting close companies to develop into big companies, as they have said, and to form a much wider share ownership and have expansion take place, propose at the same time to take steps precisely to prevent that process coming about. I hope that at some stage a further explanation will be given of the incompatibility of this attitude, otherwise I warn the Government that there will be a number of contributions from this side of the Committee to this same effect.
Mr. Patrick Jenkin: I propose to be brief because we have had a very long discussion on this Clause. I would draw the Chief Secretary's attention to the passage on page 24 of the White Paper dealing with the Clause. I will not read it but I respectfully suggest that the quotation which I put in an intervention to his hon. Friend the Member for Heywood and Royton (Mr. Barnett) was not as selective as the Chief Secretary suggested. If one reads the first, second and half of the third paragraph on that page the combined effect is perhaps a good deal more stringent than the explanation which the Chief Secretary gave earlier today. If that had come first and those paragraphs had come later perhaps the great anxiety which has been aroused might have been much less.
In opposing the Amendment to reduce the 60 per cent. to 40 per cent., the Chief Secretary argued that what was being proposed by the Bill was to turn the present practice into a new proceeding. The whole of his argument was based on that, but I question whether this is so. As my hon. Friend the Member for Wokingham (Mr. van Straubenzee) said, it is difficult to collect impressions from accountants, lawyers and so on of what is the normal requirement of the special commissioners now, but the information which I have been able to acquire from
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different sources is that the figures are of an order to allow the retention of about one-third of the gross profit.
It may well be more or may be less, but in an ordinary case it appears that about one-third may be retained. Compared with 60 per cent. distribution, when Corporation Tax is 40 per cent. the amount retained is not one-third but just under one-quarter, or 24 per cent., and when Corporation Tax is only 35 per cent. that takes retention up to 26 per cent.—again substantially below the present practice. The right answer is that it ought to be considerably higher than the present practice because, as my hon. Friend the Member for Torquay (Sir F. Bennett) said, there is this fatal and fundamental conflict between the treatment of the small companies and the treatment of the large companies. The large companies are being encouraged to retain when they are the ones who should be forced to go to the market and justify their investment, whereas the small companies ought to retain. This provision in the Bill is the wrong way round. If the rate of distribution is reduced to 40 per cent., as proposed in the Amendment, then, with Corporation Tax at 40 per cent., the distribution becomes 24 per cent., allowing a retention of 36 per cent.; and with Corporation Tax at 35 per cent. the retention rises to 39 per cent. This seems a reasonable proposal in the context of the whole Bill, which is designed to encourage companies to plough back.
A word now about Amendment No. 629, which relates to the distinction drawn in the case of a trading company between investment income and trading income. This Amendment was intended to equate the two for the purposes of treatment under the Bill. The Committee will know that trading income is, broadly, income which for an individual would be earned income, and investment income is income which would not be earned income. The Chief Secretary, in moving his Amendment, made quite clear that it was still the Goverment's intention to adhere to what has always been the practice, that investment income must be regarded as distributable up to 100 per cent., and trading income was to be subject to the test of the needs of the business. It seems to me that for a trading company this is not a sound procedure.

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It may well be that a trading company holds investments and derives income from them with a view to future expansion. It is sometimes necessary to collect investments over a period of years and to add to them in order finally to be in a position to indulge in, say, a major expansion which can, possibly, lead to a private company going public. I seriously question whether, in the context of the Corporation Tax and the new arrangements here, it is not right for the Revenue, in the case of a trading company, to be entitled to say that the company is not held to distribute the whole of its investment income but it can look at its investment income in relation to future requirements for expansion and development of the business. Perhaps it is right that the power to direct that the whole be distributed should be retained, but that the Revenue should be entitled to allow a company, if necessary, to retain the whole of its trading and investment income.
I hope that I have understood aright the point in the Government Amendment and that I am not tilting at windmills or pushing at an open door. As I understand it, the way that it has been drafted still requires the automatic direction as regards the whole of a trading company's investment income. It seems to me that that is probably not justified, and I hope that the Government will deal with the point.
Mr. Harold Lever: I wish merely to say that, although the only time I have ever had any conflict with my right hon. Friend the Chief Secretary is in this Chamber during our debates, as he has gone so far as to say that he will consider the points which I have raised, I wish to ask leave to withdraw the Amendment in my name.
The Temporary Chairman (Mr. H. Hynd): That Amendment has not been moved, so it is not necessary to withdraw it.
8.15 p.m.
Mr. Barber: We still have to consider the general purport of the Clause on the Question, "That the Clause stand part of the Bill." so I shall be brief in summing up the Opposition's case on this series of Amendments.
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I agree with my hon. Friend the Member for Wokingham (Mr. van Straubenzee) that the Chancellor's Amendment, about which he sought to make so much when his Amendments first appeared on the Notice Paper, makes no difference of substance whatever. In the first place, the figure of 60 per cent. appears in the original Clause and it appears also in the Amendment. There is no change. The criterion to be adopted, where there is less than 60 per cent. distribution, is stated in the Amendment to be by reference to
"such income … as the company shows could not be distributed without prejudice to the requirements of the company's business."
All that the Chancellor has done has been to lift virtually the same words from subsection (5) of the Clause, which refer to a distribution which could not be made
"without prejudice to the requirements of its business".
Again, there is no change of substance between the Clause and the Amendment.
The proviso to the Amendment sets the limit above which a company is in the clear, and precisely the same limit appears in the original Clause. There is no change. There is no change of significance as regards the onus of proof, which remains firmly on the shoulders of the company. Again there has been no change. All that the inspector has to do in present circumstances is to raise an assessment and then the onus of proof is firmly on the company.
Yet when these Amendments appeared on the Notice Paper—I do not believe that it was a conspiracy on the part of the Press—one newspaper after another, presumably because they had guidance to that effect, printed words which indicated that in some way or other the Chancellor had made a concession to companies coming within the definition of close companies. The truth is that these particular Amendments do no such thing. I agree with my hon. Friend the Member for Sheffield, Heeley (Sir P. Roberts) that it is impossible to divorce the, percentage in this Clause from the question of onus of proof.
I have already said, because I felt it fair to the Committee to do so, that I do not go so far as the hon. Member for Manchester, Cheetham (Mr. Harold Lever) does in the remarks which he made. I intervened and expressed my

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view on that, so I shall say no more about it. But it follows that the percentage in the Clause becomes of paramount importance when one is considering the burden of work on inspectors of taxes. If it is right on merits—I should not suggest doing it on any other grounds—to reduce the percentage as we propose that it should be, there will be the practical consequence of making lighter the burden of work on inspectors of taxes.
I agree that, if one is to accept the Chancellor's general scheme as set out in these Clauses, some percentage must be specified. Whether it should be 60, 50 or 40 per cent. is, perhaps, a matter for argument and opinion. The Clause at present proposes 60 per cent. I quite understand when the Chief Secretary says that, because of Schedule 17, this does not mean that 60 per cent. of gross profit must be distributed. As a result of the way in which Schedule 17, Part II, works, with the definition of distributable profits, what a company will have to distribute in the normal case, if the 60 per cent. is applied, is about 36 per cent. or 39 per cent. depending on whether the Corporation Tax is 35 per cent. or 40 per cent.
Mr. Diamond Mr. Diamond indicated assent.
Mr. Barber: I see the Chief Secretary nods assent to that. But, if this is so, one cannot go on logically to argue that, under the provisions of the Bill a company will, in the normal case, be able to retain 40 per cent. of its profits because, in the light of the definition of distributable profits in Schedule 17, a company will be able to retain only 24 per cent. or 26 per cent. of gross profits on which Corporation Tax is to be paid. It is really this range of percentages, 24 per cent. or 26 per cent., which we are arguing about. In other words, the question is whether this is enough in the normal case.
Mr. Diamond: I intervene because the right hon. Gentleman keeps on referring to "the normal case". He has used those words four times. It is a ceiling. It is not the normal case.
Mr. Barber: The right hon. Gentleman says that it is a ceiling, but I believe—[Interruption.] Does the hon. and learned Gentleman wish to interrupt?
The Financial Secretary to the Treasury (Mr. Niall MacDermot): It is a
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ceiling. The right hon. Gentleman cannot get away from that fact. What he is trying to suggest is that the ceiling is the norm. I do not know on what he bases that. He cannot get away from the fact that it is a ceiling.
Mr. Barber: I was about to say that I entirely agree with what some of my hon. Friends say about the way this will work out in many instances in practice. I believe that in many cases with small companies which will not put up with the expense of appealing, in the normal case it will work out in this way—
The Minister without Portfolio (Sir Eric Fletcher): No.
Mr. Barber: It is no good the Minister without Portfolio just sitting there muttering. We have now had three of the Ministers on the Government Front Bench intervening. I hope that they will allow me to put my case. This has been put to me by reputable accountants who have told me that they believe—it is not my view—that, in practice, what will happen is that in innumerable cases companies will feel that they have to distribute 60 per cent. if the inspector tells them that they should do so and they will not feel that they are in a position to challenge the suggestion made by him.
If the right hon. Gentleman had given us a convincing case for the percentage in the Bill I am sure that my right hon. and hon. Friends would not have wished to press the Amendment. If, alternately, the right hon. Gentleman had said that he was at least prepared to consider a smaller percentage, to look at this again, we would not have pressed the Amendment. I accept the fact that 40 per cent. may not be right, although, on the information that we have been given it seems to be about the right percentage. However, we were open to argument on the point.
We have had no convincing justification for the percentage in the Bill. We have had no answer to the compelling factual arguments of my hon. Friend the Member for Nottingham, South (Mr. William Clark). All we were told was that my hon. Friend was dealing with exceptional cases and that we need not worry about companies which happened to be exceptional. We have had no

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promise whatever on behalf of the Government that this matter will be reconsidered. In these circumstances, we shall feel obliged to vote in favour of the Amendment in the name of my hon. Friend.
There is one other matter on which I wonder whether the Chief Secretary could give us an explanation. If in view of the shortage of time he is unable to do so, I shall understand. There appears to be something odd about Amendment No. 708 It refers to Sections 246 and 258 of the Income Tax Act, 1952, and the proviso to Section 246(2) is excepted and is not to apply in the new legislation. What troubles some of us is that the proviso was put in to the advantage of the taxpayer.
I can appreciate that because of the new wording in the Bill and reference to "a reasonable part of its actual income", which is in the proviso, might not be appropriate. It might be that one would have to substitute the words "re-
quired standard". However, it seems that this proviso for the benefit of the taxpayer has been dropped for reasons which I could not quite understand.
Mr. Diamond: I am advised that this is not because there is any sinister or subtle reason connected with the drafting, as the right hon. Gentleman suggested it might be. It is simply because it has been found not to have any practical effect, so there is no point in bringing it forward again.
Question, That the words proposed to be left out stand part of the Clause, put and negatived.
Question proposed, That the proposed words be there inserted.
Amendment proposed to the proposed Amendment, to leave out "sixty" and to insert "forty".—[Mr. W. Clark.]
Question put. That "sixty" stand part of the proposed Amendment:—
The Committee divided: Ayes 191, Noes 169.

Division No. 189.]

AYES

[8.25 p.m.

Abse, Leo

Dunn, James A.

Irving, Sydney (Dartford)

Allaun, Frank (Salford, E.)

Edwards, Rt. Hn. Ness (Caerphilly)

Jay, Rt. Hn. Douglas

Alldritt, Walter

Ennals, David

Johnston, Russell (Inverness)

Armstrong, Ernest

Ensor, David

Jones, Dan (Burnley)

Atkinson, Norman

Fernyhough, E.

Kelley, Richard

Bacon, Miss Alice

Fitch, Alan (Wigan)

Kenyon, Clifford

Bagier, Gordon A. T.

Fletcher, Sir Eric (Islington, E.)

Lawson, George

Barnett, Joel

Fletcher, Ted (Darlington)

Leadbitter, Ted

Beaney, Alan

Fletcher, Raymond (Ilkeston)

Lee, Rt. Hn. Frederick (Newton)

Benn, Ht. Hn. Anthony Wedgwood

Floud, Bernard

Lever, Harold (Cheetham)

Bennett, J. (Glasgow, Bridgeton)

Foley, Maurice

Lever, L. M. (Ardwick)

Bessell, Peter

Fraser, Rt. Hn. Tom (Hamilton)

Lewis, Arthur (West Ham, N.)

Bishop, E. S.

Freeson, Reginald

Lewis, Ron (Carlisle)

Blackburn, F.

Galpern, Sir Myer

Lomas, Kenneth

Blenkinsop, Arthur

Garrett, W. E.

Loughlin, Charles

Boardman, H.

George, Lady Megan Lloyd

Lubbock, Eric

Bowden, Rt. Hn. H. W. (Leics S.W.)

Ginsburg, David

McBride, Neil

Bowen, Roderic (Cardigan)

Greenwood, Rt. Hn. Anthony

McCann, J.

Boyden, James

Gregory, Arnold

MacDermot, Niall

Braddock, Mrs. E. M.

Griffiths, David (Rother Valley)

McGuire, Michael

Bray, Dr. Jeremy

Griffiths, Rt. Hn. James (Llanelly)

McInnes, James

Broughton, Dr. A. D. D.

Grimond, Rt. Hn. J.

McKay, Mrs. Margaret

Buchan, Norman (Renfrewshire, W.)

Hale, Leslie

Mackenzie, Alasdair (Ross & Crom'ty)

Buchanan, Richard

Hamilton, James (Bothwell)

Mackenzie, Gregor (Rutherglen)

Butler, Herbert (Hackney, C.)

Hamilton, William (West Fife)

McLeavy, Frank

Callaghan, Rt. Hn. James

Hannan, William

MacMillan, Malcolm

Carmichael, Neil

Harper, Joseph

Mahon, Simon (Bootle)

Carter-Jones, Lewis

Harrison, Walter (Wakefield)

Manuel, Archie

Castle, Rt. Hn. Barbara

Hart, Mrs. Judith

Mapp, Charles

Coleman, Donald

Hattersley, Roy

Mason, Roy

Conlan, Bernard

Herbison, Rt. Hn. Margaret

Maxwell, Robert

Corbet, Mrs. Freda

Hill, J. (Midlothian)

Mendelson, J. J.

Craddock, George (Bradford, S.)

Hobden, Dennis (Brighton, K'town)

Millan, Bruce

Miller, Dr. M. S.

Crossman, Rt. Hn, R. H. S.

Holman, Percy

Milne, Edward (Blyth)

Cullen, Mrs. Alice

Hooson, H. E.

Molloy, William

Dalyell, Tam

Horner John

Morris, John (Aberavon)

Davies, G. Elfed (Rhondda, E.)

Houghton, Rt. Hn. Douglas

Murray, Albert

Davies, Ifor (Gower)

Howie, W.

Neal, Harold

Davies, S. O. (Merthyr)

Hoy, James

Newens, Stan

Diamond, John

Hughes, Emrys (S. Ayrshire)

Noel-Baker, Francis (Swindon)

Doig, Peter

Hughes, Hector (Aberdeen, N.)

Norwood, Christopher

Donnelly, Desmond

Hunter, Adam (Dunfermline)

Oakes, Gordon

Duffy, Dr. A. E. P.

Hunter, A. E. (Feltham)

Ogden, Eric

O'Malley, Brian

Robertson, John (Paisley)

Thorpe, Jeremy

Oram, Albert E. (E. Ham, S.)

Rodgers, William (Stockton)

Tinn, James

Orme, Stanley

Rogers, George (Kensington, N.)

Tomney, Frank

Oswald, Thomas

Sheldon, Robert

Urwin, T. W.

Owen, Will

Shinwell, Rt. Hn. E.

Varley, Eric G.

Padley, Walter

Short, Rt. Hn. E. (N'c'tle-on-Tyne, C.)

Wainwright, Edwin

Park, Trevor (Derbyshire, S.E.)

Silverman, Sydney (Nelson)

Walden, Brian (All Saints)

Parker, John

Slater, Joseph (Sedgefield)

Wallace, George

Pearson, Arthur (Pontypridd)

Small, William

White, Mrs. Eirene

Peart, Rt. Hn. Fred

Smith, Ellis (Stoke, S.)

Whitlock, William

Pentland, Norman

Soskice, Rt. Hn. Sir Frank

Wilkins, W. A.

Perry, Ernest G.

Steel, David (Roxburgh)

Willey, Rt. Hn. Frederick

Popplewell, Ernest

Steele, Thomas (Dunbartonshire, W.)

Williams, Clifford (Abertillery)

Price, J. T. (Westhoughton)

Stewart, Rt. Hn. Michael

Willis, George (Edinburgh, E.)

Probert, Arthur

Stones, William

Winterbottom, R. E.

Pursey, Cmdr. Harry

Summerskill, Hn. Dr. Shirley

Wyatt, Woodrow

Randall, Harry

Swingler, Stephen

Yates, Victor (Ladywood)

Rankin, John

Symonds, J. B.

Rees, Merlyn

Taylor, Bernard (Mansfield)

TELLERS FOR THE NOES:

Rhodes, Geoffrey

Thomas, George (Cardiff, W.)

Mrs. Harriet Slater and

Richard, Ivor

Thomson, George (Dundee, E.)

Mr. Harry Gourlay.

Roberts, Albert (Normanton)

Thornton, Ernest

NOES

Agnew, Commander Sir Peter

Glover, Sir Douglas

Mott-Radclyffe, Sir Charles

Alison, Michael (Barkston Ash)

Godber, Rt. Hn. J. B.

Munro-Lucas-Tooth, Sir Hugh

Allason, James (Hemel Hempstead)

Goodhew, Victor

Murton, Oscar

Anstruther-Gray, Rt. Hn. Sir W.

Gower, Raymond

Noble, Rt. Hn. Michael

Astor, John

Grant, Anthony

Nugent, Rt. Hn. Sir Richard

Awdry, Daniel

Grieve, Percy

Osborn, John (Hallam)

Balniel, Lord

Griffiths, Peter (Smethwick)

Page, R. Graham (Crosby)

Barber, Rt. Hn. Anthony

Gurden, Harold

Pearson, Sir Frank (Clitheroe)

Barlow, Sir John

Hall-Davis, A. G. F.

Peel, John

Batsford, Brian

Hamilton, M. (Salisbury)

Percival, Ian

Bell, Ronald

Harris, Frederic (Croydon, N.W.)

Peyton, John

Bennett, Sir Frederic (Torquay)

Harris, Reader (Heston)

Pickthorn, Rt. Hn. Sir Kenneth

Berkeley, Humphry

Harvey, John (Walthamstow, E.)

Pike, Miss Mervyn

Biffen, John

Harvie Anderson, Miss

Pitt, Dame Edith

Biggs-Davison, John

Hawkins, Paul

Pounder, Rafton

Birch, Rt. Hn. Nigel

Heald, Rt. Hn. Sir Lionel

Powell, Rt. Hn. J. Enoch

Black, Sir Cyril

Heath, Rt. Hn. Edward

Prior, J. M. L.

Bossom, Hn. Clive

Higgins, Terence L.

Pym, Francis

Box, Donald

Hill, J. E. B. (S. Norfolk)

Ramsden, Rt. Hn. James

Boyd-Carpenter, Rt. Hn. J.

Hobson, Rt. Hon. Sir John

Rawlinson, Rt. Hn. Sir Peter

Boyle, Rt. Hn. Sir Edward

Hornsby-Smith, Rt. Hn. Dame P.

Renton, Rt. Hn. Sir David

Brewis, John

Howard, Hn. G. R. (St. Ives)

Ridley, Hn. Nicholas

Brinton, Sir Tatton

Hunt, John (Bromley)

Ridsdale, Julian

Brown, Sir Edward (Bath)

Hutchison, Michael Clark

Roberts, Sir Peter (Heeley)

Bruce-Gardyne, J.

Iremonger, T. L.

Robson Brown, Sir William

Bullus, Sir Eric

Irvine, Bryant Godman (Rye)

Roots, William

Burden, F. A.

Jenkin, Patrick (Woodford)

Scott-Hopkins, James

Buxton, Ronald

Jennings, J. C.

Sharples, Richard

Chataway, Christopher

Kaberry, Sir Donald

Sinclair, Sir George

Chichester-Clark, R.

Kerr, Sir Hamilton (Cambridge)

Smith, Dudley (Br'ntf'd & Chiswick)

Clark, William (Nottingham, S.)

Kershaw, Anthony

Spearman, Sir Alexander

Clarke, Brig. Terence (Portsmth, W.)

King, Evelyn (Dorset, S.)

Stanley, Hn. Richard

Cole, Norman

Kirk, Peter

Stoddart-Scott, Col. Sir Malcolm

Cooke, Robert

Langford-Holt, Sir John

Studholme, Sir Henry

Cooper-Key, Sir Neill

Legge-Bourke, Sir Harry

Talbot, John E.

Cordle, John

Lewis, Kenneth (Rutland)

Taylor, Edward M. (G'gow, Cathcart)

Costain, A. P.

Litchfield, Capt. John

Teeling, Sir William

Courtney, Cdr. Anthony

Lloyd, Ian (P'tsm'th, Langstone)

Temple, John M.

Craddock, Sir Beresford (Spelthorne)

Lloyd, Rt. Hn. Selwyn (Wirral)

Thomas, Rt. Hn. Peter (Conway)

Crosthwaite-Eyre, Col. Sir Oliver

Longden, Gilbert

Turton, Rt. Hn. R. H.

Cunningham, Sir Knox

McAdden, Sir Stephen

van Straubenzee, W. R.

Curran, Charles

MacArthur, Ian

Walder, David (High Peak)

Davies, Dr. Wyndham (Perry Barr)

McLaren, Martin

Walker, Peter (Worcester)

d'Avigdor-Goldsmid, Sir Henry

McMaster, Stanley

Walker-Smith, Rt. Hn. Sir Derek

Dean, Paul

McNair-Wilson, Patrick

Wall, Patrick

Digby, Simon Wingfield

Maitland, Sir John

Ward, Dame Irene

Dodds-Parker, Douglas

Mathew, Robert

Weatherill, Bernard

Elliott, R. W.(N'c'tle-upon-Tyne,N.)

Maude, Angus

Webster, David

Emery, Peter

Maudling, Rt. Hn. Reginald

Whitelaw, William

Errington, Sir Eric

Mawby, Ray

Wills, Sir Gerald (Bridgwater)

Eyre, Reginald

Maxwell-Hyslop, R. J.

Wilson, Geoffrey (Truro)

Farr, John

Maydon, Lt.-Cmdr. S. L. C.

Woodhouse, Hon. Christopher

Fisher, Nigel

Meyer, Sir Anthony

Younger, Hn. George

Fletcher-Cooke, Sir John (S'pton)

Mills, Peter (Torrington)

Foster, Sir John

Mills, Stratton (Belfast, N.)

TELLERS FOR THE NOES:

Fraser, Ian (Plymouth, Sutton)

Mitchell, David

Mr. Jasper More and

Gammans, Lady

Monro, Hector

Mr. Geoffrey Johnson Smith.

Giles, Rear-Admiral Morgan

Morrison, Charles (Devizes)

Question put, That the proposed words be there inserted:—
The Committee divided: Ayes 190, Noes 168.

Division No. 190.]

AYES

[8.36 p.m.

Abse, Leo

Hale, Leslie

O'Malley, Brian

Allaun, Frank (Salford, E.)

Hamilton, James (Bothwell)

Oram, Albert E. (E. Ham, S.)

Alldritt, Walter

Hamilton, William (West Fife)

Orme, Stanley

Armstrong, Ernest

Hannan, William

Oswald, Thomas

Atkinson, Norman

Harper, Joseph

Owen, Will

Bacon, Miss Alice

Harrison, Walter (Wakefield)

Padley, Walter

Bagier, Gordon A. T.

Hart, Mrs. Judith

Park, Trevor (Derbyshire, S.E.)

Barnett, Joel

Hattersley, Roy

Parker, John

Beaney, Alan

Herbison, Rt. Hn. Margaret

Pearson, Arthur (Pontypridd)

Benn, Rt. Hn. Anthony Wedgwood

Hill, J. (Midlothian)

Peart, Rt. Hn. Fred

Bennett, J. (Glasgow, Bridgeton)

Hobden, Dennis (Brighton, K'town.)

Pentland, Norman

Bessell, Peter

Holman, Percy

Perry, Ernest G.

Bishop, E. S.

Hooson, H. E.

Popplewell, Ernest

Blackburn, F.

Horner, John

Price, J. T. (Westhoughton)

Blenkinsop, Arthur

Houghton, Rt. Hn. Douglas

Probert, Arthur

Boardman, H.

Howie, W.

Pursey, Cmdr. Harry

Bowden, Rt. Hn. H. W.(Leics, S.W.)

Hoy, James

Randall, Harry

Bowen, Roderic (Cardigan)

Hughes, Emrys (S. Ayrshire)

Rankin, John

Boyden, James

Hughes, Hector (Aberdeen, N.)

Rees, Merlyn

Braddock, Mrs. E. M.

Hunter, Adam (Dunfermline)

Rhodes, Geoffrey

Bray, Dr. Jeremy

Hunter, A. E. (Feltham)

Richard, Ivor

Broughton, Dr. A. D. D.

Irving, Sydney (Dartford)

Roberts, Albert (Normanton)

Buchan, Norman (Renfrewshire, W.)

Jay, Rt. Hn. Douglas

Robertson, John (Paisley)

Buchanan, Richard

Johnston, Russell (Inverness)

Rodgers, William (Stockton)

Butler, Herbert (Hackney, C.)

Jones, Dan (Burnley)

Rogers, George (Kensington, N.)

Callaghan, Ht. Hn. James

Kelley, Richard

Sheldon, Robert

Carmichael, Neil

Kenyon, Clifford

Shinwell, Rt. Hn. E.

Carter-Jones, Lewis

Lawson, George

Short, Rt. Hn. E. (N'c'tle-on-Tyne, C.)

Castle, Rt. Hn. Barbara

Leadbitter, Ted

Silverman, Sydney (Nelson)

Coleman, Donald

Lee, Rt. Hn. Frederick (Newton)

Slater, Joseph (Sedgefield)

Conlan, Bernard

Lever, Harold (Cheetham)

Small, William

Corbet, Mrs. Freda

Lever, L. M. (Ardwick)

Smith, Ellis (Stoke, S.)

Craddock, George (Bradford, S.)

Lewis, Arthur (West Ham, N.)

Soskice, Rt. Hn. Sir Frank

Crossman, Rt. Hn. R. H. S.

Lewis, Ron (Carlisle)

Steel, David (Roxburgh)

Cullen, Mrs. Alice

Lomas, Kenneth

Steele, Thomas (Dunbartonshire, W.)

Dalyell, Tam

Loughlin, Charles

Stewart, Rt. Hn. Michael

Davies, G. Elfed (Rhondda, E.)

Lubbock, Eric

Stones, William

Davies, Ifor (Gower)

McBride, Neil

Summerskill, Hn. Dr. Shirley

Davies, S. O. (Merthyr)

McCann, J.

Swingler, Stephen

Diamond, John

MacDermot, Niall

Symonds, J. B.

Doig, Peter

McGuire, Michael

Taylor, Bernard (Mansfield)

Donnelly, Desmond

McInnes, James

Thomas, George (Cardiff, W.)

Duffy, Dr. A. E. P.

McKay, Mrs. Margaret

Thomson, George (Dundee, E.)

Dunn, James A.

Mackenzie, Alasdair (Ross & Crom'ty)

Thornton, Ernest

Edwards, Rt. Hn. Ness (Caerphilly)

Mackenzie, Gregor (Rutherglen)

Tinn, James

Ennals, David

McLeavy, Frank

Tomney, Frank

Ensor, David

MacMillan, Malcolm

Urwin, T. W.

Fernyhough, E.

Mahon, Simon (Bootle)

Varley, Eric G.

Fitch, Alan (Wigan)

Manuel, Archie

Wainwright, Edwin

Fletcher, Sir Eric (Islington, E.)

Mapp, Charles

Walden, Brian (All Saints)

Fletcher, Ted (Darlington)

Mason, Roy

Wallace, George

Fletcher, Raymond (Ilkeston)

Maxwell, Robert

White, Mrs. Eirene

Floud, Bernard

Mendelson, J. J.

Whitlock, William

Foley, Maurice

Millan, Bruce

Wilkins, W. A.

Fraser, Rt. Hn. Tom (Hamilton)

Miller, Dr. M. S.

Willey, Rt. Hn. Frederick

Freeson, Reginald

Milne, Edward (Blyth)

Williams, Clifford (Abertillery)

Galpern, Sir Myer

Molloy, William

Willis, George (Edinburgh, E.)

Garrett, W. E.

Morris, John (Aberavon)

Winterbottom, R. E.

George, Lady Megan Lloyd

Murray, Albert

Wyatt, Woodrow

Ginsburg, David

Neal, Harold

Yates, Victor (Ladywood)

Greenwood, Rt. Hn. Anthony

Newens, Stan

Gregory, Arnold

Noel-Baker, Francis (Swindon)

TELLERS FOR THE NOES:

Griffiths, David (Rother Valley)

Norwood, Christopher

Mrs. Harriet Slater and

Griffiths, Rt. Hn. James (Llanelly)

Oakes, Gordon

Mr. Harry Gourlay.

Grimond, Rt. Hn. J.

Ogden, Eric

NOES

Agnew, Commander Sir Peter

Batsford, Brian

Boyd-Carpenter, Rt. Hn. J.

Alison, Michael (Barkston Ash)

Bell, Ronald

Boyle, Rt. Hn. Sir Edward

Allason, James (Hemel Hempstead)

Bennett, Sir Frederic (Torquay)

Brewis, John

Anstruther-Gray, Rt. Hn. Sir W.

Berkeley, Humphry

Brinton, Sir Tatton

Astor, John

Biggs-Davison, John

Brown, Sir Edward (Bath)

Awdry, Daniel

Birch, Rt. Hn. Nigel

Bruce-Gardyne, J.

Balniel, Lord

Black, Sir Cyril

Bullus, Sir Eric

Barber, Rt. Hn. Anthony

Bossom, Hn. Clive

Burden, F. A.

Barlow, Sir John

Box, Donald

Buxton, Ronald

Chataway, Christopher

Hill, J. E. B. (S. Norfolk)

Peel, John

Chichester-Clark, R.

Hobson, Rt. Hn. Sir John

Percival, Ian

Clark, William (Nottingham, S.)

Hornsby-Smith, Rt. Hn. Dame P.

Peyton, John

Clarke, Brig. Terence (Portsmth, W.)

Howard, Hn. G. R. (St. Ives)

Pickthorn, Rt. Hn. Sir Kenneth

Cole, Norman

Hunt, John (Bromley)

Pike, Miss Mervyn

Cooke, Robert

Hutchison, Michael Clark

Pitt, Dame Edith

Cooper-Key, Sir Neill

Iremonger, T. L.

Pounder, Rafton

Cordle, John

Irvine, Bryant Godman (Rye)

Powell, Rt. Hn. J. Enoch

Costain, A. P.

Jenkin, Patrick (Woodford)

Prior, J. M. L.

Courtney, Cdr. Anthony

Jennings, J. C.

Pym, Francis

Craddock, Sir Beresford (Spelthorne)

Kaberry, Sir Donald

Ramsden, Rt. Hn. James

Crosthwaite-Eyre, Col. Sir Oliver

Kerr, Sir Hamilton (Cambridge)

Rawlinson, Rt. Hn. Sir Peter

Cunningham, Sir Knox

Kershaw, Anthony

Renton, Rt. Hn. Sir David

Curran, Charles

King, Evelyn (Dorset, S.)

Ridley, Hn. Nicholas

Davies, Dr. Wyndham (Perry Barr)

Kirk, Peter

Ridsdale, Julian

d'Avigdor-Goldsmid, Sir Henry

Langford-Holt, Sir John

Roberts, Sir Peter (Heeley)

Dean, Paul

Legge-Bourke, Sir Harry

Robson Brown, Sir William

Digby, Simon Wingfield

Lewis, Kenneth (Rutland)

Roots, William

Dodds-Parker, Douglas

Litchfield, Capt. John

Scott-Hopkins, James

Elliott, R. W.(N'c'tle-upon-Tyne, N.)

Lloyd, Ian (P'tsm'th, Langstone)

Sharples, Richard

Emery, Peter

Lloyd, Rt. Hn. Selwyn (Wirral)

Sinclair, Sir George

Errington, Sir Eric

Longden, Gilbert

Smith, Dudey (Br'ntf'd & Chiswick)

Eyre, Reginald

McAdden, Sir Stephen

Spearman, Sir Alexander

Farr, John

MacArthur, Ian

Stanley, Hn. Richard

Fisher, Nigel

McLaren, Martin

Stoddart-Scott, Col, Sir Malcolm

Fletcher-Cooke, Sir John (S'pton)

McMaster, Stanley

Studholme, Sir Henry

Foster, Sir John

McNair-Wilson, Patrick

Talbot, John E.

Fraser, Ian (Plymouth, Sutton)

Maitland, Sir John

Taylor, Edward M. (G'gow,Cathcart)

Gammons, Lady

Mathew, Robert

Teeling, Sir William

Giles, Rear-Admiral Morgan

Maude, Angus

Temple, John M.

Glover, Sir Douglas

Maudling, Rt. Hn. Reginald

Thomas, Rt. Hn. Peter (Conway)

Godber, Rt. Hn. J. B.

Mawby, Ray

Turton, Rt. Hn. R. H.

Goodhew, Victor

Maxwell-Hyslop, R. J.

van Straubenzee, W. R.

Gower, Raymond

Maydon, Lt.-Cmdr. S. L. C.

Walder, David (High Peak)

Grant, Anthony

Meyer, Sir Anthony

Walker, Peter (Worcester)

Grieve, Percy

Mills, Peter (Torrington)

Walker-Smith, Rt. Hn. Sir Derek

Griffiths, Peter (Smethwick)

Mills, Stratton (Belfast, N.)

Wall, Patrick

Gurden, Harold

Mitchell, David

Ward, Dame Irene

Hall-Davis, A. G. F.

Monro, Hector

Weatherill, Bernard

Hamilton, M. (Salisbury)

Morrison, Charles (Devizes)

Webster, David

Harris, Frederic (Croydon, N.W.)

Mott-Radclyffe, Sir Charles

Whitelaw, William

Harris, Reader (Heston)

Munro-Lucas-Tooth, Sir Hugh

Wills, Sir Gerald (Bridgwater)

Harvey, John (Walthamstow, E.)

Murton, Oscar

Wilson, Geoffrey (Truro)

Harvie Anderson, Miss

Noble, Rt. Hn. Michael

Woodhouse, Hon. Christopher

Hawkins, Paul

Nugent, Rt. Hn. Sir Richard

Younger, Hn. George

Heald, Rt. Hn. Sir Lionel

Osborn, John (Hallam)

Heath, Rt. Hn. Edward

Page, R. Graham (Crosby)

TELLERS FOR THE NOES:

Higgins, Terence L.

Pearson, Sir Frank (Clitheroe)

Mr. Jasper More and

Mr. Geoffrey Johnson Smith.

Further Amendments made: In page 93, line 14, at end insert:
(a) regard shall be had not only to the current requirements of the company's business but also to such other requirements as may be necessary or advisable for the maintenance and development of that business, but for this purpose sections 246(2) and (3) and 258(1) and (4) of the Income Tax Act 1952, except section 246(2) proviso, shall apply as they applied for the corresponding purpose of section 245.
In page 93, line 32, leave out sub section (5).
In page 93, line 43, after "in", insert "respect of".
In page 94, line 17, leave out "for purposes of section 44 of this Act" and insert:
"in determining the income tax payable by the company in respect of distributions for the later period or, as the case may be, in arriving at any surplus of franked investment income"—[Mr. Diamond.]
Question proposed, That the Clause, as amended, stand part of the Bill.
8.45 p.m.
Mr. van Straubenzee: We have had a long and detailed discussion on important parts of the Clause, and I am sure that we do not need to take more than a few more minutes on it, but I do not think that it would be right to part with the Clause, as it has been amended, without considering certain aspects of it, some of which have, admittedly, been touched on. After all, this Clause is the pith, the absolute centre, of the close company provisions, and I must frankly say that I am very disappointed that the Question, "That the Clause, as amended, stand part of the Bill" should be proposed with the Clause in its present form. We have missed the opportunity of making substantial improvements in it.
As the Clause and all the close company provisions stand, the tax system will, I believe, bear proportionately much more sharply on those who decide

1305
to trade by way of limited company procedure which we all understand and acknowledge, which has stood us in good stead and from which many of our great and growing companies have stemmed. The provisions of the Clause are most startling when one considers the tax charged on individuals trading together rather than in the form of a limited company.
I do not want to bandy figures to and fro across the Committee, even if I am capable of doing so, but I would say that this is extremely well-illustrated if one takes the case of a business earning £30,000 a year which has three equal owners. If they trade as a partnership, the total tax per person is £4,027. As a close company, if they have a 60 per cent. distribution ceiling—a word which I use to please the Chief Secretary—the total immediate tax is £4,951. If one allows for an eventual sale and consequent tax arising by reason of earlier Clauses of the Bill, the tax will then be £5,467 in all. Therefore, even if we took a 40 per cent. distribution, a figure which we were arguing earlier, the immediate tax is £4,417.
These figures illustrate most strikingly how we are likely, by the provisions of Clause 72 and the other Clauses dealing with close companies—perhaps inadvertently—to hit proportionately much more hardly those who choose to carry on their commercial or business activities in this way. I believe that both the Chief Secretary and the Minister without Portfolio—both of whom have behind them very distinguished careers in what one might call civilian life—do not intend this result. I accept of course, without reservation, the protestations of their belief in this type of trading corporation at their face value.
What worries me is that the effect of this Clause and the other provisions will be very much more harsh than they have appreciated. Time alone will tell. We have argued this time and time again and we do not want to go back ad infinitum over the same arguments. We cannot part with this pith and central Clause in these provisions without it being said clearly not only that the business community itself has the greatest anxiety—though the result of protracted discussion on the Floor of the Committee may well have the beneficial result of
1306
clearing away certain anxieties—but that the result will be of a far more severe nature than those who propose that we should accept this Clause always appreciate.
Mr. Rafton Pounder: We have had a very long and, I think, fruitful discussion on what is one of the most important Clauses—if not the most important Clause—in the Finance Bill. The one type of remark which has recurred time without number during these debates has been the use by hon. Members of such phrases as "It would appear to me", "In my considered opinion", and "In practice it may work out as"—phrases which still indicate a substantial degree of uncertainty about the precise effect of many of the phrases embodied in the Clause. If I had to single out one thing which has pleased me in this discussion, it would be the deletion of subsection (5) from this Clause, because this was partly tied up in a small way with the onus of proof provisions.
We are now discussing this matter in terms of the Question that the Clause stand part. I should like to regionalise the discussions for a few moments. In an area like Northern Ireland, where the great bulk of the companies are within the closed catgeory—the overwhelming majority of companies in Northern Ireland are either small or medium-sized private concerns—there can be no doubt that the provisions of this Clause are likely adversely to affect the economic development of that part of the United Kingdom.
It has been contended repeatedly by hon. and right hon. Members opposite and by the Chief Secretary, within the last few hours, that one of the avowed aims of the Corporation Tax is to help companies to develop and extend by encouraging the retention of profits. It has also been said repeatedly that many hon. Members dislike monopolies and I would go along with that view. However, if we are to implement a form of taxation which will strike hard at the small private company, I would submit that, to a large extent, they are likely to be thrown, due to considerable degree of vulnerability, to the jaws of the larger units. The Clause and the effect of Corporation Tax on close companies could well result in many of them going to the wall. That would be regrettable.

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If companies are to expand and are to go to development areas, as we all wish them to do, they need finance, in many cases substantial sums. This finance has—not exclusively, but in the main—come from retained profits. I am at a loss to understand how, under the terms of the Clause, private close companies will be able to retain anything like the volume of profits which is necessary for their continued expansion.
I go so far as to say that something like 90 per cent. of all companies in Northern Ireland are now within the category of close companies. I hope, therefore, that on Report the Chief Secretary will consider a way of alleviating the worst aspects of the Corporation Tax as it affects close companies in development areas.
Last week, innumerable references were made to certain of the promises concerning development areas that were made by the party opposite at the last election. I shall not bore the Committee by repeating them. I ask the Chief Secretary, however, to give the most serious consideration to these close company provisions as they affect development areas.
In a nutshell, I suggest that the ultimate effect of the Clause, even allowing for the Amendments made by the Chancellor of the Exchequer, will be to handicap initiative, to stifle expansion and to kill stone dead the possibility of the "rags-to-riches" success story. In all seriousness, I say to the Chief Secretary that the Clause could have extremely grave consequences for an area such as Northern Ireland.
Mr. Gower: The Chief Secretary will now be quite sure that we are unhappy about the form of the Clause. Our objections to it have not arisen from any desire to be awkward. The Chief Secretary knows that we have had no desire to obstruct the passage of the Bill or any part of it. The fact is that we are extremely anxious, and we are not alone in this.
The right hon. Gentleman knows that those who preside over the destinies of close companies, whether medium or small in size, are also deeply anxious. I have spoken to a number of those people during
1308
the weekend and I assure the Chief Secretary that they have been following the proceedings of this Committee with a good deal of attention. They are not inexperienced in these matters. Despite all the Amendments which have been made, and despite the importance of those Amendments, those who manage the affairs of close companies are not convinced that their anxieties need continue no longer. They are still apprehensive.
This is the opportunity for the Chief Secretary to answer the question which has been asked time and time again: why is it that in the view of the Government, retentions by the great public companies appear to be the supreme virtue and why, on the other hand, in the case of the close companies, does it appear that distribution is the finest quality of all? That is the question which the right hon. Gentleman has not answered. What he has said, in effect, is that the Clause will not have that result. We are convinced that it will, or that it is almost certain to have that effect.
9.0 p.m.
I fear that if the Clause is not amended it will be more difficult, if not impossible, for small firms to develop into the giant organisations which have meant so much to our economy. Indeed, I doubt if Marks and Spencers, Boots or G.U.S. could have grown into their present sizes had they developed with the kind of financial restrictions imposed by the Bill.
I am glad that my hon. Friend the Member for Belfast, South (Mr. Pounder) drew attention to the relationship between the impact of the Clause on close companies and the Government's avowed policy of helping the development districts. In many cases the large public companies are not the organisations which are bringing special aid to the development district. Often they cannot do so, partly because of the reduced labour force available in smaller areas, and the small family, close concern conveniently provides this sort of aid and development. I hope that the Financial Secretary will consider our fears in that light.
We leave the Clause reluctantly and with great anxiety. I hope that the right hon. Gentleman will not feel that the assurances he has given with such confidence are entirely correct. I hope that

1309
he will consider not only what we have said, but experienced opinion outside the Committee. These are matters of great consequence and the Government must consider them in that light.
Mr. Patrick Jenkin: I raise a matter which has not been touched upon, although an Amendment was tabled to cover it. Unfortunately, that Amendment was not selected. It arises out of the proviso to subsection (2), which gives an abatement to companies with incomes of less than £9,000. However, the provision is qualified by the reference to
"… a trading company not having any associated company …".
and the Amendment which was not selected was designed to remove that embargo and enable a group of companies to be treated as one for the purpose of abatement.
The way in which the provision would have worked was simple. It would have had the effect of reducing, for the very small company, the required standard, as defined, to substantially low figures, much smaller than the ordinary 60 per cent. rule would produce. I hope that the Chief Secretary will consider this matter between now and Report with a view to amending the Clause.
It seems unfair that if a small company happens to have, say, one associated company, it should be automatically denied the benefit of this substantial relief. It would appear perfectly simple to treat groups of small companies so that the group as a whole could claim under the abatement scheme—that is, if their aggregate incomes comply with the £9,000 provision. Obviously, if the income of the group was above that level there would be no room for the operation of abatement. Since we have been told that the Government are anxious to help smaller companies, they should apply the provision to such groups.
I come to the question of the exclusion of the proviso to Section 246(2) of the Income Tax Act, 1952, as imported into the Clause by the Chancellor's Amendment No. 708. The Chief Secretary said that the proviso had been left out because it had never appeared to have had any practical significance. The proviso is intended to make sure that where a company makes a reasonable distribution of income, the fact that it has at some time
1310
engaged in any of the nefarious practices covered by Section 246(2), like redeeming preference shares, or redeeming loans, or engaging in imaginary or fictitious transactions should not lead to a Surtax direction being made. The Clause now applies this for Income Tax and Surtax in regard to a 60 per cent. ceiling instead of to a 100 per cent. ceiling.
One could imagine that with a 100 per cent. ceiling the proviso might have no application, but with a 60 per cent. ceiling a company might apply the 40 per cent. margin as it wished. If it applies the 40 per cent. in redeeming its preference shares this is to be disallowed under the Clause, and the norm applies when taking that into account. It may well be that the proviso would make a distinction if the company, at the same time, made what was considered to be a reasonable distribution.
I am not entirely convinced one way or the other, but I am not entirely happy that the mere fact that no company has had to import the protection of the proviso to Section 246(2) is necessarily any guide that it would not have perfectly valid reasonable need for this protection for the future. As it is expressly excluded by the Chief Secretary's Amendment, it is incumbent on him to give a little more explanation to satisfy the Committee that it would not apply in circumstances likely to affect these companies in the future.
Mr. Lubbock: I, too, would like the Chief Secretary to give a further explanation of this proviso. Although I am satisfied that we have made considerable improvements to the Clause, when I put down my Amendment No. 77 I did not think that the proviso was essential, and I had noticed that the Government's Amendment No. 707 had struck it out while putting in these criteria by which reasonable distribution is to be determined. At least we have got out of the Government a much more sensible approach to the subject than we had under the Clause as first drafted.
If I could be sure that the Chief Secretary's assurances on the way in which the 60 per cent. is to be looked at would be binding on the inspectors, I should feel perfectly happy about the Clause. The point is that we have large numbers of inspectors who will be looking at different cases, and I am afraid that

1311
many of them will not have read the Chief Secretary's words or, if they have, will not have understood that they are to be interpreted exactly as the special commissioners would have interpreted the approach to Surtax. We therefore have a position in which no company will be required by this legislation to distribute more than it would have been required to distribute under the previous legislation, and that is exactly what I would have hoped we would bring about in this Bill.
The Chief Secretary says that it is no part of the Government's case that one should force close companies to distribute—if I may put it rather crudely—more than is good for them, or more than is good for the health of the business. That is what we should all like to see. He said repeatedly in dealing with the Amendment that this is the Government's object. Therefore, as I say, I am very happy with some of the improvements that have been made to the Clause, and also with the expressions of the Government's intentions. It is rather a pity if that is the case that we could not have a concession on the onus of proof. This strikes me as being one way in which the Chief Secretary could have given enormous reassurance to companies affected by Clause 72. If it were not for that, I should be perfectly happy with this Clause.
Sir L. Heald: I have taken part in discussion of this Clause only on the subject of onus of proof. I shall not say more about that, but the Question before the Committee enables me to speak with a little more detachment and to say that it should be on record that the efforts of the Opposition in this case have produced very substantial improvement in the Clause. There is no doubt at all that as the Bill was originally drafted this part of it would have been absolutely disastrous to the small man developing a company.
I was prepared and able to give in complete detail particulars of a very striking case in which a man has developed a remarkable business. It would not be appropriate to go into that now. His position, according to his expert advisers, of whom I am not one—I have no personal interest in the matter except
1312
close knowledge of the individual concerned—would have been rendered disastrous. I was anxious to know what was thought by the expert advisers. They have taken the view that the Amendments which have been made will have a considerable beneficial effect. I agree with my hon. Friends who say that this is not by any means certain yet, and with the hon. Member for Orpington (Mr. Lubbock) who said that it depends to some extent on the illustration of the way in which these matters are dealt with. We believe that the commissioners will deal with the matter in a fair and reasonable manner.
The fact remains that an improvement has been made, but we must not allow the Government and their spokesmen to say that they have been generous, have recognised justice and all that kind of thing. They have been forced by the strength and efficiency of the Opposition to make concessions. That is the way in which Parliament should operate in this Committee.
The other day I heard that there was a discussion on television. I did not hear it because I was otherwise engaged in this building. I understand that the Chancellor of the Exchequer took the view that people had been very unfair to him. He said, "You do not really think that I want to destroy these people with British initiative, like Lord Nuffield, in the past, and all that kind of thing. I do not want to do that, so, of course, I am making amendments". I understand that someone made the rather pointed comment, "Are you amending your own Finance Bill, or someone else's?" We must remember that the right hon. Gentleman and the Government were responsible for introducing this Bill, which contains provisions such as those we have been fighting against and many others on which we have not been able to get concessions. It is not their generosity, but the fighting force put in by my hon. and right hon. Friends and the logic of the case, which has produced these results.
Mr. Kenneth Lewis: I shall intervene only briefly, although I do not think we need apologise for time spent on this Clause, for it is a very important one. I do not know how much notice the Chief Secretary takes of his own back benchers.

1313
Having listened to some of the speeches that they have made, I do not think that he has taken a great deal of notice of them. There was an intervention earlier by one of his hon. Friends in which it was suggested that businessmen did not understand, or try to understand, what was being done by this Bill.
I can appreciate that they might have difficulty in understanding the Bill or keeping pace with the changes which have taken place in it, but to suggest that businessmen are not concerned about what is to happen to them at the end of 1966 when the Bill operates comes rather strangely from an hon. Member opposite who was an accountant. I doubt very much whether the Chief Secretary would accept this if he were not in his present position, but himself was acting as an accountant. Any businessman knows full well that when changes in taxation of this or any other sort take place in a Finance Bill he is bound for his own good to find out. If he does not try to find out for himself, his accountant will soon tell him that it will affect him.
The Temporary Chairman: I am waiting to hear the hon. Member mention Clause 72.
9.15 p.m.
Mr. Lewis: This was raised on one of the Amendments. The Clause has been considerably improved since the Opposition have had a go at it. It has been improved for the small businessman. Nevertheless, there is still concern about how it will affect the small business. Not even Liberal Members have pointed out that it often happens with a small company that there is a content of profit sharing. I have a small company. There is a profit-sharing content in it. What will happen if a firm distributes a considerable amount of its profit in bonus payments, in a profit-sharing exercise? It might say to the tax inspector, "What we have left is wholly required, or almost wholly required, or at least 30 per cent. required", which would be more than is permitted under the Bill; "We must have the right to plough back at least 30 per cent. because of what we have already paid out to our employees".
This can happen with many small companies. It is the kind of thing which I should have thought right hon. and
1314
hon. Members opposite would want to encourage. We have to be convinced that the tax inspector will look with favour upon such a situation. I hope that the Chief Secretary will tell us whether, in the distribution of profits, profit sharing will be taken fully into account.
My hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) has referred to the phrase
"not having an associated company."
This is important, because there are companies which have associated companies which are not active. If a company is not active, is not trading, is not making money, but is an associated company, I presume that it will not have any effect upon the allowances which will be permitted to the close company concerned. If a company had a dummy associated company and that associated company was counted as affecting the kind of advantages to be given to the main company, a liquidation might have to take place. The company might have been created for a special reason, perhaps to maintain a name.
The Clause probably affects more people apart from the general taxpayer than any other. The number of large businessmen is small. We have spent a great deal of time debating the effect of the Bill on the large businessmen. The small businessman is the big businessman of tomorrow. We are dealing with the seed corn. We are dealing with the future exporter. Therefore, we ought to encourage the growth of the small business.
The Chief Secretary was very reticent on the question of onus of proof. If the businessman is worried about the effect of the Clause, the Chief Secretary can go a long way to help him by arranging that the onus of proof should be put back to where it was before: it should be on the commissioners. If there has been a change it is reasonable that the businessman outside should presume that there has been a change for a purpose. Therefore, if the Chief Secretary will not concede this, the businessman outside will naturally accept the fact that this change has been made so as to make things worse for him.
If on the other hand the Chief Secretary can come forward either now or on Report and say that he concedes that

1315
we should go back to the position as it was before then, as he knows these matters are reasonably sorted out as between the tax inspector, the commissioners and the businessman and there is not normally any difficulty about an amenable solution being found when questions of distribution are discussed, at least it will impress upon the businessman that the Government do not intend to have a special go at the small business but intend to encourage it.
Mr. Diamond: I will do my best to answer shortly all the questions that have been put to me.
The hon. Member for Wokingham (Mr. van Straubenzee) first alleged that the proposals in this Clause taken together with Corporation Tax would deal harshly with corporations. He said that we should not bandy figures and I agree that individual examples are not very conclusive. I will therefore deal shortly with the totality of the position.
The present situation is that we are proposing a new form of taxation to replace Income Tax and Profits Tax with Corporation Tax, which will, so far as all domestic companies are concerned, comparing like with like, result in an alleviation of tax to the extent of some £100 million approximately which, of course, is the amount which would have been suffered by companies trading abroad if certain Amendments had not been brought forward. All domestic companies, therefore, are sharing in the benefit of £100 million.
How do they share in it? Those which distribute less than 51½ per cent, get a benefit. Those which distribute more than 51½ per cent. have a heavier burden of tax to bear. That is the short situation. All that the hon. Gentleman has got to ask himself with regard to any company, be it affected by this Clause or not, is whether it is distributing more or less than that. He will bear in mind that the average distribution is about 50 per cent., so that if the present pattern continues the person making the average distribution is not prejudiced at all. He shares with every other company, to the extent of their profits proportionately, in the general benefit of £100 million.
That is the overall situation. There is nothing in this Clause which bears harshly
1316
on any company at all. It merely, as everybody recognises, protects the honest and straightforward taxpayer against that kind of taxpayer who seeks to avoid his fair share of the burden by keeping his profits in a cash box which he calls a company, and avoiding them coming into the daylight and being susceptible to taxation.
The hon. Member for Belfast, South (Mr. Pounder) said, among other things, that this Clause would result in small companies going to the wall. I do not think he would have said that if he had listened to the whole of the debate. However, perhaps he did not have an opportunity of doing so.
The special point that he made was in connection with development districts. This Clause provides for that very point. If a company trading in a development district has to have reserves greater than it would have had if it were not trading in a development district—that is the case which the hon. Gentleman was making—this is one of the relevant factors in satisfying the Inland Revenue as to the level of distribution.
That is introduced in the Bill. That is in the wording of the Bill itself. It would not be relevant otherwise, but if there are, as the hon. Member stipulates, special circumstances which affect a business trading in a development district of a kind which require additional reserves, that would be relevant. For example, the hon. Member may say that in a certain development district people are not very flush with money and are rather slow in paying their debts and that in that company it was necessary to have more capital to finance the turnover of the debtors. If that were the case it would be a relevant argument to put before the inspectors. I am glad that the hon. Member raised the point. It is specially covered in this Bill in this way.
The hon. Member for Barry (Mr. Gower) referred to the deep anxiety, which I recognised is there, and which I hope the debate has dissipated, that retention was regarded by the Government as the supreme virtue for the large company and distribution a supreme virtue for the small company. The answer is that neither statement represents the situation, which is that for a big company the supreme virtue is plough-back and for

1317
the small company the surpreme virtue is plough-back. In neither case is it pure retention or pure distribution. What we are saying is that there is no point in a company which does not need its realised profits for reserves or development hanging on to them—let the company distribute them; there is no wisdom in allowing a company which merely seeks to avoid tax to carry on in that way any more than it has been allowed to do it in the past 13 years.
The hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) drew attention to the substantial relief in the abatement provisions. I am grateful to him, because that point was not brought out sufficiently clearly in the debate hitherto. But the hon. Member raised the point because he asked why we should not allow that substantial relief to each member of a group rather than a group as a whole.
Mr. Patrick Jenkin: Obviously I did not make myself clear to the Chief Secretary, for which I apologise. Knowing him, I know that it is my fault and not his. I suggested that the right approach is that where there is a group of companies they should be aggregated. If it turned out that the group should be entitled to relief then the relief should apply, but if the group as aggregated is not entitled to relief it would not be applicable. I agree that it would be quite wrong to apply relief to each individual company in the group.
Mr. Diamond: I am sorry if I misunderstood the hon. Member. As I understood him, I read into his remarks that intention, because I cannot see what advantage there would be otherwise in what the hon. Member proposes. He and I agree that if there is a group of compaines it would defeat the object of the Amendment to allow rebate to each member of the group, but if he proposes aggregation I cannot see where the advantage lies. Perhaps the hon. Member is referring to a discussion which might have taken place and did not, but I will see that the point receives as full consideration as if that discussion had taken place. The hon. Member also asked me to look at the point of protection afforded in the old Section 246(2). I shall be glad to do that at the same time. It may be
1318
that there are further arguments, having regard to what he said. The hon. Member for Orpington (Mr. Lubbock) also raised the point and I will look into it.
The hon. Member for Orpington said that he was less dissatisfied with the Clause now than he had been hitherto, but he wanted to be reassured, in a way in which speeches at the Dispatch Box cannot reassure him, that the Clause will be worked satisfactorily. My appearances at the Box are attempts at explanation. They have not in any way the force of law, but I assure the hon. Member that we shall see that the very thing which he wants is carried out. We shall see that the same knowledge and expertise now brought to bear by the special commissioners will be brought to bear by the inspectors of taxes, so that the taxpayer will have the best possible audience for his comments as well as the added convenience of getting to the Inland Revenue official without a lot of trouble.
9.30 p.m.
Of course, the way that is done, as he probably knows, is that there is a blue book or a brown book—I do not know which colour—distributed among all inspectors of taxes which contains the essence of the practice and wisdom which has been gained in any way. I shall make sure that the wisdom and expert knowledge of the special commissioners dealing with the Surtax direction is fully distributed to all inspectors dealing with the matter so that we shall have, as far as possible, the informed and consistent treatment which is what we all desire.
I do not know whether the right hon. and learned Member for Chertsey (Sir L. Heald) wanted me to reply to the point which he raised. I think that the best answer was given by his right hon. Friend the Member for Altrincham and Sale (Mr. Barber). The right hon. and learned Gentleman said that there were a lot of changes and these were entirely due to what the Opposition had forced upon the Government and in no sense was it a matter of our generosity. The right hon. Member for Altrincham and Sale made a more accurate point, if I may say so, saying that there was really no change at all in any of these Amendments; it was merely presentation. I quite agree. The right hon. Gentleman has done his homework carefully, as usual. But in the

1319
sense that it has helped towards an understanding of the purposes of the Government in the Clause, this is to be welcomed.
The hon. Member for Rutland and Stamford (Mr. Kenneth Lewis) asked me about a profit-sharing scheme. I gather from what he said that there were bonuses issued which would be taken in shares, in a sense, but these bonuses would be a charge against the profits of the company. All I can say is that 60 per cent. of profits reduced by those bonuses is a smaller figure than 60 per cent. before being so reduced, so he need have no anxiety on that score.
The hon. Member for Rutland and Stamford was anxious for the Government to encourage the growth of small companies. This is the Government's policy. We have every desire to encourage the growth of small companies and big companies. We want to encourage every company to become more and more efficient by using its resources and not sitting idly on them. That is the purpose of the Clause, which I hope that the Committee will now allow to pass.
Mr. Barber: We have had a fairly full discussion on several aspects of the Clause before coming to this Question, and I shall, therefore, try to be brief and to the point in my remarks. The whole Committee is grateful to the Chief Secretary for the patient way in which he has answered the several points raised during the debate or, in those cases where he was not sure of the answer, for promising to look into the matter between now and Report.
This is one of the most important Clauses of the Bill. It must be recognised that the Clause is not a mere by-product of the scheme of Corporation Tax which has been introduced. I say this because the Chief Secretary, at the outset of his reply, dealt in general terms with some of the principles of the Corporation Tax. The point to be recognised here is that, in this particular system, dealing with close companies, the Chancellor is breaking new ground, establishing new principles which are not an intrinsic part of the concept of a Corporation Tax.
Whether the Chancellor is right or wrong, the incontrovertible fact is that,
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taking the scheme for close companies as a whole, the right hon. Gentleman is seeking to extend the Inland Revenue's control of what the Economist termed last week the great majority of British companies. I say this advisedly. By virtue of the extended definition of close company, a wider definition than what we have understood as the old Section 245 company, the Economist is right in saying that, in future the great majority of British companies will now come within the ambit of these stringent and far-reaching provisions.
I want to make one thing clear. I see the necessity with certain types of company under the control of a limited number of people for some special legislation to prevent the avoidance of tax. I think that few, if any, of my hon. Friends will disagree with me. Therefore, it seems to me that the central issue in the debate on this Clause is whether the Clause sets about it the right way to deal with this matter.
We are now considering Clause 72, which is essential to the whole concept of the scheme for dealing with close companies. It is impossible to consider the Clause in isolation, without regard to the types of company on which it will bite and the extent to which it will bite on them. As the Bill is at present drafted—I have in mind particularly Schedule 17—the Clause is to apply to innumerable companies which never came within the ambit of the original Surtax directions under the present law. Secondly, Corporation Tax is to be levied at a uniform rate of 35 or 40 per cent., unlike the majority of foreign countries with Corporation Tax which at present have a lower rate in respect of distributions or are moving in that direction.
Thirdly—this is of great importance—where under the old system a Surtax direction was made there was no liability to Profits Tax. Under the Chancellor's new system the 60 per cent. in the ceiling case which is now to be taxed as personal income will in addition be liable to Corporation Tax. These are very important differences which must have a bearing on our approach to the Clause.
The whole scheme for dealing with close companies as set out in the Bill has rightly drawn protests from many people who have experience of industry and

1321
commerce. The reason is not difficult to see. It is because the scheme, when considered in its entirety, will I believe inevitably hamper the growth and the improving efficiency of thousands of companies on which our prosperity depends.
The only material alterations proposed by the Chancellor since the Bill was published are, first, the removal of the £25,000 limit on directors' remuneration, which we proposed, and, secondly, the provision for a clearance procedure, which we also proposed. But the criterion of 60 per cent. distribution still remains, the onus of proof, whatever view one takes on the merits, still remains on the taxpayer and the enlarged definition of a close company still remains.
In short, it can be said that the Chancellor has failed to meet the major criticisms made. It is not surprising, because those Ministers who are primarily responsible for our industrial and economic destinies simply do not understand the consequence of what they are doing, and, what is more important, I believe they do not understand the sensible approach of some of those who have made representations about the Clause.
I noticed that the Minister of State for Economic Affairs said the other day:
"We are used to attacks and we ought to be prepared to receive them, but we do really expect serious bodies, like chambers of commerce, professional bodies and institutes of
directors, to behave with a little more rationality than with the hysterics that some of them have been displaying."
That seems to me to be extraordinarily arrogant. After all, who is the Minister of State to talk about chambers of commerce and professional bodies behaving with hysterics? These are the very organisations which have been making representations about the Clause, but perhaps it is not surprising that the Minister of State took that view because it was he who, when my right hon. Friend the Member for Bexley (Mr. Heath) was talking about the break up of family businesses, interjected, "and about time".
There is much more that I could have said about the Clause. In due course we shall have an opportunity to debate the definition on close companies. Many public companies have now been brought into the net and these provisions will, in relation to those companies, be quite impracticable and inappropriate. It is because these provisions penalise the small family business and are inappropriate for the larger public companies that we shall vote against the Clause. My hon. Friend the Member for Barry (Mr. Gower) said that he will leave the Clause reluctantly. I only wish that I could say the same.
Question put, That the Clause, as amended, stand part of the Bill:—
The Committee divided: Ayes 188, Noes 165.

Division No. 191.]

AYES

[9.41 p.m.

Abse, Leo

Coleman, Donald

George, Lady Megan Lloyd

Allaun, Frank (Salford, E.)

Conlan, Bernard

Ginsburg, David

Alldritt, Walter

Corbet, Mrs. Freda

Greenwood, Rt. Hn. Anthony

Armstrong, Ernest

Craddock, George (Bradford, S.)

Gregory, Arnold

Atkinson, Norman

Crossman, Rt. Hn. R. H. S.

Griffiths, David (Rother Valley)

Bacon, Miss Alice

Cullen, Mrs. Alice

Griffiths, Rt. Hn. James (Llanelly)

Bagier, Gordon A. T.

Dalyell, Tam

Grimond, Rt. Hn. J.

Barnett, Joel

Davies, G. Elfed (Rhondda, E.)

Hale, Leslie

Beaney, Alan

Davies, Ifor (Gower)

Hamilton, James (Bothwell)

Benn, Rt. Hn. Anthony Wedgwood

Davies, S. O. (Merthyr)

Hamilton, William (West Fife)

Bennett, J. (Glasgow, Bridgeton)

Diamond, John

Hannan, William

Bessell, Peter

Doig, Peter

Harrison, Walter (Wakefield)

Bishop, E. S.

Donnelly, Desmond

Hart, Mrs. Judith

Blackburn, F.

Duffy, Dr. A. E. P.

Hattersley, Roy

Blenkinsop, Arthur

Dunn, James A.

Herbison, Rt. Hn. Margaret

Boardman, H

Edwards, Rt. Hn. Ness (Caerphilly)

Hill, J. (Midlothian)

Bowden, Rt. Hn. W. (Leics S. W.)

Ennals, David

Hobden, Dennis (Brighton, K'town.)

Bowen, Roderic (Cardigan)

Ensor, David

Holman, Percy

Boyden, James

Fernyhough, E.

Hooson, H. E.

Braddock, Mrs. E. M.

Fitch, Alan (Wigan)

Horner, John

Bray, Dr. Jeremy

Fletcher, Sir Eric (Islington, E.)

Houghton, Rt. Hn. Douglas

Broughton, Dr. A. D. D.

Fletcher, Ted (Darlington)

Howie, W.

Buchan, Norman (Renfrewshire, W.)

Fletcher, Raymond (Ilkeston)

Hoy, James

Buchanan, Richard

Floud, Bernard

Hughes, Emrys (S. Ayrshire)

Butler, Herbert (Hackney, C.)

Foley, Maurice

Hughes, Hector (Aberdeen, N.)

Callaghan, Rt. Hn. James

Fraser, Rt. Hn. Tom (Hamilton)

Hunter, Adam (Dunfermline)

Carmichael, Neil

Freeson, Reginald

Hunter, A. E. (Feltham)

Carter-Jones, Lewis

Galpern, Sir Myer

Irving, Sydney (Dartford)

Castle, Rt. Hn. Barbara

Garrett, W. E.

Jay, Rt. Hn. Douglas

Johnston, Russell (Inverness)

Neal, Harold

Small, William

Jones, Dan (Burnley)

Newens, Stan

Smith, Ellis (Stoke, S.)

Kelley, Richard

Oakes, Gordon

Soskice, Rt. Hn. Sir Frank

Kenyon, Clifford

Ogden, Eric

Steel, David (Roxburgh)

Langford-Holt, Sir John

O'Malley, Brian

Steele, Thomas (Dunbartonshire, W.)

Lawson, George

Oram, Albert E. (E. Ham, S.)

Stewart, Rt. Hn. Michael

Lee, Rt. Hn. Frederick (Newton)

Orme, Stanley

Stones, William

Lever, L. M. (Ardwick)

Oswald, Thomas

Summerskill, Hn. Dr. Shirley

Lewis, Arthur (West Ham, N.)

Owen, Will

Swingler, Stephen

Lewis, Ron (Carlisle)

Padley, Walter

Symonds, J. B.

Lomas, Kenneth

Park, Trevor (Derbyshire, S.E.)

Taylor, Bernard (Mansfield)

Loughlin, Charles

Parker, John

Thomson, George (Dundee, E.)

Lubbock, Eric

Pearson, Arthur (Pontypridd)

Thornton, Ernest

McBride, Neil

Peart, Rt. Hn. Fred

Thorpe, Jeremy

McCann, J.

Pentland, Norman

Tinn, James

MacDermot, Niall

Perry, Ernest G.

Tomney, Frank

McGuire, Milchael

Popplewell, Ernest

Urwin, T. W.

McInnes, James

Price, J. T. (Westhoughton)

Varley, Eric G.

McKay, Mrs. Margaret

Probert, Arthur

Wainwright, Edwin

Mackenzie, Alasdair (Ross & Crom'ty)

Pursey, Cmdr. Harry

Walden, Brian (All Saints)

Mackenzie, Gregor (Rutherglen)

Randall, Harry

Wallace, George

McLeavy, Frank

Rankin, John

White, Mrs. Eirene

MacMillan, Malcolm

Rees, Merlyn

Whitlock, William

Mahon, Simon (Bootle)

Rhodes, Geoffrey

Wigg, Rt. Hn. George

Manuel, Archie

Richard, Ivor

Wilkins, W. A.

Mapp, Charles

Roberts, Albert (Normanton)

Willey, Rt. Hn. Frederick

Mason, Roy

Robertson, John (Paisley)

Williams, Clifford (Abertillery)

Maxwell, Robert

Rodgers, William (Stockton)

Willis, George (Edinburgh, E.)

Mendelson, J. J.

Rogers, George (Kensington, N.)

Winterbottom, R. E.

Millan, Bruce

Sheldon, Robert

Wyatt, Woodrow

Miller, Dr. M. S.

Shinwell, Rt. Hn. E.

Yates, Victor (Ladywood)

Milne, Edward (Blyth)

Short, Rt. Hn. E. (N'c'tle-on-Tyne, C.)

Molloy, William

Silkin, John (Deptford)

TELLERS FOR THE NOES:

Morris, John (Aberavon)

Slater, Mrs. Harriet (Stoke, N.)

Mr. Harry Gourlay and

Murray, Albert

Slater, Joseph (Sedgefield)

Mr. Joseph Harper.

NOES

Agnew, Commander Sir Peter

Errington, Sir Eric

Lloyd, Ian (P'tsm'th, Langstone)

Alison, Michael (Barkston Ash)

Eyre, Reginald

Lloyd, Rt. Hn. Selwyn (Wirral)

Allason, James (Hemel Hempstead)

Farr, John

Longden, Gilbert

Astor, John

Fisher, Nigel

McAdden, Sir Stephen

Awdry, Daniel

Fletcher-Cooke, Sir John (S'pton)

McLaren, Martin

Barber, Rt. Hn. Anthony

Foster, Sir John

McMaster, Stanley

Barlow, Sir John

Fraser, Ian (Plymouth, Sutton)

McNair-Wilson, Patrick

Batsford, Brian

Gammans, Lady

Maitland, Sir John

Bell, Ronald

Giles, Rear-Admiral Morgan

Mathew, Robert

Bennett, Sir Frederic (Torquay)

Glover, Sir Douglas

Maude, Angus

Berkeley, Humphry

Godber, Rt. Hn. J. B.

Maudling, Rt. Hn, Reginald

Biggs-Davison, John

Goodhew, Victor

Mawby, Ray

Birch, Rt. Hn. Nigel

Gower, Raymond

Maxwell-Hyslop, R. J.

Black, Sir Cyril

Grant, Anthony

Maydon, Lt.-Cmdr. S. L. C.

Bossom, Hn. Clive

Grieve, Percy

Meyer, Sir Anthony

Box, Donald

Griffiths, Peter (Smethwick)

Mills, Peter (Torrington)

Boyd-Carpenter, Rt. Hn. J.

Gurden, Harold

Mills, Stratton (Belfast, N.)

Boyle, Rt. Hn. Sir Edward

Hall-Davis, A. G. F.

Mitchell, David

Brewis, John

Hamilton, M. (Salisbury)

Monro, Hector

Brinton, Sir Tatton

Harris, Frederic (Croydon, N.W.)

More, Jasper

Brown, Sir Edward (Bath)

Harris, Reader (Heston)

Morrison, Charles (Devizes)

Bruce-Gardyne, J.

Harvey, John (Walthamstow, E.)

Mott-Radclyffe, Sir Charles

Bullus, Sir Eric

Harvie Anderson, Miss

Munro-Lucas-Tooth, Sir Hugh

Burden, F. A.

Hawkins, Paul

Murton, Oscar

Buxton, Ronald

Heald, Rt. Hn. Sir Lionel

Noble, Rt. Hn. Michael

Chataway, Christopher

Heath, Rt. Hn. Edward

Nugent, Rt. Hn. Sir Richard

Chichester-Clark, R.

Higgins, Terence L.

Osborn, John (Hallam)

Clark, William (Nottingham, S.)

Hill, J. E. B. (S. Norfolk)

Page, R. Graham (Crosby)

Clarke, Brig. Terence (Portsmth, W.)

Hobson, Rt. Hn. Sir John

Pearson, Sir Frank (Clitheroe)

Cole, Norman

Hornsby-Smith, Rt. Hn. Dame P.

Peel, John

Cooke, Robert

Howard, Hn. G. R. (St. Ives)

Percival, Ian

Cooper-Key, Sir Neill

Hunt, John (Bromley)

Peyton, John

Cordle, John

Hutchison, Michael Clark

Pickthorn, Rt. Hn. Sir Kenneth

Costain, A. P.

Irvine, Bryant Godman (Rye)

Pike, Miss Mervyn

Courtney, Cdr. Anthony

Jenkin, Patrick (Woodford)

Pitt, Dame Edith

Craddock, Sir Beresford (Spelthorne)

Jennings, J. C.

Pounder, Rafton

Crosthwaite-Eyre, Col. Sir Oliver

Johnson Smith, G. (East Grinstead)

Powell, Rt. Hn. J. Enoch

Curran, Charles

Kaberry, Sir Donald

Prior, J. M. L.

Dalkeith, Earl of

Kerr, Sir Hamilton (Cambridge)

Pym, Francis

Davies, Dr. Wyndham (Perry Barr)

Kershaw, Anthony

Ramsden, Rt. Hn. James

d'Avigdor-Goldsmid, Sir Henry

King, Evelyn (Dorset, S.)

Rawlinson, Rt. Hn. Sir Peter

Dean, Paul

Kirk, Peter

Renton, Rt. Hn. Sir David

Digby, Simon Wingfield

Langford-Holt, Sir John

Ridley, Hn. Nicholas

Dodds-Parker, Douglas

Legge-Bourke, Sir Harry

Ridsdale, Julian

Elliott, R. W.(N'c'tle-upon-Tyne, N.)

Lewis, Kenneth (Rutland)

Roberts, Sir Peter (Heeley)

Emery, Peter

Litchfield, Capt. John

Robson Brown, Sir William

1324

1325

Roots, William

Teeling, Sir William

Weatherill, Bernard

Scott-Hopkins, James

Temple, John M.

Webster, David

Sharples, Richard

Thomas, Rt. Hn. Peter (Conway)

Whitelaw, William

Sinclair, Sir George

Turton, Rt. Hn. R. H.

Wills, Sir Gerald (Bridgwater)

Spearman, Sir Alexander

van Straubenzee, W. R.

Wilson, Geoffrey (Truro)

Stanley, Hn. Richard

Walder, David (High Peak)

Woodhouse, Hon. Christopher

Stoddart-Scott, Col. Sir Malcolm

Walker, Peter (Worcester)

Younger, Hn. George

Studholme, Sir Henry

Walker-Smith, Rt. Hn. Sir Derek

Talbot, John E.

Wall, Patrick

TELLERS FOR THE NOES:

Taylor, Edward M. (G'gow, Cathcart)

Ward, Dame Irene

Mr. Ian MacArthur and

Mr. Dudley Smith.

Clause 73.—(APPORTIONMENT FOR SURTAX OF CLOSE COMPANY'S INCOME.)
Sir Eric Fletcher: I beg to move Amendment No. 691, in page 94, line 47, at the end to insert:
"but with such reduction, if any, as may be just in respect of distributions made for the period to persons other than participators and associates of participators (or amounts treated as such for purposes of section 72 above):".
The Chairman: With Amendment No. 691 we may take Amendment No. 692, in page 95, leave out lines 12 to 17.
Sir Eric Fletcher: These two Amendments are interrelated. They are very little more than drafting Amendments. In effect, the proviso to subsection (4) in the Bill as printed is deleted and the operative words are transposed as part of subsection (2). The object of the proviso was to ensure that the participators of a close company are not themselves charged for Surtax by reason of the payment of excess remuneration, which would be disallowed under Clause 69, to a director who is not a participator. It is more convenient and more favourable if the proviso forms part of subsection (2) rather than a proviso to subsection (4).
Mr. Patrick Jenkin: It must be a novel case when the word "just" is introduced in such a context as this, in a taxing Statute. It used to be said in relation to the equity as administered in the Courts of Chancery that the equity would vary with the length of the Lord Chancellor's foot. We now seem to have this concept transposed into the taxing Statute where the assessment seems to vary with the weight of the Minister's fortfolio. [HON. MEMBERS: "He has not got one."] If he had one.
I would have thought that in relation to taxation one wants to keep the element of discretion on the part of the inspectors of taxes down to the absolute minimum. We have already discussed the transference of the whole of this function of making directions on close companies
1326
from the special commissioners to the inspectors. Now we are giving them a very wide discretion in these words that are transposed from the proviso to sub-Clause 4 in relation to the amount that shall be disallowed in respect of directors' remuneration. I would have thought that this was not a very good thing to rule.
It has often been said that there is no equity in the taxing statutes and that there should be as little room as possible for exercise of the individual discretion of the inspector when it is written in a Statute of this sort. The Statute should try to lay down what is to be regarded as just. It is what Parliament feels and not what the inspector feels is just which should be the test in levying taxes.
Sir Eric Fletcher: I do not dissent in general from the hon. Gentleman's observations. It is right that we should reduce to a minimum the occasions on which an element of discretion is left to the inspector.
It is not correct, as the hon. Gentleman suggested, that this is a novel provision. It is not unique. There is precedent for it. In this case, this is the only solution, I think, which could be found. The Amendment is designed to substitute this provision in a part of the Clause more favourable to the taxpayer than it would be if it were left in subsection (4). The object of the Amendment is to ensure that there will be excluded from any liability on any part of the profits which would otherwise be subject to Surtax that part of the profits which are represented by an excess distribution to a director.
I have given this matter very considerable thought, and it seems to me completely impossible, without a very elaborate provision, to do more than leave the operation of this part of the Bill to the discretion of the inspector of taxes.
Amendment agreed to.
Further Amendments made: In page 95, line 3, leave out "or (5)". In page 95, leave out lines 12 to 17.—[Sir Eric Fletcher.]
Sir Eric Fletcher: I beg to move Amendment No. 723, in page 95, line 43, to leave out from "and" to "amounts" in line 44 and insert:
"no individual shall be charged to surtax by virtue of any apportionment under this section unless the sum or (where there is a sub-apportionment) aggregate sum on which he is so chargeable".
Although Amendment No. 630—in line 36, to leave out "subsection (3) above" and to insert "this section"—has not been selected, those who tabled it will have realised that Amendment No. 723 is designed to give effect to it. I should like to pay tribute for the fact that the point which the hon. Members in question intended to give effect to is a good point which has not escaped the attention of my right hon. and hon. Friends. This Amendment will serve in somewhat different language to give effect to what they were contemplating.
Mr. van Straubenzee: My hon. Friends and I are grateful for one more of the long line of compliments from the occupants of the Government Front Bench for the improvements in drafting which are consequential on the very careful and detailed examination which we on this side of the Committee have given to the Bill. I should be churlish if I did not acknowledge that the Government have met the point which clearly they had not appreciated until Amendment No. 630 was tabled.
I am still of the view that the drafting of our Amendment is tidier than that of the Government's Amendment, but I do not want, at this hour, to hold up our proceedings, apart from expressing my appreciation to the Government for meeting the point.
Mr. Barber: If at any time my hon. Friends can be of further assistance, the Minister without Portfolio has only to let us know.
Amendment agreed to.
Clause, as amended, ordered to stand part of the Bill.

Clause 74.—(SUPPLEMENTARY PROVI- SIONS ABOUT CLOSE COMPANIES.)
10.0 p.m.
Mr. Patrick Jenkin: I beg to move Amendment No. 631, in page 96, line 28, at the end to add:
(2) A company may in respect of any financial year during the whole of which it is a close company elect by notice in writing to the Inspector within two years of the end of such financial year that it shall be assessed to income tax as though it were a partnership consisting of its participators and directors and that it shall be exempt from corporation tax for that financial year and in such circumstances the company's income shall be deemed to accrue to its participators and directors as partners in such shares as may be just having due regard to their rights to participate in the income of the company or to remuneration from the company.
I should like to begin by thanking you, Dr. King, for having decided to select this Amendment. I feel certain that, when you have heard the arguments in its favour, you will appreciate that this is a point of considerable substance. I hope that the Treasury Bench will give the argument on this Amendment the same very close consideration to which we have by now become accustomed in relation to other Amendments with which we have been dealing.
The purpose of the Amendment is to give close companies the option to be assessed as partnerships. That is to say, where it would pay them to do it, close companies should not be liable for Corporation Tax but should be liable to Income Tax and Surtax on the whole of the income of the business, with no provision for retentions, The purpose which underlies the Amendment is to avoid the very severe tax penalty which the mere fact of incorporation will now impose on the smaller companies. I am sure that the Committee by now realises—even if the Chancellor does not—that the tax changes which the Bill introduces for separating companies from their shareholders and imposing compulsory distributions on certain companies can impose very heavy burdens on very small companies.
This can be done to the point—as was said in an earlier debate—at which the owners of the company could be substantially worse off by trading as a company rather than by trading as a one-man company alone or trading in partnership.

1329
The pattern of this is not difficult to comprehend, and, I hope, not too difficult to explain. The point is that, as soon as the profits of a very small company exceed the amount which can be paid as directors' remuneration, Corporation Tax becomes payable. At that point, of course, more tax is paid by the business than would be paid if the man were trading as an unincorporated trader, if he were trading on his own, because he is paying Corporation Tax and, of course, personal Income Tax on his director's remuneration.
As the profits rise, so does the disparity increase, until the point is reached at which the profits are so high that Surtax would be payable in the case of a one-man trader at the highest rates and would, therefore, equal or more than equal the Corporation Tax which would be paid if he were trading as a company. Thereafter, the disadvantage begins to decline, until so much Surtax would be paid that it would be cheaper to incorporate and trade as a company.
At the risk of wearying the Committee, I should like to mention one or two figures on this, because they are striking. For these figures I shall assume a 40 per cent. Corporation Tax and 60 per cent. distributions. I entirely take the point that, if the distribution is less, the disparity may well be less. I take the case of a sole shareholder for the sake of simplicity. I am assuming a married man with two children under 11 with no other income and no other allowances.
In this case, the maximum allowable director's remuneration is £3,500, the Government having refused an Amendment which would have increased this. The 15 per cent. provision does not apply, because these are very small companies, in relation to which what the Chief Secretary referred to as the minimum figure comes in.
If the profits of the business are no more than £3,500, and the director pays the whole of the profits to himself as remuneration, the profits assessable to Corporation Tax are nil and, therefore, there would be no difference whether it is a company or he is trading alone. If, however, the profits rise to £5,000, as a company the combined tax of the company and the individual would be £1,444, compared with the tax on a sole trader
1330
of £1,371. We must, however, also take into account the potential Capital Gains Tax liability because of the retentions, amounting to another £207, leaving a adverse balance in the case of the company of £343.
If the profit goes up to £10,000, the combined tax of the company and the individual is £4,495, whereas with a sole trader it is only £4,027. If we add to that the potential Capital Gains Tax liability on the retentions, which comes to another £652, the disparity is over £1,000, or £1,120 to be exact. Thereafter the figure begins to decline again. For the moment, I am talking of one-man businesses.
With profits of £15,000, the tax would be £7,796 for an incorporated company but £7,294 for a sole trader unincorporated. To that must be added the potential Capital Gains Tax on the retentions, amounting to £906, which still leaves an adverse balance for an incorporated company of £778.
The picture is fairly clear of two rising curves which cross over as soon as Corporation Tax begins to be paid by the business and which then diverge, the gap getting wider and wider and then becoming narrower again until the two lines once more cross over. In the case of the one-man business this occurs probably between £15,000 and £20,000 or at a correspondingly higher figure when there are more participators in the business.
At these levels, therefore, which on the whole are the levels of the smaller close companies, there is a distinct and major disadvantage in being incorporated. In short, incorporation is a luxury which these businessmen would be unable to afford. It must, however, be borne in mind that the limited liability company has been what might be called the springboard from which a great deal of the country's enterprise has come. The limited liability company was itself a product of the nation's genius for organisation. We led the world in the organisation of commercial enterprise with the development of the principle of the limited liability company. I maintain that this substantial tax disadvantage should not be regarded as a price to pay for the benefits of incorporation. After all, these companies pay capital duty when they are formed; they have to

1331
comply with the stringent provisions of the Companies Acts, filing their annual returns, preparing their accounts in the appropriate way, and so on. Why should this apply only to the smaller companies? Why should they be the only ones which have to pay this price for incorporation?
There are many benefits of incorporation which are of real value. The most important of these is the benefit of limited liability which can ensure that a businessman who wants to exploit an idea or who wants to get into a trade in which he can expand or afford to take risks can keep his own private house and fortune safe from the risks of being attacked by creditors. If he tries his hand as a limited company, only what he puts into the business is available to satisfy his creditors. This method provides a springboard for enterprise which is of immense value.
This method has administrative advantages. It provides for continuity of the business in case of change of ownership; the shares can be sold and the business can continue. It allows for flexibility and great simplicity of administration. I maintain that this is intensely precious and that we must consider it extremely closely when imposing substantial additional tax penalties on small businesses.
My Amendment is designed to give these businesses the option of being treated as partnerships and to be taxed as such, with the partners paying full Income Tax and Surtax on the partnership income if they so wish. This is not a novel suggestion. A provision of this sort applies in other countries which have or have had the same sort of pattern of taxation as the Chancellor is introducing.
We have heard a lot about how the Americans have had a corporation tax along these lines, but they have had this partnership provision, or something like it, for years. Thus, Her Majesty's Government cannot continue to justify introducing a tax system on these lines, based on American experience, unless they import the American reliefs. It has been said from this side of the Committee that the rates between the two countries are quite different, particularly of the Capital Gains Tax.
1332
The Amendment represents an essential provision to protect small businesses from undue tax penalties. Such protection is to be found in the American system and we should adopt and import it into the new scheme of things here. The American provisions relate to small businesses or corporations with 10 or fewer shareholders who are all United States residents. They are to be found in the Internal Revenue Code, Sections 137(1) to 137(7).
We have been told that France had a corporation tax on the same pattern, although they have had the good sense to move away from it. The French, too, had a similar provision relating to small businesses, particularly family concerns. Families could elect to be treated as individual unincorporated businesses. Conversely, the French had an interesting provision whereby partnerships could elect to be treated as companies.
I suggest, therefore, that in the absence of a provision such as that contained in the Amendment, well advised companies may contemplate disbanding their companies—and there is an Amendment down later on this point—and turning themselves into partnerships. I would indeed regard that as a retrograde step. It would be a strange result of a Bill which seems to be so preoccupied with the problem of tax avoidance if it drove many small businesses, in self-defence, to taking that sort of avoidance action, particularly after the Chancellor has spent so much time decrying the activities of those who are engaged in this sort of tax planning.
This is a fair, reasonable and necessary Amendment. I concede that it may not be cast in the precise form in which the Government might like to see it in the Bill. If they are prepared to accept the principle and undertake to introduce a suitable Amendment on Report, I will willingly withdraw it. If not, thousands of small, and not so small, businesses will, I fear, take themselves out of the Companies Act and become partnerships, with all the risks, inconvenience and difficulties that that will undoubtedly entail.
I am sure that the Minister will find this an eminently acceptable Amendment, if not in terms of the words it contains then in terms of the principle involved.
10.15 p.m.
Sir Eric Fletcher: The hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) generally makes a reasonable and rational speech, but on this occasion I cannot congratulate him—[HON. MEMBERS: "Oh."] I am sure that a few minutes' reflection will show that his Amendment cannot possibly be justified either on principle or in practice. It is based on a number of fallacies. It asks in terms that a close company can be treated as a close company or a partnership. Obviously, it cannot have it both ways.
The hon. Member then says that there are various benefits of incorporation. Incorporation is, of course, a privilege. It confers advantages. It limits the liabilities of those who incorporate themselves. And it cannot be said that it is always to the public interest that one man should carry on his trade as a company. Nor is it always to the public interest that two people trading together should incorporate themselves rather than carry on their trade in partnership. A great many persons still prefer to trade in partnership rather than as an incorporation. The hon. Member for Wokingham (Mr. van Straubenzee), who is a member of my profession, is familiar with those of us who are compelled by law to carry on our profession in partnership, whether or not we would wish to be incorporated.
As it is, any person carrying on any trade has the option of deciding whether it is to his advantage to trade as an individual or as a company. Two persons trading together have the option of deciding whether it is to their advantage to trade as a partnership or to incorporate themselves. It is perfectly true that in the past a great many persons have formed themselves into companies because of tax advantages in doing so. It may well be the case that with the transfer of Profits Tax and Income Tax to the Corporation Tax structure it does not become equally advantageous for a trader to incorporate himself into a company until the range of profits has reached a different level, but it cannot be argued that persons who have the choice of trading either in partnership or as an incorporated company should also have the opportunity of deciding whether it suits them better to be taxed on a part-
1334
nership or a company basis. One cannot possibly claim for individuals the right to choose to be taxed on a basis of, "heads I win and tails you lose".
I am not concerned here with what is done in America or France—[HON. MEMBERS: "Oh."] I am concerned here to say that, on principle, it does not seem to us to be right or equitable that a taxpayer should have that privilege. Nor does it seem sensible that he should have the option of making a decision every year. Apart from the objections on principle, I am sure that the Committee will realise that the administrative inconvenience that would result would be excessive in the extreme.
One has only to imagine the difficulties that would arise if a company, having been taxed on a Corporation Tax basis, after an interval of two years, said that it wanted to be taxed as if it were a partnership. The result would be that the computations would have to be reopened. The liabilities of both the company and the participators would have to be reopened. The company would be entitled to the repayment of Corporation Tax, and there would be further tax due from the participators on the basis of the company's income as spread among them in appropriate shares. There would be enormous complications of liability. It would postpone the date on which there was any finality on the tax liability of the concern. It would give the inspectors of taxes—who, in the circumstances, will have enough to do—a very considerable increase in work.
For those reasons, I must advise the Committee to reject the Amendment.
Mr. Stratton Mills: The Minister without Portfolio has given three main reasons why he cannot accept this Amendment. First, he said that the trader "can't have it both ways". My hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) admitted that it would not be realistic to expect companies to job backwards and forwards from one category to another each year. I am certain that my hon. Friend would be very flexible if the Government were to try to draft an Amendment to meet such an eventuality. This proposal would help largely the small trader. My hon. Friend's figures

1335
showed the extremely arbitrary way in which the graph affects tax liability.
The second point which the Minister mentioned was the argument about the privilege of being incorporated. If the United States is able to make this kind of provision in its company taxation law, I cannot understand why the proposal should be so difficult here. In the United States this partnership often exists for the "small business corporation" where there are not more than 10 shareholders all of whom are resident individuals.
These corporations are exempt from corporation tax but the whole of the undistributed profit is deemed to be distributed to shareholders and there are corresponding arrangements for loss. The corporation tax in the United States of America is imposed at only 26 per cent. on the first 25,000 dollars of profits and 48 per cent. on the excess. The hon. Gentleman has not answered the point, if in the United States of America it is possible to do this, why is it impossible in Britain?
Mr. Lubbock: I am not familiar with the American tax legislation and I should be grateful if the hon. Member would clarify a point. He mentioned that small business corporations were companies in which there were fewer than 10 participators and that their profits were exempt from tax when they were resident individuals. Is he not, therefore, saying that in the United States a small business is taxed as a close company anyway?
Mr. Stratton Mills: I understand that there is the option and that the company is entitled to have the option of whatever method it thinks the most attractive form.
The third point which the Minister made great play with was that the administrative inconvenience would be immense if this system were used. I come back to the point that if it can be done by the United States of America, why cannot it be done by the Inland Revenue here? An equally important point is that, of course, it would create problems for the trading community which would suffer from delays if it were to job continually backwards and forwards from one system to another. It would have to be approached from a responsible attitude.
I hope that the hon. Gentleman will think again on these three arguments,
1336
which struck me as considerably unconvincing.
Mr. van Straubenzee: I do not think the Committee has had the convincing arguments from the Minister without Portfolio to which we have been very glad to become accustomed for some time. Like my hon. Friends, I am absolutely certain that the argument he regarded as conclusive was the one that he produced at the end of his speech, administrative convenience—the last hide-out and resting place of a Minister driven from position to position and briefed by officials who wince when they consider what might be convenient if a provision like this were incorporated in the Bill. I can understand that the provision is in a simple form.
My hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) was at pains to make it clear that, after reconsideration, the Government may well feel that the option date would need to be irrevocable for a period of time. There is a roughly analogous provision in the German law. The election is irrevocable for a period of five years. I do not try to draw the exact parallel, but the Minister without Portfolio will know that the German law works on the basis of encouraging the distribution of profits and then the company concerned goes to the capital market for the moneys needed for expansion. Private companies 76 per cent. owned by individuals with a certain limit, which is approximately £500,000 in our currency, are subject to special treatment. They are subject to special treatment on the ground that they must necessarily grow by retentions, which is a principle which I had hoped that we should have seen more of here.
My hon. Friend the Member for Wanstead and Woodford referred to the provisions of the French law. I will not got into them again. In preparing ourselves to present this argument to the Committee, we looked with care at the provisions of the law of other countries. If we put it in shorthand to the Minister tonight, it is only because we do not want to delay the discussion unreasonably.
In return, we are entitled to a properly argued rebuttal and not merely refuge in

1337
the splendid phrase, "administrative convenience". The case made by my hon. Friends the Members for Wanstead and Woodford and Belfast, North (Mr. Stratton Mills) was very strong. At minimum, the Minister without Portfolio can reasonably be asked to reply that he understands that the provisions of the Bill, so far as we have discussed it, make very sharp tax discrimination against those who trade in this form and that he recognises that a reasonable case has been made for some kind of option by election over a reasonable time. I do not think that we have had the type of answer to which the Committee is reasonably entitled.
Sir D. Glover: I think that the Minister without Portfolio has made a most unconvincing answer to this argument. I shall not reiterate the arguments which have already been advanced, because I believe that they are beyond challenge. I want to put the case the other way round. The Chancellor and his colleagues have said all through the debates that the whole basis of the Bill is to increase efficiency and competition. Everybody in the Committee who has any knowledge of small businesses will know that a partnership, or an individual running a business where he has his own home at risk, his insurance policy at risk, and everything he possesses at risk, once he rises beyond a certain point becomes very much more cautious. At that point of time he likes to form himself into a limited company. If the business is owned by two partners, they both do, because they probably have ideas of expansion, but they do not want to put all their property at risk by so doing.
So, before entering on their expansion campaign—I am dealing now with small companies—having consulted their suppliers and everybody else they form themselves into a limited liability company, because then the risk is limited. Although they are to expand, although they are to take what would normally be regarded as a normal trading risk, they have moved out of the orbit of their own private homes the one thing that protects their wives and children.
Because of the Bill, they will not take that step of incorporation. They will not take that step of expansion, because they
1338
realise that probably for the next five years it will not be to their advantage. I hope that the Chancellor appreciates this point. If for the next five years it will not be to their advantage—either a one-man business or a two-man business—to change over to an incorporated company—
Mr. Barnett: The hon. Gentleman is talking about a small close company which wants to expand.
10.30 p.m.
Sir D. Glover: No, I am not.
Mr. Barnett: The hon. Gentleman is talking about a small close company which is growing—
Sir D. Glover Sir D. Glover rose—
The Chairman: Order. If the hon. Gentleman gave way for an intervention he must let the intervention be made.
Sir D. Glover: I had heard sufficient of the intervention to know that the hon. Member did not know what the argument was about.
Mr. Barnett Mr. Barnett rose—
Sir D. Glover: No, I will not give way. The hon. Member must sit down. I am not talking about a company which is incorporated. I am talking about two or three people who are trading in an unincorporated position. The point arises as to whether they should expand and, if they are going to expand, whether they should form themselves into a limited liability company. Under the provisions of this Bill their accountant may say, "I cannot advise you to do this immediately because if you do over the next three or four years you will pay more tax by incorporating yourselves than you would pay if you did not incorporate yourselves".
Mr. Barnett Mr. Barnett rose—
Sir D. Glover: I am not going to give way again. If the hon. Gentleman wishes to make a speech he can do so afterwards. If my arguments are right, there is an advantage in not being incorporated at a certain size of the company—
Mr. Barnett: Would the hon. Gentleman allow me?
Sir D. Glover: No, the hon. Gentleman can make his speech later.
The Temporary Chairman (Mr. Grant-Ferris): Order. Unless the hon. Member for Ormskirk (Sir D. Glover) gives way, the hon. Member for Heywood and Royton (Mr. Barnett) must remain seated.
Sir D. Glover: with respect to you, Mr. Grant-Ferris, if the hon. Member wants to make a speech, he can do so afterwards. All he wants to do is to break down my argument.
If it is to the advantage of individual traders to go on trading in partnership or as individuals rather than forming themselves into a limited liability company, they will postpone the formation of themselves into a limited liability company probably for four or five years longer than would be the case if this Bill did not become law. That is the point of time in the existence of so many companies when a big expansion in the size of the company takes place. Two young men form themselves into a business. They take three or four years to learn the job and in getting the feeling that they are on top of the job. Then they realise that there is a great future in their activities. They are able to undercut a lot of their competitors. They see a great future in expansion. But if they expand, they will increase their liability to tax if they become a limited liability company, so that they decide not to undertake incorporation but to continue jollying along in a smaller form.
The Chancellor may say that this is a very good thing, that it reduces the drain and demand on the resources of the company. But I understood that in the long term the Chancellor wanted to provide a dynamic society whereby a young firm could grow as fast as it was able. Under this Clause the Chancellor is making it much more likely that the small firms will go on jollying along. Human beings being what they are, when it comes to incomes they are very shortsighted. Somebody seeing that his income will be £500 more in the next five years—I know the attitude of mind of that segment of the population—would say, "I would sooner have the £500 than risk the change that would come about by incorporation."
Mr. Lubbock: If the expansion of the business which the hon. Member has mentioned was such that the shareholders
1340
or proprietors needed to plough back more than half their profits they would be better off under the Corporation Tax scheme than they were hitherto.
Sir D. Glover: I entirely agree with the hon. Member's intervention at a certain point of size, but we are dealing here with a lot of very small companies. These are people who are between the jobbing joiner and the man who makes furniture, or between the jobbing plumber and the man who puts in new fittings on a new housing estate. We are dealing with a small margin of companies which have the knowledge and can grow, and it is at that point that, in a dynamic society, they should become limited liability companies. The Chancellor now makes that much more unlikely.
I ask the Chancellor to look at this matter before Report. I am sure that the arguments of my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) on the side of the amount of taxation and giving people the right to be assessed either as a partnership or as a limited liability company are valid. But far more important is the point that many people who should become limited liability companies will remain partnerships and will not grow as a result of this Clause.
Mr. William Clark: I hesitated to rise because I thought that the Minister without Portfolio would speak and I wanted to know whether he could improve on his previous answer. The real question asked by my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) was one of equity. All he said was that a small company just because it is a limited liability company should not be penalised any more than a small trader or traders in partnership. My hon. Friend gave effective figures to show that limited liability companies even now hold a penalty for the proprietor. He gave examples, starting from £3,500, and I was surprised that the Minister without Portfolio did not pull him up sharply and say that it would not be a 60 per cent. distribution. But if it is worked out at a 40 per cent. distribution, up to about £15,000 profit, the limited liability trader will be more heavily taxed than the private individual.
As some of my hon. Friends have said, this is not a question of creating a system

1341
whereby people go jobbing backwards and forwards. My hon. Friend the Member for Wanstead and Woodford is not committed to the wording. There will be, of course, administrative difficulties if it is possible for a company to say, "We are a company today. We shall not be a company tomorrow but we will be the day after". I should have thought that it was not beyond the wit of the Inland Revenue or the Treasury to devise a scheme whereby if people said that although they were a limited liability company they wanted to be assessed as a partnership that election could last for three or four years.
I am appalled that although throughout the debate the Government have said lime and again that it is not their intention to hit the small man, here are valid figures proving that, probably unwittingly, the Government are hitting the small man. The Minister without Portfolio said, "Of course, people have the advantage of limited liability", and the only advantage he mentioned was limited liability. But, nowadays, most companies would be just as well off, or as badly off, under a partnership structure because they do not go under. The advantage of limited liability is very marginal.
The Minister said that, of course, there would be tax advantages, but, as far as I can see, there will be a tax penalty. This is the point of the figures given by my hon. Friend the Member for Wanstead and Woodford. We are not asking for an advantage. We are not asking that the company should be put into a better position than the sole trader. All we are saying is that small companies—it could be restricted to so much profit—should not be put in any worse position than the sole trader. I hope that the Minister will speak again and tell us that he will look at the matter between now and Report.
Of course, the wording of the Amendment may go too wide. There would be administrative difficulties. We accept that. But we must insist on the principle. If we are introducing a Corporation Tax into our system, we must not, for the sake of dogmatism or obstinacy—I say that in the kindest sense—penalise the small man. If the Minister will only say that he is prepared to look at this, my hon. Friend the Member for Wanstead
1342
and Woodford will, I am sure, be ready to ask leave to withdraw his Amendment.
There have been references to what happens in the United States and what happened in France until a little while ago. The Minister said that he did not mind what happened in the United States. This is all very well. We can all play this game. Sometimes, the Government do not mind what is in the Report of the Royal Commission, unless it suits their argument. If we are recasting our tax system in this way, it is important to consider what is being done, and done very effectively, in the United States to protect the small trader. We should not mind if there was a limit of profit so that above a certain amount there was not parity between the small trader and small companies.
In view of the Minister's disappointing reply and his lack of forthcomingness, unless he has something better to tell us, I shall advise my hon. Friends to divide the Committee.
Sir Eric Fletcher: I must correct the hon. Gentleman on one point. I did not say that I did not mind what happened in the United States. I said that what happened in the United States was not necessarily a precedent for what we should do in this country.
My right hon. Friend has listened very carefully to what has been said in the debate. It would be wrong for me to give the Opposition any encouragement to think that the Government would be willing to reconsider their attitude on this matter between now and Report. We are not resisting this Amendment merely on grounds of administrative inconvenience. We are resisting it on grounds of principle. We consider that a trader is entitled to decide for himself whether to trade as an individual or in partnership or whether he should incorporate himself into a company. In many cases, persons have incorporated themselves for the express purpose of getting a tax advantage.
Perhaps in future, in some cases, they will not get the same amount of tax advantage; but they will still have the opportunity to decide whether to trade as a partnership or as a company, and, having made that decision, they must abide by the tax consequences. We do not think that it would be fair or just to

1343
accept the Amendment and give taxpayers the option to trade in one form and be taxed in another.
Mr. William Clark: Have the Government made any assessment of the number of small companies which, because of the rejection of this Amendment, will now turn themselves back into partnerships? This is an important point, and
the Minister has not addressed himself to it. It is probable that many small companies, because of the tax penalty now on them as compared with sole traders, will become sole traders.
Question put, That those words be there added:—
The Committee divided: Ayes 144, Noes 169.

Division No. 192.]

AYES

[10.44 p.m.

Agnew, Commander Sir Peter

Griffiths, Peter (Smethwick)

Osborn, John (Hallam)

Alison, Michael (Barkston Ash)

Gurden, Harold

Page, R. Graham (Crosby)

Allason, James (Hemel Hempstead)

Hall-Davis, A. G. F.

Pearson, Sir Frank (Clitheroe)

Anstruther-Gray, Rt. Hn. Sir W.

Harris, Frederic (Croydon, N.W.)

Peel, John

Astor, John

Harvey, John (Walthamstow, E.)

Percival, Ian

Awdry, Daniel

Harvie Anderson, Miss

Peyton, John

Barber, Rt. Hn. Anthony

Hawkins, Paul

Pickthorn, Rt. Hn. Sir Kenneth

Barlow, Sir John

Heald, Rt. Hn. Sir Lionel

Pike, Miss Mervyn

Batsford, Brian

Heath, Rt. Hn. Edward

Pitt, Dame Edith

Birch, Rt. Hn. Nigel

Higgins, Terence L.

Powell, Rt. Hn. J. Enoch

Black, Sir Cyril

Hill, J. E. B. (S. Norfolk)

Prior, J. M. L.

Bossom, Hn. Clive

Hobson, Rt. Hn. Sir John

Ramsden, Rt. Hn. James

Box, Donald

Hornsby-Smith, Rt. Hn. Dame P.

Rawlinson, Rt. Hn. Sir Peter

Boyd-Carpenter, Rt. Hn. J.

Howard, Hn. G. R. (St. Ives)

Renton, Rt. Hn. Sir David

Boyle, Rt. Hn. Sir Edward

Hunt, John (Bromley)

Ridley, Hn. Nicholas

Brewis, John

Hutchison, Michael Clark

Roberts, Sir Peter (Heeley)

Brinton, Sir Tatton

Jenkin, Patrick (Woodford)

Rodgers, Sir John (Sevenoaks)

Brown, Sir Edward (Bath)

Jennings, J. C.

Roots, William

Bruce-Gardyne, J.

Kaberry, Sir Donald

Scott-Hopkins, James

Bullus, Sir Eric

Kerr, Sir Hamilton (Cambridge)

Sinclair, Sir George

Chataway, Christopher

Kershaw, Anthony

Smith, Dudley (Br'ntf'd & Chiswick)

Chichester-Clark, R.

King, Evelyn (Dorset, S.)

Spearman, Sir Alexander

Clark, William (Nottingham, S.)

Kirk, Peter

Stanley, Hn. Richard

Cole, Norman

Legge-Bourke, Sir Harry

Stodart, Anthony

Cooke, Robert

Lewis, Kenneth (Rutland)

Stoddart-Scott, Col. Sir Malcolm

Cooper-Key, Sir Neill

Litchfield, Capt. John

Studholme, Sir Henry

Crosthwaite-Eyre, Col. Sir Oliver

Lloyd, Ian (P'tsm'th, Langstone)

Talbot, John E.

Curran, Charles

Longden, Gilbert

Taylor, Edward M. (G'gow, Cathcart)

Dalkeith, Earl of

MacArthur, Ian

Taylor, Frank (Moss Side)

Davies, Dr. Wyndham (Perry Barr)

McLaren, Martin

Teeling, Sir William

d'Avigdor-Goldsmid, Sir Henry

McMaster, Stanley

Temple, John M.

Dean, Paul

McNair-Wilson, Patrick

Thomas, Rt. Hn. Peter (Conway)

Digby, Simon Wingfield

Maitland, Sir John

Turton, Rt. Hn. R. H.

Dodds-Parker, Douglas

Mathew, Robert

van Straubenzee, W. R.

Elliott, R. W.(N'c'tle-upon-Tyne, N.)

Maude, Angus

Walder, David (High Peak)

Emery, Peter

Maudling, Rt. Hn. Reginald

Walker, Peter (Worcester)

Errington, Sir Eric

Maxwell-Hyslop, R. J.

Walker-Smith, Rt. Hn. Sir Derek

Eyre, Reginald

Maydon, Lt.-Cmdr. S. L. C.

Wall, Patrick

Farr, John

Meyer, Sir Anthony

Ward, Dame Irene

Fisher, Nigel

Mills, Peter (Torrington)

Weatherill, Bernard

Fletcher-Cooke, Sir John (S'pton)

Mills, Stratton (Belfast, N.)

Webster, David

Foster, Sir John

Mitchell, David

Whitelaw, William

Fraser, Ian (Plymouth, Sutton)

Monro, Hector

Wills, Sir Gerald (Bridgwater)

Gammans, Lady

More, Jasper

Wilson, Geoffrey (Truro)

Gibson-Watt, David

Morrison, Charles (Devizes)

Yates, William (The Wrekin)

Giles, Rear-Admiral Morgan

Munro-Lucas-Tooth, Sir Hugh

Younger, Hn. George

Glover, Sir Douglas

Murton, Oscar

Gower, Raymond

Noble, Rt. Hn. Michael

TELLERS FOR THE NOES:

Grieve, Percy

Nugent, Rt. Hn. Sir Richard

Mr. Francis Pym and

Mr. Geoffrey Johnson Smith.

NOES

Abse, Leo

Bishop, E. S.

Carmichael, Neil

Allaun, Frank (Salford, E.)

Blackburn, F.

Coleman, Donald

Alldritt, Walter

Blenkinsop, Arthur

Conlan, Bernard

Allen, Scholefield (Crewe)

Boardman, H.

Corbet, Mrs. Freda

Armstrong, Ernest

Bowden, Rt. Hn. H. W. (Leics, S.W.)

Craddock, George (Bradford, S.)

Atkinson, Norman

Bowen, Roderic (Cardigan)

Crossman, Rt. Hn. R. H. S.

Bacon, Miss Alice

Boyden, James

Cullen, Mrs. Alice

Bagier, Gordon A. T.

Braddock, Mrs. E. M.

Dalyell, Tam

Barnett, Joel

Bray, Dr. Jeremy

Davies, G. Elfed (Rhondda, E.)

Beaney, Alan

Broughton, Dr. A. D. D.

Davies, Ifor (Gower)

Benn, Rt. Hn. Anthony Wedgwood

Buchan, Norman (Renfrewshire, W.)

Davies, S. O. (Merthyr)

Bennett, J. (Glasgow, Bridgeton)

Buchanan, Richard

Diamond, John

Bessell, Peter

Callaghan, Rt. Hn. James

Doig, Peter

Donnelly, Desmond

Lawson, George

Rees, Merlyn

Duffy, Dr. A. E. P.

Lee, Rt. Hn. Frederick (Newton)

Rhodes, Geoffrey

Dunn, James A.

Lever, L. M. (Ardwick)

Richard, Ivor

Edwards, Rt. Hn. Ness (Caerphilly)

Lewis, Ron (Carlisle)

Roberts, Albert (Normanton)

Ensor, David

Lomas, Kenneth

Robertson, John (Paisley)

Fernyhough, E.

Lubbock, Eric

Rodgers, William (Stockton)

Fitch, Alan (Wigan)

McBride, Neil

Rogers, George (Kensington, N.)

Fletcher, Sir Eric (Islington, E.)

McCann, J.

Short, Rt. Hn. E. (N'c'tle-on-Tyne, C.)

Fletcher, Ted (Darlington)

MacDermot, Niall

Silkin, John (Deptford)

Floud, Bernard

McGuire, Michael

Slater, Mrs. Harriet (Stoke, N.)

Foley, Maurice

McInnes, James

Slater, Joseph (Sedgefield)

Fraser, Rt. Hn. Tom (Hamilton)

McKay, Mrs. Margaret

Small, William

Freeson, Reginald

Mackenzie, Alasdair (Ross & Crom'ty)

Smith, Ellis (Stoke, S.)

Galpern, Sir Myer

Mackenzie, Gregor (Rutherglen)

Soskice, Rt. Hn. Sir Frank

Garrett, W. E.

Mackie, John (Enfield, E.)

Steel, David (Roxburgh)

George, Lady Megan Lloyd

MacMillan, Malcolm

Steele, Thomas (Dunbartonshire, W.)

Ginsburg, David

Mahon, Simon (Bootle)

Stewart, Rt. Hn. Michael

Gourlay, Harry

Manuel, Archie

Stones, William

Gregory, Arnold

Mapp, Charles

Summerskill, Hn. Dr. Shirley

Griffiths, David (Rother Valley)

Marsh, Richard

Swingler, Stephen

Griffiths, Rt. Hn. James (Llanelly)

Mason, Roy

Taylor, Bernard (Mansfield)

Grimond, Rt. Hn. J.

Maxwell, Robert

Thomas, Iorwerth (Rhondda, W.)

Hale, Leslie

Mendelson, J. J.

Thomson, George (Dundee, E.)

Hamilton, James (Bothwell)

Millan, Bruce

Thornton, Ernest

Hamilton, William (West Fife)

Miller, Dr. M. S.

Thorpe, Jeremy

Hannan, William

Milne, Edward (Blyth)

Tinn, James

Harrison, Walter (Wakefield)

Molloy, William

Tomney, Frank

Hart, Mrs. Judith

Morris, John (Aberavon)

Urwin, T. W.

Hattersley, Roy

Murray, Albert

Wainwright, Edwin

Herbison, Rt. Hn. Margaret

Neal, Harold

Walden, Brian (All Saints)

Hobden, Dennis (Brighton, K'town.)

Oakes, Gordon

Walker, Harold (Doncaster)

Holman, Percy

Ogden, Eric

Wallace, George

Hooson, H. E.

Orme, Stanley

White, Mrs. Eirene

Houghton, Rt. Hn. Douglas

Oswald, Thomas

Whitlock, William

Howie, W.

Padley, Walter

Wigg, Rt. Hn. George

Hoy, James

Park, Trevor (Derbyshire, S.E.)

Willey, Rt. Hn. Frederick

Hughes, Emrys (S. Ayrshire)

Pearson, Arthur (Pontypridd)

Williams, Clifford (Abertillery)

Hunter, Adam (Dunfermline)

Peart, Rt. Hn. Fred

Willis, George (Edinburgh, E.)

Irving, Sydney (Dartford)

Pentland, Norman

Winterbottom, R. E.

Jackson, Colin

Perry, Ernest G.

Yates, Victor (Ladywood)

Jay, Rt. Hn. Douglas

Popplewell, Ernest

Johnston, Russell (Inverness)

Price, J. T. (Westhoughton)

TELLERS FOR THE NOES:

Jones, Dan (Burnley)

Probert, Arthur

Mr. Joseph Harper and

Kelley, Richard

Pursey, Cmdr. Harry

Mr. Brian O'Malley.

Kenyon, Clifford

Rankin, John

The Temporary Chairman: Before proposing the Question, That the Clause stand part of the Bill, I ask the indulgence of the Committee in asking hon. Members to keep the discussion as short as possible. I have no intention of invoking Standing Order
1346
No. 47, but there will be many opportunities to raise issues on the Schedules and I hope that the Committee will feel content to keep the discussion now as short as possible.
Clause ordered to stand part of the Bill.

Clause 75.—(COMMENCEMENT OF COR- PORATION TAX FOR EXISTING COM- PANIES, AND TRANSITION FROM INCOME TAX.)
Sir John Hobson: I beg to move Amendment No. 671, in page 96, line 37, to leave out from "year" to the end of the subsection and to insert:
"and shall for the purposes of income tax be deemed to have ceased to possess that source on the 5th day of April 1966 and shall for the purposes of corporation tax be deemed to have acquired that source on the 6th day of Aril, 1966".
We are grateful to you, Mr. Grant-Ferris, for the impact which you had on the Committee and the shortness of discussion which it produced.
Under the Bill as it stands, on the transition from Income Tax to Corporation Tax there will be a measure of double taxation, and the Amendment is designed to obviate that feature. The Amendment deals with subsection (2), which provides that for sources of income other than those chargeable on a current year basis the Corporation Tax charge first applies to income arising after the end of the 1965–66 basis period. For example, the Accounts to 30th April, 1964, of a company whose accounting date is 30th April will have formed the basis of the period for the assessment for the year 1965–66 and under subsection (2) income arising from 1st May, 1964, will become liable to Corporation Tax assessment on the basis of the actual profits for each accounting period. But Income Tax will have been paid already for both 1964–65 and 1965–66 and there will therefore be an overlap, because the Corporation Tax assessment will also cover the period from 1st May, 1964.
I acknowledge that there are provisions under which the payment of the Corporation Tax is postponed so that one gets a sequence of annual charges, and this may appear to be fair, but only until one gets to the position in which there is a cesser of trade, because, a company put on Corporation Tax in this way may on the cesser of trade pay one extra year's tax, or, in extreme cases, even two years' extra tax, and no allowance will be made for the opening year which has been brought into tax not only for the first, but for the second and possible the third year of taxation. One must
1348
look forward to the possibility that a business may cease to trade. The Income Tax on such a cesser ran only up to the date of closing down and therefore under Income Tax some profits escaped assessment under the existing Income Tax closing down provisions, because one year had already been used twice, or perhaps three times, as the basis of assessment to Income Tax when trading started.
11.0 p.m.
But under the present provisions for Corporation Tax on the basis of the actual profits, no such relief will apply and the company will lose the corresponding relief arising from profits of its opening years which have been brought into charge upon one, two or possibly three years, whenever it ceases to trade, which it would have got if the Income Tax provisions had still continued.
Companies therefore with an accounting date early in each financial year will have been assessed for the combination of Income Tax and Corporation Tax for a longer and greater period on the basis of its first year's profits than in the case of a company whose accounting date is near the end of the fiscal year. The startling illustration was given in a letter on 29th May this year in a periodical called The Accountant which makes the point clearly. I will not trouble the Committee with the letter at the moment, but if the Chief Secretary has not already seen it, I should indeed be grateful if he would look at it and consider it.
Under the Income Tax basis of assessment a company with an early accounting date would have got a longer period of relief on cessation, and this will now be lost and more companies will be taxed for more years than the number of years they have existed due to this overlap in the introduction of Corporation Tax. The Amendment we have put down proposes to deal with this position by providing that all companies should be assessed for Income Tax purposes as though they had ceased to trade on 5th April, 1966, so they would have the benefit of the Income Tax cesser provisions then, and they should be assessed to Corporation Tax from 6th April, 1966, as though they had started to trade on that date.

1349
If the principle of this Amendment is accepted there will, of course, I acknowledge, have to be some arrangements for the provisional payment of tax on 1st January in each year. I believe that in Australia such provisions are made which can be dealt with on the basis of the earlier year's trade and until adjustments of any actual profits are discovered. If there are difficulties over that there must be some other provisions that will deal with this problem. If the Government are not prepared to accept the principle of this Amendment, and we very much hope they will, then what other proposals do the Government have to deal with this problem and a situation in which it would be grossly unfair that a company after 1966, and perhaps after 1967, may have paid Income Tax and Corporation Tax for more years than it has actually traded? We very much hope that the Government will accept our proposals with such amendment or improvement as they think desirable or, if not, that they will tell the Committee what they think is the correct way to deal with this situation.
Mr. Diamond: This Amendment has been moved, as one would expect with moderation and charm by the right hon. and learned Gentleman the Member for Warwick and Leamington (Sir J. Hobson), but it hides a very dramatic proposal, to put it at its least. The right hon. and learned Gentleman draws attention to the complications which exist in the present system with regard to the opening years of a business. I am grateful to him for reminding the Committee of that complication, a complication which has always been with us but which we shall be getting rid of under the simplicities of the Corporation Tax. Once more life for the businessman will be simplicity itself. I am grateful to the right hon. and learned Gentleman for drawing attention to those difficulties.
I hope that I may go on to point out that when we reach Clause 81 we shall deal with the measure of relief to meet the problem which he has explained so clearly that I need not repeat it. That is the Clause which provides what I may call a fitting remedy, and if there are any suggestions which the right hon. and learned Gentleman has to make at that point, I shall be glad to listen to him
1350
carefully. It would be wholly wrong of me to anticipate that discussion in any way.
The Amendment bears some distinguished names of Members for distinguished constituencies. These include Wanstead and Woodford and Warwick and Leamington; these are powerful constituencies to attach to an Amendment of this kind. The Amendment would have the result of providing a tax holiday, with some startling effects. In 1965–66 the effect would be moderate; it would cost the Revenue about £100 million. In 1966–67 the Amendment would be less moderate and woud cost about £1,000 million. The cost would thus be £1,100 million, because the Amendment proposes a complete tax holiday. It proposes that no corporation shall be called on to pay Corporation Tax during the year immediately following the last year of payment of Income Tax. That is an Amendment which I could not describe as wrecking in any disorderly sense, but I could describe it as wrecking the Budget.
As it would cost £1,100 million and as there is another Clause which provides the remedy for the problem which the right hon. and learned Gentleman has explained, I hope that I may suggest to the Committee that the Amendment is not one which I can strongly support.
Sir J. Hobson: The right hon, Gentleman ignores the fact that I said that I was in no sense proposing a tax holiday, and that I recognised that it might be necessary to put down arrangements for the provisional collection of taxation in the two years until the actual trading position for each of those current years had been dealt with. It is wrong of him to suggest that the introduction of Corporation Tax produces a situation of simplicity which will solve all the difficulties, because it wholly ignores the situation that large numbers of companies are already in existence which have had the difficulty which I have pointed out of opening years trading on which they have paid Income Tax for two and possibly three years on a single year's profits which have been assessed to tax.
It may be that an argument arises on the company which starts trading after the introduction of this provision, and I

1351
will not re-open it, but it is false to suggest that the Bill does anything in relation to all those companies which are at present trading or obviates in any way the difficulties which arise because of the existing Income Tax provisions about the opening years of trading. I do not consider that the right hon. Gentleman has dealt with any of the principles of the proposal and I very much regret that.
Amendment negatived.
Mr. Patrick Jenkin: I beg to move Amendment No. 562, in page 96, line 43, at the end to insert:
Provided always that a company shall not come within the charge to corporation tax in respect of a trade, if the company is no longer carrying on the trade at the end of the year 1965–66.
This Amendment is not dissimilar to that moved by my right hon. and learned Friend the Member for Warwick and Leamington (Sir J. Hobson), but I think it arises on a somewhat different state of affairs. The main point on which the problem arises is because of the transitional effect of the change from the taxation of profits as they are now on the preceding year basis, to the taxation, as they will be under the new scheme, on a current year's basis. For the ordinary company continuing, the effect will be that instead of paying the tax during the year of assessment it will be paid nine months after the year of assessment so that the tax is not paid twice in the same year. The position with which this Amendment is concerned arises out of the last Amendment I moved which was so brusquely and lightly case aside by the Minister without Portfolio, namely the case of the company which is going to wind up and go back to being a partnership.
If this is going to happen to any company during this current year 1965–6, the position will arise, unless this Amendment is accepted, that the company will be charged to Corporation Tax in respect of any part of its operations which it carries on as a company during the year and then it will be assessed to Income Tax and Surtax on the same profits. The application of Section 17 of the Finance Act, 1954, to a business in these circumstances, when 75 per cent. of the ownership is in the same hands
1352
before and after the change from a company to a partnership, is that the partnership is taxed upon the profits of the preceding year as if there had been no change of ownership.
The result of the application of Section 17 will be that the partnership will pay tax on the profits of the year we are now in and the company will have to pay tax on the same lot of profits, so that the proprietors of the business will find themselves paying tax twice over on two different bases on the same profits. I cannot really believe that is intended. I have the highest admiration for the skill of the Inland Revenue when dealing with these very technical transitional points which occur on problems of this sort and I can only imagine that at some stage this was pointed out and the Treasury said "No, we will sting them twice, the shareholders and the company. The company will pay tax on the one hand and the partnership will pay tax afterwards."
Is this really what is intended to happen? It seems grossly unfair and I find it difficult to believe it is the case. I cannot see, having searched through the Clause and the Schedules, that this particular case is dealt with. In the last year the company will have to pay the Corporation Tax on one year and the same profits will come in again for Income Tax and Surtax in the hands of the partnership, succeeding the company. This seems most inequitable, and I sincerely hope that there is some explanation. If there is not, I hope that the Chief Secretary will accept the Amendment.
Mr. Diamond: The hon. Gentleman the Member for Woodford imagines a situation in which the Revenue comes forward with a careful proposal—
Mr. Patrick Jenkin: I am sorry to interrupt the Chief Secretary so early in his speech but I have one of my constituents sitting beside me and he reminds me that the constituency in which he resides is called Wanstead and Woodford.
Mr. Diamond: At the moment I cannot recollect what offence I committed, but at all events the hon. Gentleman the Member for Wanstead and Woodford (Mr. Patrick Jenkin) imagines a situation in which the Revenue with its usual care

1353
and diligence brings a complicated situation to the attention of the Treasury Ministers who get round a table and perform certain rites and then say with one voice, "Let the so and so pay twice over." That is not absolutely accurate. The hon. Gentleman has drawn attention to a situation which I could not anticipate clearly from reading the Amendment, because it could have covered a variety of situations and I did not know precisely what was in the hon. Gentleman's mind.
11.15 p.m.
The situation requires examination. I can say no more about it than that at present. I could not say offhand with assurance that the matter which the hon. Member has dealt with is adequately catered for. All I can do, therefore, is to ask him, as I could not accept the wording of the Amendment, to give me an opportunity of examining the matter carefully before Report by going through the usual process of being good enough to withdraw it.
Mr. Patrick Jenkin: In view of the very forthcoming approach by the Chief Secretary, I beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Mr. Diamond: I beg to move Amendment No. 342, in page 97, line 12, at the end, to insert:
Provided that this subsection shall not apply unless the said interval is longer than nine months.
The Amendment corrects an oversight in the drafting of subsection (3). Putting it shortly, assuming that a company has a regular accounting date, the tax on its profits would fall on 1st January year after year and no problem is created. The substitution of the alternative period which is suggested for the advantage of the taxpayer may not, however, be advantageous if the company's trade was set up so recently that the "preceding year" basis of assessment had not become fully applicable. This is the basis to which the right hon. and learned Member for Warwick and Leamington (Sir J. Hobson) referred earlier and which results in the regular payment 1st January after 1st January.
There could be a situation in which a company making up its accounts to, say, 30th June in each year would find itself
1354
expected to pay tax under its first Corporation Tax assessment only three months after the date when it had paid its last Income Tax assessment. Therefore, the purpose of the Amendment is to make it clear that there shall be an irreducible minimum period of nine months.
Amendment agreed to.
Clause, as amended, ordered to stand part of the Bill.

Clause 76.—(WINDING UP OF THE PROFITS TAX.)
Sir Eric Fletcher: I beg to move Amendment No. 563, in page 98, line 23, at the end, to insert:
"and which are deductible for corporation tax".
This Amendment corrects a flaw in the transitional provisions for Profits Tax and gives the taxpayer additional relief in the cases to which it applies.
Amendment agreed to.
Sir Eric Fletcher: I beg to move Amendment No. 488, in page 98, line 40, to leave out "1947" and to insert "1937".
This Amendment corrects a printing error and substitutes "1937" for "1947".
Amendment agreed to.
Question proposed, That the Clause, as amended, stand part of the Bill.
Sir J. Hobson: I hope that we will be told whether subsection (1,a) is really necessary. I believe that the matter has already been raised with the Inland Revenue and that several weeks ago the Federation of British Industries was given the impression that the Inland Revenue was sympathetic to its case and thought that it was a good one. However, when the Federation saw the Inland Revenue again on Friday, 11th June and pointed out that nothing had been done and that no Amendment had been tabled to the Bill, the Inland Revenue still said that it was sympathetic. By tonight still nothing had been done. Has further consideration been given to the matter, and do the Government intend to do anything about it?
The case arises where there is a company whose Case 1 assessment for 1965–66 is based on the year, say, to 30th September, 1964, and whose Case V assessment for that year is based on the

1355
year to 31st March, 1965. In those circumstances, Corporation Tax will commence for the former as from 1st October, 1964, and for the latter as from 1st April, 1965. The actual overseas dividends for the six months to 31st March, 1965, will, therefore, be included in the Case V assessment for 1965–66 and the actual overseas dividends for the six months to 30th September, 1965, will be included in the Corporation Tax assessment for the year ended on that date.
The Clause deals with the winding up of Profits Tax, but for Profits Tax purposes subsection (1,a) appears to provide that the income of the year to 30th September, 1965, will be apportioned on a time basis, where necessary. The distinction, therefore, is that instead of taking the dividends in the half year when they are received, they are taken for the full year and divided by two, which may produce very different results. Thus, half the overseas dividends for the year to 30th September, 1965, will, as the Clause stands, be liable to Profits Tax. It is suggested that the Profits Tax position should follow the Case V and Corporation Tax position. Then the actual dividends of the six months to 31st March, 1965, should be chargeable to Profits Tax.
Will the Government and the Inland Revenue consider the matter further and do they consider that this is the right way to deal with it; not only that one should apply to Profits Tax the same principle that has been applied to Corporation Tax but that it should be based on actual receipts and not on average receipts for the period? The Federation understood that it had had sympathetic consideration. Is it intended that on Report the Chancellor will do something about this? If not, we shall have to consider tabling Amendments on the subject.
Mr. Terence L. Higgins: I support the remarks of my right hon. and learned Friend the Member for Warwick and Leamington (Sir J. Hobson) in questioning the necessity of subsection (1,a) because, as I understand it, the general principle behind the Clause is that there should not be double taxation of profits in the sense that if they have already borne Income Tax and Profits
1356
Tax they should not then bear Corporation Tax as well.
To quote a different example from that given by my right hon. and learned Friend, it seems that a trading company with accounts ended on 31st December will become liable for Corporation Tax as from 1st January, 1965. Suppose a company has income in the form of dividends abroad, assessable under Case V, or interest, assessable under Case III. It seems that that income will be chargeable to Income Tax and Profits Tax to 5th April, 1965, and that it then comes in for Corporation Tax as from 6th April, 1965, onwards. It seems that there is a possibility of double taxation, because the company's chargeable accounting period will be for the year to 31st December, 1965, so that paragraph (a) comes into operation to decide how much of Case II or Case V Income Tax has to be brought into Corporation Tax computation.
But the subsection says that the income for the year is to be apportioned on a time basis. That means that three-quarters of this income arising in the period from 1st January to 5th April will be brought in for Income Tax. It will therefore be liable to double taxation and, therefore, it will be in conflict with the basic principle underlying the Clause. I should be grateful if the Government would indicate whether I am right in thinking that the basic principle underlying the Clause is that there should not be double taxation, and that paragraph (a) as it stands could create a situation in which double taxation could take place.
Sir Eric Fletcher: The right hon. and learned Gentleman the Member for Warwick and Leamington (Sir J. Hobson) and the hon. Member for Worthing (Mr. Higgins) have asked related questions. The first question is whether paragraph (a) of subsection (1) of Clause 76 is really necessary. The second question is whether certain representations made by the Federation of British Industries to the Inland Revenue have been considered by either my right hon. Friend or myself.
The answer to the first question is that we think that paragraph (a) is necessary. As the Committee will appreciate, this Clause provides some somewhat complicated—and necessarily complicated—provisions for the winding up of the

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Profits Tax, and deals with the transitional period during which companies may be liable to the full Corporation Tax or not. In effect, Clause 76 operates to secure that anything that is not taken into Corporation Tax for a particular year under Clause 75 is caught by Profits Tax under Clause 76, as, for example, interest on investments by a trading company.
The reason I think that the paragraph is necessary is that, in terms, it provides for apportionment where the Corporation Tax charged begins from a date in the middle of an accounting period. Suppose a company begins trading on 1st July, 1964, makes up its accounts to 31st December, 1965, and thereafter annually. The 12 months to 31st December, 1965, will be a chargeable accounting period for Profits Tax. The assessment to Income Tax under Case I of Schedule D for 1965–66 will be based on the profits of the first 12 months trading—that is, the 12 months to 30th June, 1965. At the same time, the trading profits from 1st July, 1965, onwards will therefore be chargeable to Corporation Tax and excluded from Profits Tax, whereas the trading profits for the first part of the chargeable accounting period ending on 31st December, 1965, will be chargeable to Profits Tax. It is not very easy to grasp the intricacies of this arrangement in an exchange across the Chamber.
Neither my right hon. Friend nor I myself has yet had an opportunity of considering the representations, to which the right hon. and learned Gentleman referred, made by the Federation of British Industries. We are not unsympathetic to those representations in so far as we understand them at present. Without giving any commitment, the position is that if any alterations in the Bill are required to meet those representations the appropriate way to meet them will not be by deleting paragraph (a) but by making some wider Amendment. The point raised by the right hon. and learned Member will be dealt with by making a special apportionment under Section 20 (4) of the Finance Act, 1937. If he and the hon. Member will allow me, I shall look into the matter carefully and sympathetically between now and Report and consider whether an Amendment to any other part of the Bill is required.
11.30 p.m.
Sir J. Hobson: I am grateful to the Minister for giving an undertaking to look into the matter. I hope that when he has considered it he will think that it is a matter which requires to be dealt with. If, on the other hand, he does not, I shall be grateful if he will let me know so that we can consider what should be done.
Question put and agreed to.
Clause, as amended, ordered to stand part of the Bill.

Clause 77.—(INTERIM CHARGE OF TAX ON CAPITAL GAINS OF COMPANIES, AND EXCLUSION OF COMPANIES AND LOCAL AUTHORITIES FROM CASE VII OF SCHEDULE D.)
Sir Eric Fletcher: I beg to move Amendment No. 566: In page 100, line 15, at the end to insert:
"; and for those purposes the question whether any and, if so what, gain or loss so accrues shall accordingly be determined in accordance with the provisions applicable to income tax chargeable under Case VII of Schedule D and not in accordance with the provisions of Part III of this Act.".
If it is convenient, Mr. Grant-Ferris, in moving this Amendment I shall also deal with Amendments Nos. 567, 568, 564 and 565.
The Temporary Chairman (Mr. Grant-Ferris): I think it would be for the convenience of the Committee to follow that procedure.
Sir Eric Fletcher: These Amendments are all in the nature of clarifying Amendments to make the provisions of Clause 77 even clearer and simpler than at present. Unless the Committee so desires, I shall not explain the precise effect of each of these five Amendments. I imagine that they have been carefully examined by the Opposition. They do not make any substantive change, but are intended to improve the language and are in the nature of clarifying Amendments.
Mr. Peter Walker: We shall be very happy to co-operate with the right hon. Gentleman and take these Amendments together, but that does not necessarily mean that we want no explanation of them. His description of them as clarifying Amendments simplifying the Bill does not amount to an

1359
explanation. Amendment No. 566 will make a substantial difference and is not simply a clarifying Amendment.
As the Bill stands without this Amendment losses sustained on this type of gain under Part III of the Act will apply, whereas by making this Amendment the Chancellor is only allowing losses under Case VII of Schedule D. As the Bill is worded, an art dealer could take advantage of losses sustained prior to the Bill. I would agree with the Amendment, but it is wrong to describe it as a clarifying Amendment.
The right hon. Gentleman also owes us an explanation on Amendment No. 567. It is rather remarkable to call that a clarifying Amendment, because it completely deletes a subsection. That seems a new way of clarifying a Bill. A very good way of clarifying the Bill might be to delete the whole of this part, but, as the Government are intent on using this method, some explanation is required of why the Government inserted the subsection and then decided that they should delete it.
There is some mystery about the subsection because, as far as I can see, it is the only subsection which is not referred to in the White Paper. All other subsections have a little note about them in the White Paper, but when the Chancellor drew up the White Paper and he came to the famous subsection (4) he decided that it was not worth commenting on. If it was not worth commenting on, and if the Government discovered this at the stage of printing the White Paper, which was published at the same time as the Bill, it is remarkable that the Bill at first contained the subsection. We on this side immediately rushed to paragraph 3 of the Sixth Schedule to see what grave implications the subsection had. I spent many hours trying to fathom what it meant and came to the conclusion, to which the Chancellor has presumably now come, that it is complete nonsense. Therefore, I ask the Minister without Portfolio to explain why the subsection was ever in the Bill and to admit that these Amendments are not just clarifying Amendments.
Sir Eric Fletcher: I should have thought that it was obvious from what the hon. Gentleman has said that the
1360
deletion of subsection (4) clarifies this part of the Bill. In deference to the Committee, perhaps I should elaborate a little more. Subsection (2,a), together with subsections (3) and (4), were intended to ensure that all the gain arising to a company from the disposal after Budget day of an asset acquired before Budget day would be chargeable to Capital Gains Tax, if the acquisition and the disposal took place within the old short-term tax time limits.
We came to the conclusion that it was doubtful whether the subsections as they stood successfully secured that result. Subsection (4) reads:
"Subsection (2)(a) above, shall not affect paragraph 3 of Schedule 6 to this Act."
We came to the conclusion that the subsecution had an element of obscurity about it, that it was not necessary to give effect to the intentions, which are agreed intentions, of this part of the Clause, and therefore that the Bill would be much clearer if it were deleted.
Mr. Peter Walker: I must confess that the Minister without Portfolio has almost convinced me that subsection (4) is necessary. I suspect that we will leave a serious gap in the Bill and allow all sorts of evasion to take place if we allow it to go. I take note of the Minister without Portfolio's answer. I suggest that we accept the Amendments.
Amendment agreed to.
Further Amendments made: In page 100, line 16, leave out subsection (4).
In line 18, leave out from "Any" to "in" in line 21, and insert:
"losses which are allowable against chargeable gains under subsection (1) above or would be so allowable but for the company being within the charge to corporation tax from the beginning of the year 1965–66,".
In line 45, leave out from "tax" to end of line 1 on page 101.
And in page 101, line 2, leave out from "shall" to second "to" in line 3 and insert:
"extend to all the provisions of Schedule 12 to this Act, including those relating to the recovery of tax, and".—[Sir E. Fletcher.]
Question proposed, That the Clause, as amended, stand part of the Bill.
Mr. Peter Walker: Having granted the Government five quick Amendments,

1361
there is one aspect of the Clause which should be discussed. The Clause is basically divided into two parts, one dealing with the fact of seeing that the Capital Gains Tax on certain companies shall be charged although perhaps those companies may not come under the Corporation Tax provisions. This, I presume, is to capture companies which, for example, cease trading at the end of the year, which we fully understand.
On that part of the Clause we on this side of the Committee have constantly complained of the manner in which companies are going to be taxed thus causing double taxation to the individual. We have pointed out the unfairness of this proposal on investment trusts and unit trusts. We heard the other day from the Chief Secretary that as a result of these provisions insurance companies were to be taxed to the extent of £23 million a year out of their funds. We have given many examples, which I will not repeat, of why we are opposed to double taxation when a capital gain occurs within a company. Therefore, we are opposed to this Clause, as we have been opposed to previous Clauses which have brought about this injustice where the share holder is taxed at 54 per cent. rather than at 30 per cent.
On the remainder of the Clause there is a very important point of principle which I would ask the Minister to explain. Basically this Clause is doing away with the short-term Capital Gains Tax of the company and it is substituting for it the permanent long-term Capital Gains Tax that the Government consider necessary. This brings about a very interesting and wide gap between the treatment of the individual as opposed to the treatment of the company. Previously the individual was taxed for short-term Capital Gains Tax at the rate of Income Tax and Surtax, and the company was taxed at the rate of Income Tax and Profits Tax. Therefore, we have a situation in which the Government have decided that so far as the company is concerned they will substitute for the 56¼ per cent. rate of tax on short-term capital gains the much lower rate of 35 per cent. or 40 per cent. depending on the rate of Corporation Tax.
So the company has been treated to a considerable reduction in the rate of tax as far as short-term capital gains are
1362
concerned. But the individual, instead of being charged a reduced rate of tax for short-term capital gains, has had the period in which he can suffer from the higher rates of tax increased. We therefore have the position in which the individual, when the capital gain takes place in the first 12 months, will be taxed at the rate of Income Tax and Surtax whereas the company will be taxed at the rate of Corporation Tax. This means that the majority of people who decide to engage in any form of transaction which is liable to result in a short-term capital gain are likely to do it by forming a company, thereby paying the 35 per cent. rate of tax, rather than do it as an individual which would render them liable to pay Income Tax and Surtax.
Mr. Lubbock: In fact, they will not pay 35 per cent. They will pay 56 per cent.
Mr. Walker: I agree, but as far as the Surtax payer is concerned the original rate will be a better proposition. It will pay the Surtax payer on the higher rate to form a company to carry out the transaction and pay the total of 54 per cent. instead of paying the higher tax which he would pay otherwise.
There must be some explanation why the Government have decided that for companies it is right to have the one level of Capital Gains Tax of 35 per cent. or 40 per cent., whichever it may be, but, for the individual, to continue to have a very high and, for some people, penal rate of taxation for the first 12 months. This is a remarkable difference in treatment for the individual and for the company, and this difference requires some explanation.
11.45 p.m.
Sir Eric Fletcher: The hon. Member for Worcester (Mr. Peter Walker) made two points. First, he pointed out that to some extent the Opposition wish to repeat on this Clause the objections which they previously raised to companies being liable to Corporation Tax on capital gains. In so far as he made that argument he was doing no more than repeating arguments addressed to the Committee on earlier Clauses and therefore I do not think that I need deal with them. Over and over again we have indicated why we think that all the gains, whether profits in the old sense or capital gains accruing

1363
to a company, should be chargeable for Corporation Tax, and it would be tedious to repeat the arguments put forward by my hon. and right hon. Friends in that respect.
Secondly, a point of some detail which I was asked to explain was why the Government have adopted this method of dealing with the interim charge of tax on capital gains of companies and to explain why there appears superficially to be a distinction between the treatment of individuals and the treatment of companies in respect of the change from short-term capital gains to long-term capital gains. In part the answer to the hon. Member is that this is inherent in the complete separation of Income Tax and Surtax for individuals and Corporation Tax for companies.
In so far as the short-term capital gain is being abolished, it is not entirely correct to say, as the hon. Member said, that the period of operation of the short-term Capital Gains Tax is being extended. In the case of moveables it is being extended from six months to 12 months, but in the case of land it is being reduced from three years to one year. Therefore the apparent contradiction to which the hon. Member referred is in part a reflection of the fact that the whole concept of short-term capital gains with differential time limits according to whether land or securities is involved is being replaced by one with a single operative time limit.
It is far-fetched for the hon. Member to think that some individuals will be tempted to form companies to get the apparent benefit of being able to deal with short-term capital gains. We do not think that the provisions in the Clause will have those undesirable results and although I suppose there will inevitably be some anomaly or difficulty somewhere in translating short-term capital gains with two differential terminal periods into long-term capital gains and making the appropriate transitional provisions, we think that this is by far the best and fairest provision that could be devised.
Sir D. Glover: I understand the Minister without Portfolio to say that my hon. Friend the Member for Worcester (Mr. Peter Walker) was wrong in saying that the Government were extending
1364
short-term Capital Gains Tax from six months to 12 months. The hon. Gentleman said that it was not true because in the case of land the period was being reduced from three years to 12 months. Is not this exactly the situation to which my hon. Friend was drawing attention in his interjection? If the period in respect of land is reduced to 12 months, would not that be exactly the situation in which somebody entering into purchase would form a company, because by doing so he would avoid the excess which otherwise he would have to pay in Income Tax and Surtax? The very fact that the period for land is being reduced from three years to one year shows how inadequately, as usual, the Government have thought out their proposal. The Government must look at this again. At present, the Clause is nonsense.
Mr. Peter Walker: On the first point which the Minister made, although he is quite right to say that we have had the arguments about double taxation before, I must impress upon him how important we regard these matters. Through our proceedings, it has been shown that unit trusts, investment trusts and settlements—the hon. Member for Orpington (Mr. Lubbock) dealt with them—all are caught by double taxation as a result of including companies in this way. Therefore, from that point of view alone, we are dissatisfied with the Clause.
As regards the short-term differential, the Minister is underestimating the importance of this question. The Government have decided that for companies the rate of short-term Capital Gains Tax is to be reduced from 56¼ per cent. to 35 per cent. For the individual, they have decided that for the majority of transactions it shall stay at the rate of Income Tax and Surtax for a far longer period. The Minister said that he did not really think that people would bother to form a company for the purpose of these transactions. His advisers are bound to advise anyone who is a Surtax payer above the level of 56¼ per cent. to form a company for that purpose. Therefore, by the way the Clause has been drafted, the Government are putting a maximum level of short-term Capital Gains Tax on anyone who is well advised of 56¼ per cent., which, presumably, is what they do not want to do because they would like

1365
to catch such a person for Income Tax and Surtax.
I am sure that, on reflection, the Government will find that they will want to introduce some Amendments on Report. They have moved five Amendments to this Clause already, whereas the average has been only three Government Amendments to each Clause so far.
However, in spite of five Amendments to it, this still remains a thoroughly bad Clause, and I advise my hon. and right hon. Friends to divide against it.
Question put, That the Clause, as amended, stand part of the Bill:—
The Committee divided: Ayes 152, Noes 146.

Division No. 193.]

AYES

[11.52 p.m.

Abse, Leo

Hale, Leslie

Orme, Stanley

Allaun, Frank (Salford, E.)

Hamilton, James (Bothwell)

Oswald, Thomas

Alldritt, Walter

Hamilton, William (West Fife)

Padley, Walter

Allen, Scholefield (Crewe)

Hannan, William

Pearson, Arthur (Pontypridd)

Armstrong, Ernest

Harper, Joseph

Peart, Rt. Hn. Fred

Bacon, Miss Alice

Harrison, Walter (Wakefield)

Pentland, Norman

Bagier, Gordon A. T.

Hart, Mrs. Judith

Perry, Ernest G.

Barnett, Joel

Hattersley, Roy

Popplewell, Ernest

Beaney, Alan

Herbison, Rt. Hn. Margaret

Price, J. T. (Westhoughton)

Benn, Rt. Hn. Anthony Wedgwood

Hobden, Dennis (Brighton, K'town.)

Probert, Arthur

Bennett, J. (Glasgow, Bridgeton)

Holman, Percy

Rankin, John

Bishop, E. S.

Houghton, Rt. Hn. Douglas

Rees, Merlyn

Blackburn, F.

Howie, W.

Rhodes, Geoffrey

Blenkinsop, Arthur

Hoy, James

Richard, Ivor

Boardman, H.

Hughes, Emrys (S. Ayrshire)

Roberts, Albert (Normanton)

Bowden, Rt. Hn. H. W. (Leics, S.W.)

Hunter, Adam (Dunfermline)

Robertson, John (Paisley)

Boyden, James

Irving, Sydney (Dartford)

Rodgers, William (Stockton)

Braddock, Mrs. E. M.

Jackson, Colin

Rogers, George (Kensington, N.)

Bray, Dr. Jeremy

Jay, Rt. Hn. Douglas

Short, Rt. Hn. E. (N'c'tle-on-Tyne, C.)

Buchan, Norman (Renfrewshire, W.)

Jeger, George (Goole)

Silkin, John (Deptford)

Buchanan, Richard

Jones, Dan (Burnley)

Slater, Mrs. Harriet (Stoke, N.)

Callaghan, Rt. Hn. James

Kenyon, Clifford

Slater, Joseph (Sedgefield)

Carmichael, Neil

Lawson, George

Small, William

Coleman, Donald

Lee, Rt. Hn. Frederick (Newton)

Smith, Ellis (Stoke, S.)

Conlan, Bernard

Lever, L. M. (Ardwick)

Soskice, Rt. Hn. Sir Frank

Corbet, Mrs. Freda

Lewis, Ron (Carlisle)

Steele, Thomas (Dunbartonshire, W.)

Craddock, George (Bradford, S.)

Lomas, Kenneth

Stewart, Rt. Hn. Michael

Cullen, Mrs. Alice

McBride, Neil

Stones, William

Dalyell, Tam

McCann, J.

Summerskill, Hn. Dr. Shirley

Davies, G. Elfed (Rhondda, E.)

MacDermot, Niall

Swingler, Stephen

Davies, S. O. (Merthyr)

McGuire, Michael

Taylor, Bernard (Mansfield)

Diamond, Rt. Hn. John

McInnes, James

Thomas, Iorwerth (Rhondda, W.>

Doig, Peter

McKay, Mrs. Margaret

Thomson, George (Dundee, E.)

Donnelly, Desmond

Mackenzie, Gregor (Rutherglen)

Thornton, Ernest

Duffy, Dr. A. E. P.

Mackie, John (Enfield, E.)

Tinn, James

Dunn, James A.

MacMillan, Malcolm

Urwin, T. W.

Edwards, Rt. Hn. Ness (Caerphilly)

Mahon, Simon (Bootle)

Wainwright, Edwin

Ensor, David

Manuel, Archie

Walden, Brian (All Saints)

Fernyhough, E.

Mapp, Charles

Walker, Harold (Doncaster)

Fletcher, Sir Eric (Islington, E.)

Marsh, Richard

Wallace, George

Fletcher, Ted (Darlington)

Mason, Roy

White, Mrs. Eirene

Floud, Bernard

Maxwell, Robert

Whitlock, William

Foley, Maurice

Mendelson, J. J.

Wigg, Rt. Hn. George

Fraser, Rt. Hn. Tom (Hamilton)

Millan, Bruce

Willey, Rt. Hn. Frederick

Galpern, Sir Myer

Miller, Dr. M. S.

Williams, Clifford (Abertillery)

Garrett, W. E.

Milne, Edward (Blyth)

Willis, George (Edinburgh, E.)

George, Lady Megan Lloyd

Morris, John (Aberavon)

Winterbottom, R. E.

Ginsburg, David

Murray, Albert

Yates, Victor (Ladywood)

Gourlay, Harry

Neal, Harold

Gregory, Arnold

Oakes, Gordon

TELLERS FOR THE NOES:

Griffiths, David (Rother Valley)

Ogden, Eric

Mr. Ifor Davies and

Griffiths, Rt. Hn. James (Llanelly)

O'Malley, Brian

Mr. Alan Fitch.

NOES

Agnew, Commander Sir Peter

Bessell, Peter

Bruce-Gardyne, J.

Alison, Michael (Barkston Ash)

Birch, Rt. Hn. Nigel

Bullus, Sir Eric

Allason, James (Hemel Hempstead)

Black, Sir Cyril

Chataway, Christopher

Anstruther-Gray, Rt. Hn. Sir W.

Bossom, Hn. Clive

Chichester-Clark, R.

Astor, John

Bowen, Roderic (Cardigan)

Clark, William (Nottingham, S.)

Awdry, Daniel

Box, Donald

Cole, Norman

Barber, Rt. Hn. Anthony

Boyd-Carpenter, Rt. Hn. J.

Cooke, Robert

Barlow, Sir John

Boyle, Rt. Hn. Sir Edward

Cooper-Key, Sir Neill

Batsford, Brian

Brewis, John

Crosthwaite-Eyre, Col. Sir Oliver

Bennett, Sir Frederic (Torquay)

Brinton, Sir Tatton

Curran, Charles

Berry, Hn. Anthony

Brown, Sir Edward (Bath)

Dalkeith, Earl of

Davies, Dr. Wyndham (Perry Barr)

Johnson Smith, G. (East Grinstead)

Pickthorn, Rt. Hn. Sir Kenneth

d'Avigdor-Goldsmid, Sir Henry

Johnston, Russell (Inverness)

Pike, Miss Mervyn

Dean, Paul

Kaberry, Sir Donald

Pitt, Dame Edith

Digby, Simon Wingfield

Kerr, Sir Hamilton (Cambridge)

Powell, Rt. Hn. J. Enoch

Dodds-Parker, Douglas

Kershaw, Anthony

Prior, J. M. L.

Emery, Peter

King, Evelyn (Dorset, S.)

Pym, Francis

Errington, Sir Eric

Kirk, Peter

Rawlinson, Rt. Hn. Sir Peter

Eyre, Reginald

Legge-Bourke, Sir Harry

Renton, Rt. Hn. Sir David

Farr, John

Litchfield, Capt. John

Ridley, Hn. Nicholas

Fisher, Nigel

Lloyd, Ian (P'tsm'th, Langstone)

Roberts, Sir Peter (Heeley)

Fletcher-Cooke, Sir John (S'pton)

Longden, Gilbert

Roots, William

Foster, Sir John

Lubbock, Eric

Scott-Hopkins, James

Fraser, Ian (Plymouth, Sutton)

MacArthur, Ian

Stanley, Hn. Richard

Gammans, Lady

Mackenzie, Alasdair (Ross & Crom'ty)

Steel, David (Roxburgh)

Gibson-Watt, David

Mackie, George Y. (C'ness & S'land)

Stodart, Anthony

Giles, Rear-Admiral Morgan

McLaren, Martin

Stoddart-Scott, Col. Sir Malcolm

Glover, Sir Douglas

McNair-Wilson, Patrick

Studholme, Sir Henry

Gower, Raymond

Maitland, Sir John

Talbot, John E.

Grieve, Percy

Mathew, Robert

Taylor, Edward M. (G'gow, Cathcart)

Griffiths, Peter (Smethwick)

Maude, Angus

Taylor, Frank (Moss Side)

Grimond, Rt. Hn. J.

Maudling, Rt. Hn. Reginald

Teeling, Sir William

Gurden, Harold

Maxwell-Hyslop, R. J.

Temple, John M.

Hall-Davis, A. G. F.

Maydon, Lt.-Cmdr. S. L. C.

Thomas, Rt. Hn. Peter (Conway)

Harris, Frederic (Croydon, N.W.)

Meyer, Sir Anthony

Turton, Rt. Hn. R. H.

Harvey, John (Walthamstow, E.)

Mills, Peter (Torrington)

van Straubenzee, W. R.

Harvie Anderson, Miss

Mills, Stratton (Belfast, N.)

Walder, David (High Peak)

Hawkins, Paul

Mitchell, David

Walker, Peter (Worcester)

Heald, Rt. Hn. Sir Lionel

Monro, Hector

Walker-Smith, Rt. Hn. Sir Derek

Heath, Rt. Hn. Edward

More, Jasper

Wall, Patrick

Higgins, Terence L.

Morrison, Charles (Devizes)

Ward, Dame Irene

Hill, J. E. B. (S. Norfolk)

Munro-Lucas-Tooth, Sir Hugh

Webster, David

Hobson, Rt. Hn. Sir John

Murton, Oscar

Whitelaw, William

Hooson, H. E.

Noble, Rt. Hn. Michael

Wilson, Geoffrey (Truro)

Hornsby-Smith, Rt. Hn. Dame P.

Osborn, John (Hallam)

Yates, William (The Wrekin)

Howard, Hn. G. R. (St. Ives)

Page, R. Graham (Crosby)

Younger, Hn. George

Hunt, John (Bromley)

Pearson, Sir Frank (Clitheroe)

Hutchison, Michael Clark

Peel, John

TELLERS FOR THE NOES:

Jenkin, Patrick (Woodford)

Percival, Ian

Mr. R. W. Elliott and

Jennings, J. C.

Peyton, John

Mr. Dudley Smith.

Mr. Edward Heath: I beg to move,
That the Chairman do report Progress and ask leave to sit again.
I do so in order to ask the Chancellor of the Exchequer what his intentions are. It is now midnight, we have been debating for 8½ hours and all those who have listened to the debates will agree that they have all been serious. They have at the same time been extremely detailed, because we are dealing with a complex part of the Bill. We are now faced with Clause 78, to which the Government have put down a considerable number of Amendments which have recast the Bill. In addition, the Chairman of Ways and Means has selected, as I calculate, 11 Opposition Amendments for debate on Clause 78, many of which will be major debates.
On Clause 79, when we start considering the transitional provisions for Corporation Tax and those companies trading overseas, the Government are again recasting by a considerable number of major Amendments. I must therefore point out that if the right hon. Gentleman wishes to continue the discussion of the Bill at this stage he is embarking on an all-night Sitting again.
1368
As tomorrow there are, in the Palace of Westminster, to be celebrations to which I understand all hon. Members attach considerable importance, I must make it plain to the right hon. Gentleman that he and the Government are themselves entirely responsible for embarking on an all-night Sitting.
The Parliamentary Secretary to the Ministry of Labour (Mr. Richard Marsh)The Parliamentary Secretary to the Ministry of Labour (Mr. Richard Marsh) indicated dissent.
Mr. Heath: I hope that the Parliamentary Secretary to the Ministry of Labour is not suggesting that the Government are irresponsible. The Government are entirely responsible for embarking on an all-night Sitting of the Committee prior to a day on which these important events are to take place.
The Chancellor of the Exchequer (Mr. James Callaghan): I think that it is very reasonable of the right hon. Gentleman the Member for Bexley (Mr. Heath) to ask what the Government's intentions are in this matter and I want to be as frank as I can. It is true that we have had a number of detailed debates today and it is not for me to comment on the length of them, except to say that one Clause

1369
took us six hours to dispose of—I am not drawing conclusions; I am merely stating the facts—although there had been a number of earlier discussions on very similar points. Since then we have moved very fast.
During the last two hours, with the help of the whole Committee and with hon. Members keeping their speeches reasonably short—I hope that no one will mind my saying that—we have secured five Clauses. If it had been possible to make quicker progress in debating the Clause which took six hours, I would certainly have hoped to have moved to report Progress at about this time. However, we spent rather a long time on one Clause—I do not complain about it, but merely state that it was so. We want a full attendance in Westminster Hall tomorrow. I shall certainly be there and I hope that all my hon. and right hon. Friends and that everybody else will be there for the celebrations, but we must make some further progress tonight. There is important work for us to do.
We need not be overwhelmed by the number of debates which can arise, because many of them will be on concessions. I know that that is a word which I must not use, but they represent Amendments by the Government to meet representations which have been made by industry and commerce and right hon. and hon. Gentlemen opposite. It would not be right to deduce from the number of Amendments to be discussed that they will necessarily take the time which might be assumed. If there are Amendments which both concede a good deal of money and at the same time meet the legitimate points which have been put to us, there is not the same necessity, I hope, to debate them at any great length. I merely say that I hope to conclude at an early hour. I hope that we shall not go on too long, but that we should like to make a little more progress and see how far we can get tonight.
Mr. Heath: The Chancellor of the Exchequer has been far from explicit about what he hoped to do. We can deduce only that he has not reached firm decisions about what point of the Bill he would like to reach. He said that he would deal only with facts. He said that we had spent six hours on Clause 72, which is a very important Clause dealing with the pith and substance of close com-
1370
panies and for a large part of the debate it was one for one from each side of the Committee. The most violent row of the debate, in so far as there has been a row, took place between the hon. Member for Manchester, Cheetham (Mr. Harold Lever), who now seems to have been banished from the Chamber—
Mr. Harold Lever Mr. Harold Lever indicated dissent.
Mr. Heath: —and his right hon. Friend the Chief Secretary. I quote the hon. Gentleman as saying that a large part of Clause 72 was fallacious in logic and being perpetrated by sheer obstinacy. Nothing like that has been said from this side of the Committee in the whole of the day's discussion. That shows that the Clause was a very important matter to both sides of the Committee.
We will proceed with Clause 78 and I make it clear and public that the responsibility rests firmly on the shoulders of the Government. What we have found it very difficult to bring home to the Government is that discussion of the complicated details of a Bill of this kind takes far more time than they have ever allowed, even when Ministers are only moving Government Amendments and explaining what they mean. It was quite evident to the Committee that Clause 72 was of considerable importance. Now we have to continue the process.
The Committee appreciates the Amendments which the Chancellor has brought forward to meet the various representations which have been made to him, but that does not alter the fact that many other representations have been made to him which he has not yet found himself able to meet. It is only right that hon. Members should put forward Amendments dealing with those matters and argue the case in a serious and reasoned manner.
So we shall continue what we have done for 13 days on this Bill and argue these important matters seriously and in detail, and I therefore beg to ask leave to withdraw the Motion.
Motion, by leave, withdrawn.

Clause 78.—(DIVIDEND INCREASES IN 1965–66.)
Mr. Diamond: I beg to move Amendment 749, in page 101, line 11, after "shall" to insert:
"(as regards that company)".

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We are now dealing with the Clause which relates to forestalling and measures where there is any forestalling by taking, as it were, a standard period and reckoning the dividend in that period and comparing it with a dividend paid during the year 1965–66. This Amendment is to make it clear that when a company is required to account for Income Tax in respect of an excess of dividends paid in 1965–66 over the standard amount, as I have described, a company which receives the dividend will not be entitled to bring any part of the dividend into its own account so as to use Income Tax paid as cover for Income Tax due on its own dividend which it may pay out after 1965–66.
The interpretation of the Clause previously was not absolutely clear. It could have been interpreted as referring not only to the receiving company but also to the paying company. If that interpretation prevailed, the purpose of the legislation would be frustrated in so far as excess dividends are paid to company shareholders. The Amendment makes the position clear. Only the company paying the dividend is to bring it into account under Clause 43(3), and Clause 44—that is in order to secure that it accounts for the Income Tax.
Mr. William Clark: I do not want to detain the Chief Secretary for too long, but does this Amendment affect the position of investment trusts at all? Can he say whether, on the standard period, they have to pay out 90 per cent. of income, and will still have to pay out 90 per cent. in subsequent years?
Mr. Diamond: I speak from memory but I can say clearly that this does not affect investment companies. There is a later stage where we can clear the ground on investment companies. This has no reference to that particular problem.
Amendment agreed to.
Mr. van Straubenzee: I beg to move Amendment No. 625, in page 101, line 15, to leave out from "year" to the end of line 16.
As the Chief Secretary will appreciate, this Amendment is directed to the election provisions under an earlier Clause, Clause 44, the standard dividend provision. As I understand it, a company may
1372
pay dividends during the year 1965–66 in excess of its standard dividend as defined by the Clause, and the recipient will incur no tax in respect of the excess, except possibly Surtax. But the excess is regarded, so far as the paying company is concerned, as dividend paid on 6th April, 1966. The consequence is that the paying company is obliged to account to the Revenue for Income Tax at the standard rate in respect of the excess.
The effect of the subsection we are now discussing produces, it is suggested to the Chief Secretary, an anomaly for subsidiary companies. Clearly under Clause 44(3) in later years they can effectively pay a dividend gross to the parent company but an election under that Clause does not seem to be effective so far as the excess of a dividend over the standard dividend in 1965–66 is concerned.
I put it to the Chief Secretary that this is particularly difficult for wholly-owned subsidiaries which are expanding where profits are increasing sharply, since the parent company is denied the benefits of the increasing profitability for a period of 12 months. Since dividends paid by the parent company to their shareholders will already be restricted under the Clause, there seems to be no particularly good object in applying this restriction to dividends paid by subsidiaries to parent companies, particularly because Section 44 will later apply. That is the short point of the Amendment. To follow the Minister without Portfolio, it is a clarifying Amendment to clarify even further an already clear Clause, and I hope that in that spirit the Chief Secretary will accept it.
12.15 a.m.
Sir Eric Fletcher: I am afraid that I cannot advise the Committee to accept the Amendment, and I hope that the hon. Member for Wokingham (Mr. van Straubenzee) will agree, if he has had an opportunity to study Amendment No. 750 in the name of the Chancellor of the Exchequer, which is a paving Amendment to a new Schedule. It proposes to insert at the end of line 16 on page 101:
Provided that, in relation to the cases dealt with by the Schedule (Supplementary provisions about dividend increases in 1965–66) to this Act, this section shall have effect subject to the provisions of that Schedule.
I understand that the hon. Gentleman may not have had an opportunity of

1373
studying the details of the Schedule which is introduced by my right hon. Friend's Amendment. I am afraid that it is a somewhat lengthy and elaborate Schedule. When we reach it, I think that he will find that we have gone a long way, if not all the way, to meet the point which he has in mind. The Chancellor's Amendment and the new Schedule provide new rules under which dividends paid by a subsidiary to a parent or another company which is a joint subsidiary of a common parent are kept outside the forestalling provisions altogether.
The present Amendment, therefore, loses its force in relation to the cases dealt with by the Chancellor's Amendment. I do not think that I should be doing my duty if I did not point out that there are still a few marginal cases which the hon. Member would probably wish to be covered which are not in fact covered by the Chancellor's Amendment and that, I think, arises from the fact that in our provisions regarding a company which is a subsidiary we have introduced the 75 per cent. test whereas the hon. Member would have preferred the 50 per cent. test, but if we are to keep the provisions regarding subsidiaries in line, we must adhere to the 75 per cent. test. But with that qualification, which I should be failing in my duty if I did not mention, I think that we have substantially met the point.
Mr. van Straubenzee: I am grateful, as always, to the Minister without Portfolio for that explanation. I am sure that he in turn will understand that our Amendment was on the Order Paper for a considerable time before the Chancellor's Amendment. That is why it is being moved in this form. It long preceded the new Schedule—the new and very complicated Schedule which the Chancellor seeks to add.
I accept the Minister without Portfolio's point that there are certain considerable limitations to the acceptance of the principle put forward in this Amendment, in the Schedule to which we shall come later. It goes a considerable way to meet the point, and in view of the fact that the Government have moved a considerable way to meet us, I beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Mr. Patrick Jenkin: I beg to move Amendment No. 779, in page 101, line 16, at the end to insert:
"provided that in computing the gross amount of such dividends paid in the year 1965–66 there shall be disregarded the gross amount of any dividends paid in respect of shares in the capital of the company which entitle the holders thereof to a dividend at a fixed rate or to a dividend at a rate varying with the standard rate of income tax but to no other right to share in the profits of the company, in so far as such dividends represent arrears of dividends due in an earlier year".
This is a very short point and I must confess to some surprise that it is not one that has been taken by the Government. I hope they will be able to be as forthcoming on this as they were on the last Amendment I moved. The point concerns arrears of preference dividends. A company, broadly, has no choice as to whether or not it shall pay a preference dividend, except in the circumstances where the company's profits are not sufficient to allow it to pay one. In this situation it may pass the dividend altogether or it may pay something less than the full amount of the preference dividend.
The Amendment is intended to cover the case where, during the standard years, a company paid something less than the full preference dividend and then for the year in question, what one might call the forestalling year, it paid a full dividend, including, perhaps, arrears of the preference dividend. It would seem to be extremely hard in that case that a company should be charged to Income Tax under the new system on the arrears of the preference dividend, which, had the company had profits, would have been paid in the earlier years. The point is as brief as that and I cannot elaborate on it. I hope that the Chief Secretary or whoever replies will give some indication that this is a problem which the Government can look at with some sympathy.
Mr. John Harvey: I should like to extend the argument that has been put forward by my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) and urge the Front Bench opposite to give this Amendment not only favourable consideration but perhaps to look even more fully at this problem between now and Report. As the hon. Member for Wanstead and Woodford said, a company has really

1375
no choice but to pay a preference dividend unless its lack of profits make it impossible to do so.
Following that reasoning my attention has been drawn to a case where in the opening year a company, of which I can supply details, was unable to pay its full preference dividend. Consequently, it now finds itself penalised because what happened was that during the basic period the shares, which were £1 shares entitled to 6½ per cent. non-cumulative preference dividend, received nothing because there were no payments. Last year the company managed to pay 2¾ per cent. on the preference dividend and this year, other things being equal, it would normally pay 6 per cent., which represents the whole of its earnings at the moment, but is still less than the fixed amount. The very fact that it is going to pay 6 per cent. already involves the company in a heavy liability to the new tax, but I reiterate that it is still short of the amount that it should be paying under the preference arrangement whereby it should be paying 6½ per cent. The Finance Bill in this Section hits at a company placed in this position, and I cannot really believe it was intended to do so. I feel that this is probably one of those points that must have been missed and I ask the Chief Secretary to look at it most carefully between now and Report.
Sir Eric Fletcher: I can be equally brief. We have sympathy with this proposal. We realise that there may be companies which turn the corner shortly after 1965–66 and so will be in a position to pay arrears of preference dividends, and we agree that if that is the case, they should be enabled to do so without penalty. On the other hand, a general provision might be an incentive to some companies to endeavour to pay off arrears of preference dividends even though the circumstances were such that commercial prudence would not recommend that course.
What I suggest, therefore, is that if the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) withdraws the Amendment, I undertake on behalf of my right hon. Friend the Chancellor that having given the matter sympathetic consideration, we will bring forward on Report an Amendment designed to give effect to the substance of what
1376
the hon. Member has in mind, although, perhaps, couched in somewhat different language, to prevent the possibility of abuse.
Mr. Patrick Jenkin: I shall be incurring the jealousy of some of my right hon. and hon. Friends. I do not quite know how many Amendments I have had to seek leave to withdraw because we have had such favourable and friendly response from the Treasury Bench. In view, however, of what the Minister without Portfolio has said, I am happy to beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Sir Eric Fletcher: I beg to move Amendment No. 750, in page 101, line 16, at the end, to insert:
Provided that, in relation to the cases dealt with by the Schedule (Supplementary provisions about dividend increases in 1965–66) to this Act, this section shall have effect subject to the provisions of that Schedule.
This is the Amendment to which I referred a moment ago and which is a paving Amendment to the new Schedule.
Amendment agreed to.
Sir Eric Fletcher: I beg to move Amendment No. 751, in page 101, line 19, after "dividends", to insert "unless and".
I hope that it will be convenient, Sir Samuel, to take at the same time the next Amendment, No. 752, in line 21.
The Deputy-Chairman The Deputy-Chairman indicated assent.
Sir Eric Fletcher: I can explain the Amendments shortly and I hope that they will be acceptable to the Committee. They are relieving Amendments and their purpose is to ensure that the standard amount which a company may pay by way of dividends in 1965–66 shall not be lower than the amount of the standard dividends, although it may be higher. In other words, although the standard can be raised, it cannot in any circumstances be reduced. This is, therefore, a relieving Amendment for the benefit of the taxpayer.
Amendment agreed to.
Further Amendment made: in page 101, line 21, leave out from beginning to "the" and insert:
(3) Except in the case of a company not carrying on business earlier than December,

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1963, if the amount ascertained in accordance with this subsection is higher than the amount of the standard dividends.—[Sir Eric Fletcher.]
Mr. Diamond: I beg to move Amendment No. 746, in page 101, line 23, to leave out "five" and to insert "seven and a half".
The Deputy-Chairman: I think that with this Amendment we can conveniently discuss Amendment No. 416, in line 23, after "capital", insert:
"or, at the option of the company, the capital employed by the company".
and Amendment No. 418, in page 103, line 17, at end insert:
(7) For the purposes of this section the capital employed by a company shall be arrived at by taking the amount by which the value of the company's assets, computed in accordance with the provisions of paragraphs 2 lo 9 of the Eighth Schedule to the Finance Act 1952, exceeds the amount of its liabilities so computed and adding the capital value of the company's investments computed by multiplying by twenty the company's franked investment income for the relevant financial year and deducting the cost of such investment.
Mr. Diamond: Amendment No. 746 quite simply raises the minimum amount which a company may pay by way of dividend in the year 1965–66 without a "forestalling charge" from 5 per cent. of its share capital in 1965 to 7½ per cent. of it. It means that, whatever the level of the profits for 1965, a company may pay out this amount without penalty under the Clause. The previous figure was 5 per cent. Representations were made that that was too low and that 7½ per cent. would be more realistic.
12.30 a.m.
Mr. Higgins: Rather than the Government Amendment, the proposals contained in Amendments No. 416 and 418 should be accepted and enshrined in the Clause, because it seems that the objective is to set a limit above which one can reasonably say that forestalling may have taken place.
The way in which this has been attempted by the Government would not be supported by Dr. Kaldor, because it has been based largely on an accounting convention approach to the whole problem. If we want some criterion of normality between dividends in one period
1378
and another, I suggest that what we want is not an arbitrary accounting convention but an indication of what is the real economic magnitude of the capital involved.
As originally drafted, the Clause was based purely and simply on the idea of share capital, an accounting convention, with an arbitrary figure, originally 5 per cent., to indicate what might be regarded as a normal dividend. The Government have relented somewhat in the severity of the Clause by saying that they will raise from 5 per cent. to 7½ per cent. the amount of dividend, expressed in terms of a percentage over and above the share capital, which they are prepared to accept.
While this represents a change in the amount, it in no way corrects the wrong principle on which the criterion has been based. We on this side of the Committee clearly feel that in this instance one should have a measure of the economic capital involved and, therefore, in Amendments No. 416 and 418 we suggested that we should relate the percentage dividend to the economic capital and give the firm concerned the option of taking this as the measure of the capital employed.
It is true that the Opposition Amendments would not go the whole way to meeting the objection to the criterion being based on economic reality, but had we done that we should have had to give a replacement cost estimate of the capital involved. Nevertheless, there is no doubt that our Amendments are better than that tabled by the Government.
Even if we accept the Government Amendment and increase the percentage to the amount suggested, the judgment as to whether or not there has been forestalling will be arbitrary in its effect. Suppose, for example, that there are two perfectly identical companies making in the initial period the same profits and with the same real capital employed in the business, and then we find a situation in which one has a nominal share capital quite different from that of the other. Then, of course, the basis on which one says that forestalling has occurred will be quite arbitrary. We are left in the situation where the firm with a different nominal capital from the other will have a different criterion applied to it.

1379
This is complete nonsense. We should not simply accept the increase in the percentage which the Government, as a concession, are putting forward but question the whole principle underlying both the Clause and the Government Amendment. I suggest that the Committee supports our proposal, with the Clause being based on an estimate of the capital employed at the option of the firm concerned.
Mr. Ian Lloyd: It will probably have been noticed that in the rehearsal at Covent Garden for the opera that is being put on there in a few days' time, a camel is alleged to have broken loose and stampeded through the scenery. I am sure that many hon. Members who are now becoming more than familiar with the terms of this Bill in the late hours of the night or the early hours of the morning would not be surprised to see camels stampeding out of its pages.
The word "capital" has a more emotive connotation for the politically committed than it has for accountants, and when profit is discussed in the same context the result is often analogous to the effect of lowering the last rod of uranium into a nuclear plant—a great deal of heat is generated. I here recall some remarks of Professor Peter Drucker who addressed the Institute of Management two or three years ago, and made a rather interesting comparison between his visit to Europe just before the war and in 1962. He made the point, which is relevant to our present discussions, that whereas the hostility to profit which was so apparent in Europe before the war had largely disappeared from the Common Market, it remained one of the most significant facts of life in Britain when he visited this country.
Capital and profits are inescapable parts of a capital-using system—in the United Kingdom, in the United States and in the Soviet Union. I was therefore surprised to read in The Times this morning, in an otherwise excellent article on British industry, that:
"The return on capital employed by the nationalised industries is low. Since their prime motive is the national interest rather than profit making, this is only to be expected."
The author thinks that they do considerably better than the 10 lowest-yielding private enterprises. From that it would
1380
seem that the logical conclusion is that the lowest-yielding private enterprises have a more developed sense of the public interest than have those nationalised industries. Further it would seem that the highest-yielding private enterprises—which include Granada, A.T.V., Radio Rentals, Butlins and the London Brick Company—would serve the public interest better if they made less profits and paid less tax, and that those enterprises such as B.E.A. which have eliminated the need for subsidy have a much less developed sense of the public interest than those which have not.
The truth, surely, is that without high profit and enterprise in the private sector the country would soon be bankrupt—
Mr. Diamond: As I am to have the privilege of replying to the hon. Gentleman, and as there are many Amendments, I am anxious to know of which Amendments he is speaking. I should like to know, so that I might follow his argument the more closely.
Mr. Lloyd: The Amendment to which I refer is that which deals with capital employed, and I refer particularly to the definition of capital employed; and the remarkable ignorance of the subject which is displayed on the other side.
Without high-profit enterprises the burden imposed by the public sector on the private sector would be substantially greater. Where all is public sector—as exists in semi-paradises and demi-paradises endeared to the hearts of hon. Members opposite—the choice of whether profits are used or not is infinitely more difficult to apply. The profit motive in the U.S.S.R. recognises, if nothing else, that tests of economic efficiency must all be subservient to whether capital employed in one form of economic activity might be more profitably employed in another. We want profit to be employed in both the public and private sectors of the economy which are each consuming wealth.
Clause 78 says that there should be 7½ per cent. of share capital. The first of our Amendments substitutes "capital employed" for "share capital". The reasons for this are quite simple. Issued capital becomes increasingly irrelevant to th true economic circumstances of any enterprise that grows, and it is the wish of hon. Members on both sides of the

1381
Committee that all economic enterprise should grow. A growing enterprise does not only use share capital, but loan capital, supplier's credit and reinvested earnings. All these are sources of capital. Indeed, some of the most successful enterprises—
The Temporary Chairman (Mr. H. Hynd): Order. I am trying to follow the argument of the hon. Member but finding it more difficult to relate what he is saying to any of the three Amendments which we are discussing.
Mr. Lloyd: Amendment No. 416 reads:
"after 'capital', insert 'or, at the option of the company, the capital employed by the company'."
I am referring specifically to other types of capital employed by a company, which the Government should recognise in any system which seeks to impose a ratio on the capital of the company. This ratio should not be related solely to the share capital of any such company. I therefore referred to other types of capital.
The test of success is often a decline in the ratio of the share capital compared with other types of capital. Two companies each with a capital employed of £5 million would have these results. Company A would have a share capital of £½ million and reinvested earnings of £4½ million and a standard dividend of 7½ per cent., which would earn £75,500. Company B, with identical resources, would have share capital of £2½ million and reinvested earnings of £2½ million and standard dividend would amount to £187,500. I do not know if it is the deliberate intention of the Chancellor to be arbitrary in his dealing with this point, but it seems that, if it is desired to restrict, it would be difficult to imagine a more arbitrary manner of doing so.
Since investment income comes within the scope of Corporation Tax, the second Amendment seeks to cover cases where the cost of investment might be quite out of line with current investment. One may contrast the cases of two companies with an initial investment each of £100. One, being successful, might produce at 5 per cent. and turn the £100 into £1,000. It would not be correct to assume that the capital employed in that company was £100. By contrast, another company, making less successful investment, might
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keep to the figure of £100. The purpose of the Amendment is to enable a distinction which is perfectly legitimate and requires to be made to be in fact made.
12.45 a.m.
Mr. Edward M. Taylor: I speak in support of Amendments Nos. 416 and 418, which I have had the pleasure of signing. I appreciate that hon. Members who have signed these Amendments are hon. Members who are particularly interested in the shipping and shipbuilding industries. We have tabled these Amendments, not because of the particular case of shipping, but because we believe that it affects this industry and others. One thing which has surprised me is how many of the Government's efforts in one direction seem to be frustrating their efforts in others. Throughout the discussion on earlier Clauses it was indicated that the Government were interested in encouraging industries and companies to invest as much as they could—in other words, to provide their capital from their own resources. Many industries and companies have been doing this for many years, but it would seem that this proposal will damage the interests of those industries which finance themselves from ploughed back profits.
This is not a question of detail but of principle. For that reason, we suggest that the relationship should be to capital employed and not simply to ordinary share capital. The relationship to share capital would appear to be very unfair, because there is a very low return on actual capital employed in some of the industries which have ploughed back a good deal of capital and whose profitability at present is not at all great.
I want to give one example of this related to the shipping industry. In 1962, according to the Economist quarterly returns of industrial profits, the profit return on capital actually employed was only 0·4 per cent. for shipping companies. In 1963 this had declined to 0·1 per cent. on the capital actually employed. In 1965 there was an improvement to 2 per cent. on capital employed. This shows, on the one hand, the low rate of profitability in the shipbuilding industry and, on the other hand, the enormous amount of fluctuation there can be from year to year. By all accounts, 1965 will be another year of low profitability for the shipping industry.

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In these circumstances, it is unreasonable that we should look for a comparison on the return on share capital, because in the shipping industry, which has a tradition of ploughing back, the peculiar position arises that there is often a very small ordinary share capital but enormous assets employed. For that reason, particularly in this industry but in many other industries where there is a small share capital but a large amount of capital actually employed, because of the tradition of ploughing back, it is very unfair to offer this as one of the alternatives. I appreciate that this is but one of the alternatives and is not the only measure which companies have to adopt in such circumstances. If this is meant as a concession, it should take account of the circumstances of industries. In the case of shipping and other industries, this is in no sense a concession.
To increase it from 5 per cent. to 7½ per cent. is of no assistance to these industries. In Amendment No. 418 we put forward a definition of what we regard as capital employed. We have used as a starting point a definition which was in force for the computation of the excess profits levy but investment income has been included because this comes within the scope of Corporation Tax. Careful consideration should be given to whether the concession to increase it from 5 per cent. to 7½ per cent. will be of any assistance to those industries which have been praised in an indirect way by the suggestion that more industries should plough back capital. This will be of no assistance to industries going through a period of low profitability which have been following this suggestion. For these reasons, I hope that the Amendments Nos. 416 and 418 will be accepted.
Mr. Diamond: As to the general proposal, that instead of share capital one should take capital employed, I am afraid that this is something that I could not recommend because of its difficulty and complexity. It is absolutely essential that a board of directors, when it proposes to declare a dividend, when it reaches its decision about the dividend that it is going to propose to the shareholders, should know exactly what the position is and whether it is a dividend which would be caught under the forestalling provisions or not.
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A calculation of capital employed would take a long time indeed. It could not possibly be accurately ascertained until some time after the period when it is proposed to declare the dividend in the ordinary way. But even if the delay were not a major consideration, the complexity is a major consideration and it is not the kind of difficulty that one would want to confront boards with.
As to the effect on the shipping industry, I should have thought the hon. Gentleman would be the first to agree that if we are dealing with an industry which is going through a period of low profitability, as he correctly says, the very fact that it is proposed to increase the minimum from 5 per cent. on capital to 7½ per cent. on capital is dealing very adequately, particularly with an industry which, as the hon. Gentleman says, is going through a period of low profitability and, therefore, of low dividends. To be able to declare a dividend of 7½, per cent. on the capital employed is a good average in today's circumstances and I should not have throught, therefore, that the hon. Gentleman should have any anxiety, as I previously said when we were discussing the shipping industry. My right hon. Friend has clearly demonstrated his anxiety about the industry and is considering with the industry ways and means of assisting it.
The proposal in front of us now to raise the minimum from 5 per cent. to 7½ per cent. without undergoing the risk of a forestalling charge would be absolutely adequate for the shipping industry and the hon. Gentleman has made it clear that that is the purpose of his Amendments. On the ground that they are unnecessary and complex, I do not think that I could recommend that Amendments Nos. 416 and 418 should be accepted by the Committee.
Mr. Higgins: I apologise for delaying the Committee a little longer, but I think we ought to go into this matter a little more deeply than the rather brief answer of the Chief Secretary would suggest. The right hon. Gentleman said that it would be too complex to get closer to the real capital employed by the firm concerned. But surely on a simple balance sheet basis, we can get closer to this

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than the arbitrary idea of going on share capital, which is a complete nonsense in this context.
Let us consider two companies where the real capital employed by both of them is £1 million. Let us say that in the standard period they have both been paying a dividend of £100,000 a year but the nominal share capital of one is £100,000 and the other £1 million. Are we seriously to find ourselves in the position where the amount of dividend which will be calculated for forestalling purposes, or in estimating whether it is forestalling or not, should be 7½ per cent per £100,000 in one case and 7½ per cent. of £1 million in the other?
It seems to me that to turn the whole definition on what the share capital happens to be in a particular firm, which after all may depend very much on when the firm was actually formed and what has taken place since, is wholly improper. I agree that we cannot get a perfect measure of economic capital, but we can get a great deal closer than the right hon. Gentleman is proposing.
Mr. Diamond: To reply to the hon. Member for Worthing (Mr. Higgins), I think that what is implicit in what he has said is that the proposal to increase from 5 per cent. to 7½ per cent. is the only proposal to measure the dividend. This is far from being the case. There is a variety of proposals. The hon. Gentleman is saying that share capital is not an accurate method of measuring capital in all circumstances and, therefore, we should use capital employed, which admittedly is a more useful measure of capital for certain purposes. Capital employed and share capital can vary widely as between companies. But what we are discussing here is not all the methods of arriving at a dividend which is free from a forestalling charge.
We are merely proposing that there shall be an irreducible minimum of 7½ per cent. where that suits the company best. If it does not suit the company best, where there has been a long period of standard profits and dividends it may be better to go along on that basis. Where the company adopts a minimum because it is more advantageous than the other basis, we say that that minimum should now be 7½ per cent. where previously it was 5 per cent. To have
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a complicated calculation based on capital employed instead of on share capital does not assist anybody at all.
Mr. Barber: The Chief Secretary talks about the proposal put from this side of the Committee as being instead of his own proposal of 7½ per cent., but if we suppose that my hon. Friend's proposal was one additional alternative then, despite its complexities, the directors could ignore it. It would obviously be an advantage in the case cited by my hon. Friend. Would the Chief Secretary therefore consider it?
Mr. Geoffrey Lloyd: The Chief Secretary has mentioned the delay. That has to be taken into account, but there are two methods which are commonly used by analysts in calculating the capital employed. One is concerned with capital employed at the beginning of the financial year and the other with capital employed at the end of that year. I should have thought that to employ the end of the financial year would have fallen within the Chief Secretary's condemnation, but if one took the beginning of the financial year the capital would be there already. It would not suffer from the question of delay and it would at least avoid the gross discrepancy which could arise under the present formula.
Mr. William Clark: We have the extraordinary situation that the Chief Secretary is now doing his best to shield directors from the complexities of capital employed in their business. The right hon. Gentleman would have been better employed in shielding them from the complexities of the Corporation Tax. I am sure that it will be noted with gratitude that at least in the Chief Secretary the directors have a friend in a Socialist Government.
The right hon. Gentleman spoke about the complexity of working out capital employed in a company, but as my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) said, the suggestion now made from this side of the Committee is an option and if it is too complex to work out the directors will not work it out. If it does not pay them to work it out, they will not work it out. It is another alternative. The Chief Secretary says that the increase from 5 per cent. to 7½ per cent. is not

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the only advantage or concession in the comparison of dividends and there are other concessions if the company has gone through a fairly lean time.
I was a little doubtful when my hon. Friend the Member for Worthing (Mr. Higgins) cast some aspersions on accounting functions and I was delighted when he resurrected himself from that position. He pointed out that the capital employed in a company is a far better guide than the nominal, the issued share capital, of a company. The Chief Secretary, who has great experience in accountancy matters, knows, as I do, that one can get a rough and ready idea of the capital employed in a business by looking at the balance sheet. If the right hon. Gentleman wishes to deny that, my hon. Friends will accept it from him if he will go part of the way by saying, "All right; take the issued share capital and the reserves". This would give a nearer figure for capital employed in a company, without bothering about revaluation of assets.
1.0 a.m.
The right hon. Gentleman has said that our proposal would be complex and people would not be able to work it out. Let us take the example of two companies starting 10 years ago, each with a capital of £1 million. They make profits over the years. They build up reserves. At 31st December, 1964, company A has accumulated reserves of £500,000. The Chief Secretary will agree that, other things being equal, its capital employed must be at least £1½ million. Company B, with precisely the same profits over the 10 years, has at 31st December, 1964, £1 million share capital and £500,000 worth of reserves, and it capitalises its reserves, at one for two. What is the position then? The 7½ per cent. will operate more advantageously for the company which capitalises its reserves instead of keeping them as reserves. The right hon. Gentleman must take this point.
At some time in the future, a Government will probably introduce legislation following the Jenkins Report. Whether shares of no par value will figure in that one does not know, but if one takes shares of no par value one is using capital employed in the business. This is a valid point, and I ask the right hon. Gentleman to reconsider it. We accept that admini-
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stratively it might be difficult for boards of directors to operate. The point about delay is not a runner at all. There is delay anyway in declaring a dividend until one knows the figures. Even without the Bill, there is a certain amount of delay before one declares a dividend, so the right hon. Gentleman could not have been really serious when he said that administratively there would be great difficulty and delay.
I am sure that my hon. Friends are not wedded to the words of their Amendments. With respect to their skill in drafting them, I think that Amendments Nos. 416 and 418 go far too wide. But the spirit behind them ought to be accepted by the Government. If the calculation of capital employed will be too difficult not only for boards of directors to work out but for the Inland Revenue to check, let us take the known reserves of a company, add them to the share capital, and apply the 7½ per cent. to that figure. If the right hon. Gentleman cannot accept the wording but he will, none the less, be sympathetic to its purpose, my right hon. and hon. Friends will be very pleased. We on this side of the Committee are in something of a dilemma on these Amendments. The Chair has called the Government Amendment which raises the rate from 5 to 7½ per cent., but we are procedurally precluded from dividing on the excellent proposals raised by my hon. Friends in their Amendments. We do not think that Government Amendment No. 746, which increased it from 5 to 7½ per cent., goes far enough.
On the other hand, I suppose that half a loaf is better than no loaf, and in this instance in the Committee stage I do not think that any of my right hon. and hon. Friends will want to divide against the Government Amendment. But I reiterate what I said to the Chief Secretary earlier, that there is a valid point here. Nobody wants to avoid tax or to help the tax avoider. But what one should not do is to change the legislation so that some taxpayers get an advantage and some do not. If the Chief Secretary would take the point of capital employed, not necessarily having a very detailed—even if one could get one—computation, but have a look at it and even take into account, for the purpose of computing the 7½ per cent., the share capital plus the known reserves of the company, presumably my right hon.

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and hon. Friends would not wish to return to this on Report.
Mr. Simon Wingfield Digby: I wonder whether the Chief Secretary could at least tell the Committee—he has told us very little about it—whether he has studied the memorandum submitted to the Chancellor by the Association of Certified and Corporate Accountants, on page 6 of which it says definitely that it is considered that employed capital would be a far better yardstick than that provided by Clause 78(6)? Is he saying that those people do not know what they are talking about?
Mr. Higgins: I hope that we shall have some reply from the Chief Secretary. I suggest that if we were to accept his Amendments, he might reasonably support ours. Be that as it may, I hope that we shall have a reply. I hope he will agree on the hypothetical example I posed to him, where one has two identical companies of this kind and the only difference is the nominal share capital involved, that the criterion will be totally different in one case from another, and if so, is it not nonsense and should not one accept the point made by my right hon. Friend that one should take account of capital employed?
Mr. Diamond: I am only too happy to reply again if it is thought necessary, if I did not make the position sufficiently clear. The reason why the Chair has selected these Amendments for consideration together is that instead of considering, as one does in the normal way, whether there has been an excessively high dividend by comparing that dividend with some kind of normality, one is at this point saying that, notwithstanding that the comparison with normality may result in an assumption or conclusion that the dividend in question was an excessively high one, if that dividend nevertheless comes within a maximum figure it will be treated as though it is not an excessively high one. If it came within the maximum figure of 5 per cent. on the share capital it would not be considered an excessively high one even though by comparison with previous practice it might be thought at first sight to be so.
But we are altering that to 7½ per cent., and what the Opposition are now
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saying, I understand, is that we ought to increase it above 7½ per cent.
Mr. William Clark: No.
Mr. Diamond: Yes. There is no point otherwise. What is being said is that where capital employed is greater than share capital—in the samples given capital employed might be roughly calculated as share capital plus reserves, and that is, therefore, greater than share capital—we should have the larger figure on which to base the 7½ per cent. Had we been thinking of it in those terms, my right hon. Friend would not have proposed an increase from 5 per cent to 7½ per cent. I am sorry, but my right hon. Friend is not prepared to increase the amount still further.
The hon. Member for Dorset, West (Mr. Wingfield Digby) is not too happy about this and quotes his authority. I do not want to raise the temperature of the Committee by answering the specific question he put as to whether I thought anyone knew what they were talking about in this case. I refer him to my hon. Friend who has made comments on this document in the past.
All that the hon. Gentleman is saying is that 7½ per cent. would be even higher, that we should apply it to a basic figure not of share capital but of capital employed if capital employed is the higher. We say that it would be too much. There is no need to have regard to this figure at all. If the company is paying high dividends and always has, then good luck to it. We are only concerned with comparisons, but where comparisons are inapt for one reason or another, a minimum figure is to be allowed and that is to be 7½ per cent. of share capital.
Mr. William Clark: Will the right hon. Gentleman answer the question I put? Supposing a company has capitalised its reserves and gets 7½ per cent. on share capital plus reserves. Does he think it fair that a company which did not capitalise its reserves should get only 7½ per cent. on the lower figure?
Mr. Diamond: The hon. Gentleman gave me an example of a company which had been going for 10 years and had paid dividend every year.
Mr. William Clark: I did not.
Mr. Diamond: I will not contradict the hon. Member, but I thought that he was saying that it had a long history of dividends and that, having that history, particularly for the three years in question, in the basis period it could provide normality against which one could measure dividend in the awkward year, 1965–66, and see whether that dividend was excessive. There was no problem in the example he put.
Mr. Barber: I think that we on this side of the Committee will have to attempt to return to this matter on Report stage because, here again, the right hon. Gentleman's reply has been unsatisfactory. When he replied first of all, he gave two reasons why our proposal was unacceptable. He said, first, that it was too complex and, secondly, that it would involve delay. At that stage there was no suggestion nor any reference to the fact that, in the right hon. Gentleman's mind, also was apparently the consideration that this would involve a greater concession to these companies. This was never even mentioned. Only two reasons were given—that the proposal was too complex and that it would involve delay.
It has been pointed out that what we are suggesting is that our proposal should be an alternative to the proposal of the Chancellor of the Exchequer. Thus, the argument of complexity and delay falls to the ground.
Mr. Diamond Mr. Diamond indicated dissent.
Mr. Barber: It does. Every company could adopt either the proposal of my hon. Friend the Member for Dorset, West (Mr. Wingfield Digby) or the proposal of the Chancellor.
On the right hon. Gentleman's argument about there being a greater concession, all I will say briefly is that it has been pointed out that the way in which the Chancellor's proposal works is quite arbitrary because, although we see the simplicity of using nominal capital, in fact it is not a realistic method of proceeding in the way capital employed is a realistic proceeding.
I am bound to say, therefore, that the right hon. Gentleman's two answers have not been satisfactory. Nor have they been consistent. We are not able to vote on our Amendments on this occasion. We could vote on the Chancellor's
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Amendment but as it is a minor concession in itself we would not wish to divide on it. We shall, therefore, have to return to the subject later.
Amendment agreed to.
1.15 a.m.
Sir Eric Fletcher: I beg to move, Amendment No. 753, in page 101, line 41, to leave out from "1965" to the end of line 43.
This is a paving Amendment to Amendment No. 754.
Amendment agreed to.
Mr. Peter Walker: I beg to move, Amendment No. 661, in page 101, line 43, at the end to insert:
Provided also that where an insurance company which carries on life assurance business and carries out a valuation of its assets and liabilities for the purposes of distribution of profits as at 31st December 1963 or 1965, or any intermediate date, the profits of the last valuation period before 1st January 1966 shall at the option of the company be substituted for profits in the taxable year 1965.
The Temporary Chairman: It has been suggested that with this Amendment we should take Amendment No. 662, in page 102, line 15, at end insert:
Provided that where an insurance company exercises its option under the proviso to subsection (3) above, the standard dividends shall be the average annual dividends paid in the valuation period referred to in such proviso.
Amendment No. 663, in page 102, line 21, at end insert:
Provided that where a company exercises its option under the proviso to subsection (3) above the standard profits in subsection 4 (d) shall be the profits of such proportion of the valuation period preceding that referred to in the proviso to subsection (3) above as corresponds in length to the said valuation period.
and Amendment No. 775, in page 103, line 19, leave out from "amount" to the end of line 27, and insert:
"of its profits computed according to the principles of commercial accounting provided always that in comparing one period with another a consistent basis shall be adopted".
Mr. Walker: When at a later hour than this I moved a series of Amendments on life assurance I was pleased to see the Chief Secretary in a good and genial mood towards at least some of the Amendments. I am sure that tonight I shall be supported by the hon. Member for Westhoughton (Mr. J. T. Price),

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who is well versed on the subject of life assurance and who made a valuable contribution on earlier Clauses. I am sure that he will quickly realise the purpose of these Amendments and especially No. 661 and No. 662.
I do not think that the Chancellor of the Exchequer would expect the life assurance industry to distribute dividends in such a way as for the Clause to need to be applied to it. Life assurance offices are responsible and are concerned with the long-term interests of the country and policy holders. They operate their finances in a way somewhat different from that of conventional companies in that they do not decide the profits of the company necessarily on a year-by-year basis, but tend to have three or five-year valuations of their various funds, deciding on that valuation what distribution to make to policy holders as profits on their policies and what is available in terms of surplus for distribution to shareholders. Such a valuation may be taken in 1964–65 and as a result of that valuation the dividends for the company would be fixed for the ensuing three or five years in accordance with the distribution for shareholders on the last valuation.
The purpose of the Amendments is to give life offices an option to use a formula for the purposes of the Clause which would be based on the three or five-year valuations which they make and the distributions which they decide as a result thereof. Amendment No. 661 refers to the valuation as such and Amendment No. 662 to the method of the dividends. I should have thought that these were reasonable Amendments which the Government could accept as being appropriate to this important industry.
Sir Eric Fletcher: We appreciate that there are special conditions affecting insurance offices, particularly life assurance offices, and therefore special considerations as to the basis of taxation which should be applicable to them. It is true that most insurance companies engaged in life assurance business adopt the principle of having valuations every three or five years and that on that basis they calculate what proportion of the profits is applicable to the policy holders and what proportion to the shareholders.
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We are sympathetic to making an Amendment to the Bill to give insurance companies certain options. I cannot say at this stage that we are disposed to accept the Amendments, but we feel that some provision can be introduced to deal with this matter. We want to consider whether in making concessions for insurance companies we would open the door to other companies in the general field which might claim that they had fixed their dividends for a period of years instead of on an annual basis. But, subject to such qualifying considerations, we will give sympathetic consideration to the matter between now and Report.
Mr. Peter Walker: In view of the assurance of the Minister without Portfolio that he will consider the matter—and we regard the concession as being confined to life offices and have obviously attempted to draft the Amendment accordingly—I beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Mr. Diamond: I beg to move, Amendment No. 754, in page 101, line 43, at the end to insert:
(3A) In the case of a company not carrying on business earlier than December, 1963, the standard amount shall be whichever is the higher of—

(a) seven and a half per cent. of the company's share capital in the financial year 1965; and

(b) one-half the amount of the company's profits in the financial year 1965.

(3B) Where in the year 1965–66 a company pays a dividend for a period ending in the financial year 1964, being a period of account of not more than twelve months, then if the company so requires subsection (3) above, or in the case of a company not carrying on business earlier than December, 1963, subsection (3A), shall have effect in relation to the company with the company's pofits in that period of account substituted for those in the financial year 1965.
The Temporary Chairman: I suggest that we should discuss at the same time Amendment No. 417, in page 101, line 25, leave out from beginning to first "the" in line 26.
Mr. Diamond: Would it be convenient to discuss also Amendment No. 785, in page 104, line 4, at end add:
(11) This section shall not apply to any dividends paid before the first day of April, 1966, in respect of which the company paying such dividends shows to the satisfaction of the Commissioners that the main purpose, or one of the main purposes of paying such dividends was not the avoidance of the payment of any

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income tax in respect of such dividends which would, apart from this subsection, have otherwise been payable by the company.
(12) A company aggrieved by a decision of the Commissioners under the last preceding subsection may appeal to the Special Commissioners and all the provisions of the enactments relating to appeals against assessments to the corporation tax shall have effect with respect to any appeal to the Special Commissioners under this subsection.
The Temporary Chairman: If that is for the convenience of the Committee.
Mr. Diamond: The second and main part of Amendment No. 754 introduces a further option to the company. It provides that where in this relevant year 1965–66 a company pays a dividend for a period of account of not more than 12 months ending in the financial year 1964, it can choose to take the profits of that period of account as a measuring rod to see whether by reference to them an increased dividend in 1965–66 over the standard dividends can be justified. This is in lieu of the profits of the financial year 1965 or the profits of a year ending in the financial year 1965 for which the Clause already provides. I think that this is a reasonable provision. Representations have been made that dividends are frequently declared out of accounts for a period of some considerable time prior to that date of declaration of the dividend. My right hon. Friend feels that it would be right to meet this point and provide this addition option.
We are considering also Amendment No. 417 on which I have no doubt one or other of the hon. Members who has put his name to it would be anxious to speak, and Amendment No. 785 to which I should be only too glad to listen to the arguments that any right hon. or hon. Member wishes to put. But I think it would be convenient if I said to the Committee that the Government have considered this matter very carefully and are very sympathetically disposed towards the final Amendment.
We are dealing with the problem of good faith, whether a dividend declared in a year which has obvious advantages is declared in this particular year as opposed to a later year and whether a dividend declared in this particular awkward year 1965–66 is a dividend which
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is reasonable and is a dividend which the company has paid in good faith.
The normal method of arriving at the good faith of the motive is to test it by reference to actions in the past and to see how actions in the period under review compare with past actions and to draw reasonable conclusions from that. That is the basis on which the Clause is drawn. What is suggested under the Amendment in the name of the right hon. Gentleman the Member for Bexley (Mr. Heath) and his right hon. and hon. Friends is that there should be incorporated into this legislation the same kind of test as to motive which has already been incorporated into tax legislation previously, broadly the Profits Tax legislation which hits at avoidance devices.
Broadly equivalent provisions are in Section 28 of the Finance Act, 1960, dealing with the cancellation of tax advantages from certain transactions in securities. In these cases the same point is the question of motive and good faith. It is a difficult concept to try to define and to say what is in the mind of a particular person or board of directors when reaching certain conclusions.
One would not wish to have recourse to this kind of provision in more than that strictly minimum number of cases. But it has to be remembered that what we are dealing with is a particular year only, not a continuing situation—merely what the motive was in declaring a dividend for this particular year; and the Government feel that it is reasonable to have regard to this somewhat difficult kind of provision for that year and therefore wish to bring in a Clause similar to but not in precisely the same words as Amendment No. 785. A number of hon. and right hon. Gentlemen are concerned with possible hard cases, and a provision of the kind which we are discussing, and for which we are indebted to the Opposition, would provide a method of dealing with it.
I therefore hope that this will give an indication to the Committee of the attitude which my right hon. Friend brings to bear on these difficult matters.
Mr. Edward M. Taylor: May I speak briefly in support of Amendment No. 417? It refers to special circumstances

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which could arise with particular companies, causing special hardship. I appreciate that such cases could well be covered by Amendment No. 785, which the Chief Secretary is considering favourably, but Amendment No. 417 would remove one more general cause of difficulty. Subsection (3) could help a great deal in cases of difficulty, but all the help which it could give would be removed for a company which has a financial loss in the year under consideration. Some of the companies so affected could well receive no benefit under subsection (3,a).
I am thinking particularly of a company which has been paying steady dividends over the years and then pays a declining dividend because of reduced profitability. It might be paying about 8 per cent. on the actual share capital. This bears no relationship to the actual capital employed by the company because, owing to the financial circumstances at the time it was looking for capital, it may not have raised fresh capital in the usual way. It may be self-financing or it may have obtained money on a fixed interest basis. In such circumstances the company may have no benefit from the provisions of paragraph (3,a).
Subsection (3,b) would help in the majority of such cases to make a reasonable concession but there would be no concession for a company which made a financial loss during the year. These circumstances could arise in a business in which the profits fluctuated a great deal from year to year, and to remove one further anomaly it would help if Amendment No. 417 were accepted. It does not seek to provide a loophole, and I cannot see that any great difficulty would arise from accepting it. It is designed for the special case of a company which tries to stabilise its dividends over the years and which may be paying dividend in excess of 7½ per cent. on the ordinary share capital.
Mr. Wingfield Digby: I hope that the Government will give some attention to Amendment No. 417. In computing the standard amount of dividend, the Amendment provides for the omission of the words
"up to the amount of the company's profits in the financial year 1965."
In earlier stages of the Committee we have stressed some features of the ship-
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ping industry and the fluctuation to which it has been subjected. We have also stressed its low profitability and the high capital investment there is in the merchant fleet. We have laid stress on the need for the shipping industry to maintain its dividend in order to be in a position to attract new capital for the replacement of the fleet. There was some reference to this point in an article in the Sunday Times last Sunday which said:
"The market, I am glad to see, is not getting particularly enchanted about the current improvement in shipping freight rates."
It went on:
"One understands, of course, the attraction of shipping shares … there is always the temptation to think at any rate share prices cannot go lower."
It continued:
"… no shipping share is a good investment for the man who might want his money out in a hurry."
1.30 a.m.
It therefore follows from these fluctuations that it is important for shipping Companies to maintain high dividends if they can, in bad years as well as in good years. We certainly hope that there are going to be more good years to come. It seems perfectly reasonable that this provision should be made and that they should not lose the advantage of their dividend because all of it is not covered by profits in the current year.
I hope that the Government will look at this point, which is a serious and valid one applying to industries other than the shipping industry. It would apply, for instance, to mining industries where the particular product's world price varies from year to year.
Mr. Lubbock: I should like to follow what the hon. Gentleman the Member for Dorset, West (Mr. Wingfield Digby) has said about the fact that there are two alternative methods. I still think that there is a case here for having another look at the matter. There could be a situation where in the three base years a company may profit to the extent of, say, £1 million, but in either the financial year 1965 or the company's 12 months' accounting period ending in the financial year 1964, which could be used as an alternative under the Chancellor's Amendment, it might have made a profit of only half a million pounds. The directors

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might quite justifiably wish to distribute the same amount in dividend as they had done in the three years, in the full knowledge that they were to return to full profitability.
This situation will already be known at the time the dividend is declared and what we are saying is that if, in neither of these two alternatives it can be shown that the profits were as much as in the three best years, this will place a limitation on the amount which could be distributed.
I think that the Amendment has been drafted very clumsily, because if subsection (3) is read from the beginning, the words after
"up to the amount of the company's profits in the financial year 1965"
which it is proposed to be left out, do not follow at all easily on the words which come before, and one has to read it several times before one can understand what it means. Although I have not put down an Amendment on this point, I should like to suggest to the Chief Secretary that if one deleted those words, as is proposed in Amendment No. 417, and then one put in at the end of subsection (3):
"and provided that in no case shall the standard amount exceed the company's profit in the financial year 1965"
that is not altering the sense of it at all but merely putting the words at the end of the Clause instead of in the middle and making it much easier to read and understand.
Mr. John Harvey: In view of the difficulties of trying to follow these highly technical matters at this hour of the morning, I hope that I am right in assuming that when the Chief Secretary said that he looked with favour upon Amendment No. 785, this could be very helpful to a number of companies which find themselves in difficulties.
I have in mind, for instance, a company which increased its dividend in 1964 and which, for obvious reasons, wishes to maintain that increase in 1965 but could be heavily penalised for doing so unless the Government take action of the kind which we suggest. It is of the utmost importance that a device should be found whereby a company could select for its standard the highest
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amount of dividend paid in any one of the standard years. Would I be right, at this unearthly hour, in assuming that this is the sort of provision that the Chief Secretary was thinking about when he expressed sympathy for the aims of Amendment No. 785?
Mr. Barber: The Chief Secretary said that he was prepared to listen to arguments in support of Amendment No. 785. If one is to have any regard whatsoever to equity in matters of taxation, the Chief Secretary will agree that the Clause is particularly important. Incidentally, the fact that we are having to spend a fair amount of time on the Clause is no fault of the Opposition, because we are dealing with a Clause which the Chancellor either has sought or is seeking to amend in 15 places, as well as adding a new Schedule to enable us to understand its workings.
The purpose of the Clause is obviously to prevent the avoidance of tax. Certainly, so far as it is necessary to safeguard the Revenue, none of my hon. Friends would quarrel with the right hon. Gentleman's proposals. Once again, however, it has been left to the Opposition to explain the practical consequences of the Chancellor's proposals, and in this case they can be put simply.
First, any company which is declining and is, therefore, suffering decreasing profits and smaller dividends will not in general be touched by the Clause. Secondly, however, any company which is forging ahead, expanding its turnover, increasing its profits and providing a commensurate increase in dividends is put in the dock and may well find itself liable for a double dose of taxation under the Clause. I know that there is an element of oversimplification in this, but if one had to sum up in a phrase what the Clause does, in many cases it can be said that it will impose a penalty on success.
Take the simple case of a company on a rising trend of profits over the last three years and assume that the trend continues into this year. In the normal case, where the company is pursuing a reasonable and prudent dividend policy, it will suffer a penalty in respect of its dividend which is paid during the present year, 1965–66.

1401
The trouble arises because the Chancellor of the Exchequer, in an attempt to counter deliberate tax avoidance, which is a perfectly reasonable objective, has so concocted the provisions that in the nature of things he is also bound to penalise innumerable companies which, first, are making no attempt to avoid tax and, secondly, are acting in accordance with sound commercial and financial criteria.
The Chief Secretary has said that he will listen to the arguments. I should like to give him a simple example which was sent to me by a highly respectable and well-known London solicitor. I will not read the whole letter but just one paragraph of it, which states:
"I have a company"—
referring to a client—
"which was developing and paid no dividends for several years, and then made good profits and paid a dividend in respect of the year 1963. It has made reasonable profits in 1964 and now wishes to pay a dividend in respect of those profits. However, there is no provision enabling repetition of a 1963 dividend to be paid in respect of 1964 without penalty. On the contrary, any dividend in this case in excess of one-third of the dividend paid in respect of 1963 is, in the first instance, treated as involving an excess, and it is not until the results for the financial year 1965–66 are available that it will be known whether in fact a dividend paid now of more than one-third of the last dividend would constitute an excess or not. All this results from the absurd scheme of leaving out of account the calendar year 1964 for purposes of calculation, whereas it is clear that 1964 should in most cases be the most important year determining the average and should indeed in many, perhaps most, cases itself be the yardstick without reference to any previous years."
I do not go the whole way with the writer of that letter in the stress he lays on 1964, because I see the difficulties with which the Government are faced, but the sort of case which this solicitor has in mind is a perfectly reasonable one which should be covered by the legislation; in other words, which should be provided for in such a way that the penalty of additional taxation does not come into the picture. After all, there is nothing that that company is doing which is wrong. One is, therefore, bound to ask why it should risk being penalised for acting in what any normal person would agree to be a perfectly sensible way.
I hope that we will be assured by the right hon. Gentleman—and I will not trouble the Committee with other
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examples, although I could give others—that on Report he will introduce a new Clause or Amendment on the lines we suggest in Amendment No. 785. He should by now have been convinced that this is the right way of dealing with the matter and I trust that he will give a categorical assurance that he will amend the Clause.
The sort of cases with which I am concerned—and I will not weary the Committee by giving other examples—are cases where there is no question of unreasonable dividends or tax avoidance. The details of Amendment No. 785 are self-explanatory and I trust that the Chief Secretary agrees that they are fair and reasonable. After all, relief would be given only where the purpose was not to avoid tax and, as can be seen, the onus of establishing the position would be squarely on the shoulders of the company. As to any difficulty in regard to the commissioners not being satisfied or the case going to appeal, I do not believe that it is beyond the Chief Secretary and his advisers to redraft the Amendment in such a way as to achieve substantially our intention. I hope, therefore, that he will go further than he went before and say that on Report he will introduce the necessary Amendment.
Mr. Diamond: I think that I can go further than that. If I have not misunderstood the case put by the right hon. Member for Altrincham and Sale (Mr. Barber)—and one cannot be absolutely sure that after a short reference to a case one is dealing precisely with it—then Amendment No. 754 would meet that very point. The case appeared to mean that the firm in question thought that it had been left out for the year 1964. If the right hon. Gentleman wishes to meet the difficulty stated in the solicitor's letter, he can do so when you put the Question, Dr. King, for as I understand the position, Amendment No. 754 would meet the position precisely.
As to the earlier remarks, the situation is simply that if one has an increasing level of profits and increasing dividends, then having ascertained the average in the basic three years, one adjusts that by reference to the increased profits made in the year for which one says that, having made an increased profit, one wants to declare an increased dividend.

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There is no question of penalising the progressive company in any sense at all.
1.45 a.m.
There may be hard cases—cases of the kind which neither he nor I have thought about or counted up in our imagination—where there are difficult circumstances, and hard cases where the sensible way to meet the position is to provide, not a test of average, not a test of achievement of the past and the dividend pattern of the past, but the test of whether or not the dividend declared for the difficult year was a dividend declared in good faith. That will help to solve most of the problems and real difficulties we want to meet, and the Committee is at one in wanting not to encourage, but to prevent tax avoidance. I therefore think that we are meeting that point.
As regard the point which the hon. Gentleman raised, as far as I recollect it now, I do not know whether he appreciated that the average dividends paid in the three basic years, again as a result of Amendments introduced, provide an irreducible minimum standard, so that whatever happens in the year under consideration one does not have to get below that irreducible minimum standard in order to declare a dividend. That being so, I do not think that the points raised by the hon. Gentleman give any real cause for anxiety.
Therefore, having regard to the Amendments that my right hon. Friend has introduced, and is introducing, and to the very clear indication I have given in regard to Amendment No. 785, I hope that all real anxiety has been met, short of encouraging tax avoidance.
Mr. Barber: I hesitate to pursue the matter further, but I understand that the Amendment which the right hon. Gentleman says would have covered the case to which I referred is Amendment No. 754, which deals with the case of the company not carrying on business earlier than December, 1963. If that be the case, it would not have covered the case I mentioned. But I quite agree that it is fruitless to go into individual cases. If the right hon. Gentleman intends to introduce an Amendment on Report to deal with this matter on the lines we have
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suggested, I would not wish to pursue the matter any further.
Mr. Lubbock: I must be frightfully dense about all this, but as far as I can see from the Chancellor's Amendment all he has done is to give the company the option of inserting another criterion in subsection (3,b) so that the absolute restriction on the amount of distribution mentioned therein is not limited to the amount of the company's profits in the financial year to 1965, but that at the company's option it can be the amount of the company's profits in its accounting period ending 1964.
But the right hon. Gentleman said that all this did not override the dividends the company made in its past period as a standard, and that, suppose the profits in either of these two accounting periods—either the financial year 1965 or the actual accounting year in 1964—fell below the average dividend, and therefore the base years, the company would still be able to use the three base years as a criterion. He said that in some way Amendment No. 754 achieved that. I am sorry, but I cannot see that, and I should be grateful if the right hon. Gentleman would show how these words override subsection (3, b).
Mr. Diamond: I was referring to the Chancellor's Amendments to lines 19 and 21.
Amendment agreed to.
Mr. Stratton Mills: I beg to move Amendment No. 776, in page 101, line 43, at the end to insert:
(4) Where

(a) in connection with a scheme for the reconstruction of any company or companies or the amalgamation of any companies a company (in this section referred to as "a merger company") has been incorporated in the United Kingdom or has increased its capital with a view to the acquisition either of the undertaking or of not less than 90 per cent. of the issued share capital of one or more existing companies (in this section referred to as "constituent companies") and the consideration for the acquisition has been the issue of shares in the merger company to the constituent company or companies or to the holders of shares in that company or companies; and

(b) the merger company commenced to carry on business or acquired the undertaking of or shares in any constituent company not earlier than 31st December 1963,

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the standard amount in respect of the merger company shall be not less than the sum of the standard amounts of the constituent companies computed in accordance with the provisions of subsection (3) hereof.
This is a small, but nevertheless an important, loophole. During the course of an amalgamation a new holding company may come into existence which has acquired the shares or undertakings of a number of trading companies and the provisions of the Clause may bear hardly in the special circumstances shortly after the formation. There may be no standard dividends available for comparison purposes and standard profits will be similarly unavailable as a standard of measurement. The remedy which my hon. Friends and I propose would give the holding company a standard equal to that which would have been the combined standard of the companies it has taken over. In the latter part of the Amendment it will be seen that we have done this by suggesting that:
"the standard amount in respect of the merger company shall be not less than the sum of the standard amounts of the constituent companies computed in accordance with the provisions of subsection (3) hereof."
Mr. Higgins: I wish to inquire about consistency. I understand that we are concerned with the standard amount to be taken into account when a merger takes place. In discussion of this earlier we were told that the basis on which standard amount is to be calculated is the dividend percentage in relation to share capital. We were further told that we could not go on a book basis. Would I be wrong in thinking that on a Monopolies Commission case we would take a case on a basis which we have been told cannot be used? Could the Government Front Bench tell us whether there is a degree of consistency in their approach to this problem?
Sir Eric Fletcher: Subject to your Ruling, Dr. King, I think I should be out of order in dealing with various Amendments to the Monopolies and Mergers Bill which we shall be considering on Report on Thursday.
I am prepared to accept the validity of the argument of the hon. Member for Belfast, North (Mr. Stratton Mills). I think he has made a valiant attempt at draftsmanship to meet the point he has in mind, but there are technical defects
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in the Amendment. I need not go into them for the reason that my right hon. Friend has indicated that the Government are disposed to accept in principle the object of Amendment No. 785. That Amendment indicates that the instances where avoidance of liability to account for Income Tax is not the purpose or main purpose of admission of a dividend ought not to be caught by the Clause.
If, as I hope, on Report a Government Amendment in the terms of Amendment No. 785 appears, it will effectively cover all the cases of the kind which the hon. Member has in mind. Clearly, mergers of that kind—no doubt there are certain ones in contemplation—may be completed in the near future. In the case of those mergers, it will be apparent that they are not designed for tax avoidance purposes. Therefore, I think they will be effectively covered by the Amendment we have in mind.
Mr. William Clark: We are grateful to the Minister without Portfolio for explaining the point and for saying that Amendment No. 785 will cover this Amendment. The Minister went on to say that it will cover all these cases. Has he any other cases in mind? For example, is he prepared to say now that Amendment No. 785 as drafted by the Government on Report will cover the point of a public company which has just gone public and which said in its prospectus that it would pay 7 per cent. or 8 per cent.? This is a valid point which should be covered by Amendment No. 785. Investment trusts, which pay 90 per cent. of their income in dividends, could also be brought in. Obviously, if their dividends from their investments rise from the standard period to this year or next year, the main object of paying an increased dividend is not for the avoidance of Income Tax.
I should like the Minister without Portfolio's assurance on these points. A company goes public and its prospectus, issued long before the Finance Bill was thought of, says that it will pay a certain dividend. A company might have declared a dividend long before the Budget but payable three months later. The reconstituted Amendment No. 785 should cover the case of a company which is committed to paying a dividend where the declaration of the future dividend

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was made before the Budget statement and certainly before the Finance Bill was published.
Sir Eric Fletcher: We are anxious to make progress. I think that I can simplify the discussions on the Clause if I make it perfectly clear, if indeed my right hon. Friend has not already done so, that the Clause is designed to prevent forestalling as a method of tax avoidance. A number of Amendments have been tabled, some by the Opposition, some by my right hon. Friend, to meet special circumstances. We have undertaken to look sympathetically at various cases which have been raised, both by interested parties and by hon. Members in the debate. We have said that we are attracted to the comprehensive nature of Amendment No. 785, because, although we may want to vary its terms, its spirit is to indicate that the Clause does not apply where dividends in excess of the standard dividends have been paid in such a way that the main purpose, or one of the main purposes, was not the avoidance of Income Tax. We think that an Amendment in those terms on Report will meet the legitimate points which have been raised about insurance companies, about mergers, about unit trusts—
2.0 a.m.
Mr. William Clark: And investment trusts.
Sir Eric Fletcher: —and investment trusts. Without committing myself absolutely, I hope the Committee will leave it to us to frame an Amendment on the lines of Amendment No. 785 which I confidently hope will dispose of the various points which have been raised, but if it does not dispose of them it will be open to hon. Members to raise the matter again on Report.
Sir Hugh Lucas-Tooth: There is a point which I thought might have been raised on the Question "That the Clause stand part of the Bill", but, in view of what the Minister without Portfolio has said, perhaps it should be raised now.
Under Section 245 of the Income Tax Act, 1952, the commissioners may deem the income of certain companies to be that of their members where it is considered that sufficient dividends have been
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declared. I understand that it is the practice for those representing the companies to negotiate with the special commissioners additional dividends for back years on the footing that the shareholders would accept liability in respect of those back years, notwithstanding that the additional dividends would be declared as soon as the negotiations have been completed. I think this is the type of case which the Minister has in mind. Obviously hardship could arise unless these cases were specially dealt with, and I ask the Minister to have regard to this type of case when considering the generality of cases to which he referred.
Mr. Stratton Mills: I am obliged to the Minister for a very helpful attitude in response to this Amendment, and I accordingly beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Amendments made: In page 102, line 14, leave out "five" and insert "seven and a half".
In line 20, leave out "ten" and insert "fifteen".
In line 33, leave out from first "period" to end of line 34.—[Sir Eric Fletcher.]
Mr. Diamond: I beg to move Amendment No. 756, in page 103, line 27, at the end to insert:
"nor to any investment allowances, initial allowances or balancing charges, to any scientific research allowance in respect of expenditure incurred after 5th November, 1962, or to so much of any annual allowance made at a rate determined under section 38 or 39 of the Finance Act, 1963 (free depreciation in development districts) as exceeds an allowance at a yearly rate of fifteen per cent. of the relevant amount of expenditure".
The Chairman: With this Amendment we can discuss Amendment No. 787, in line 27, at end insert:
Provided that the profits of a company in a development district shall be taken to be its profit after normal capital allowance, excluding special extra depreciation given to companies in development districts.
Mr. Diamond: The purpose of the Amendment is to see that both for comparative purposes and, indeed, for absolute purposes, because both questions arise, the profits are calculated in a way so as to approach the calculation of profits on a commercial basis but still being sufficiently identified with the

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method of calculating profits for Profits Tax purposes as not to permit of any vagueness or dubiety.
At present the Clause moves on the basis that profits are calculated as for Profits Tax purposes with certain minor adjustments—franked investment income, directors' remuneration and so on, but, as is well known, these take into account certain non-recurring items which would invalid any proper comparison, such as exceptional capital allowances of a sort which a company would not take into account in computing its commercial profits. The comparison necessary for the purposes of this Clause ought not to be subject to distortion by reference to the incidence of special allowances in this way.
Mr. John Harvey: I hope that the Amendment will be welcomed, but I feel that it could go further. Would it not be possible for the deduction for all annual allowances to be restricted to an annual 15 per cent. of the relevant expenditure and not just 15 per cent. of the allowance for free depreciation in development districts as at present? I make this suggestion because annual allowances over the years have tended to increase. In particular, there was a statutory increase with effect from 5th November, 1962. There is a precedent for maintaining a statutory reduction in the Excess Profits levy legislation in Paragraph 3(1) of the Ninth Schedule of the Finance Act, 1952. Would the Minister give this matter further consideration between now and Report and see whether what is certainly welcome could be made even more acceptable?
Mr. George Younger: We are discussing also Amendment No. 787, which stands in the names of my hon. Friends the Member for Fife, East (Sir J. Gilmour) and myself. While one cannot help welcoming the Amendment which the Chief Secretary has moved as a step in the right direction, after his remarkably woolly explanation of what it was all about I should like to make a strong protest of disapproval from the development districts that the situation ever got into this condition.
I do not know whether the right hon. Gentleman fully realises how damaging to the development districts this Clause was before he produced the Amendment.
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It is not just a minor matter of working out how one computes profit before tax. The Clause could have been and is until the Amendment is passed extremely damaging to companies in development districts. I take as a brief and simple example of what the effect of the Clause as it stands would be a company whose standard of dividend as detailed in the Bill is £200,000, whose standard profit for Profits Tax is £500,000, and whose 1965 profit is £700,000.
As the Bill is drafted, there falls to be deducted from that normal depreciation and initial allowance of £50,000 and the special extra depreciation which is applicable to development districts only of £150,000, making a total of £200,000 to be deducted. Therefore, the profit of £700,000 has £200,000 taken off it, leaving a 1965 profit for Profits Tax purposes of £500,000. As the original standard profit was also £500,000, no increase in dividend would be permissible without payment of Income Tax on the increase. But—and this is the point—if the free depreciation for the development districts was not included, the 1965 profit for Profits Tax purposes would be £650,000, that is, £700,000 less only £50,000. Thus, the Bill as drafted is positively disadvantageous to a firm in a development district, which should be receiving benefits rather than be being cut back.
The Amendment removes all that disadvantage except for 15 per cent., but I hope that the right hon. Gentleman will not think me churlish if I still maintain that people in the development districts are fully entitled to be greatly dissatisfied at the way these allowances are being devalued, if only to a lesser degree. They have already had plenty of devaluation of the benefits built up in recent years. The special allowances for development districts introduced in the 1963 Finance Act were welcome on both sides of the House, but we are now beginning to wonder where the sympathies of the present Government really lie. For years, we heard from right hon. and hon. Gentlemen opposite how everything that the Conservative Government did for the development districts was a drop in the ocean and if only they could get power everything would be marvellous. I may be unfair to all hon. and right hon. Members opposite because I have seen only one end of things in recent years, but

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all I can say is that this is how we see the situation in Scotland. It is noteworthy that, again, when we are discussing the affairs of the development districts, there is no Scottish Member present opposite. Where is the interest shown before the election? Where are the fine policies and new ideas we were told about? All we have is a devaluation of ideas and policies put into effect by the last Government.
I hope that the right hon. Gentleman will excuse me if I get slightly heated about this, but the attitude of the Government and its supporters looks rather like a confidence trick. For years they led everyone to expect dramatic new ideas and improvements to create further development. At Question Time last week, the Secretary of State for Scotland actually tried to claim credit for improvements which were due to measures introduced by the previous Government which his own Government are now devaluing. The Chief Secretary must think about the development districts again and remove from them even this last disadvantage of the 15 per cent. If he does that, we shall all be very broadminded about it and feel that we have achieved something at least, putting firms in development districts back where they started before the last election.
2.15 a.m.
Mr. Hector Monro: I support my hon. Friend the Member for Ayr (Mr. Younger). I represent a more remote constituency, and there and in Galloway we need an extra special incentive to bring firms to the development districts. I can say from the negotiations that I have had with various firms which might be coming to the development district in my constituency that one of the first questions they ask is whether they will be eligible for the free depreciation rates and what other incentives there will be. These incentives are vital. Firms have been brought to the development districts because of the advantageous tax concessions.
But tonight we hear of a devaluation of these concessions. I cannot emphasise too strongly how unfortunate it is that at this time when we are making our big drive continuing the drive of the late
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Government to bring firms to Scotland, we are having a pretty big stumbling block put in our path. The firms which are coming to the remoter development districts need these incentives. It might be easier for them to go to central Scotland which has other advantages in the way of cheaper fuel and so on. For the remoter development districts it is vital to have every possible concession. I warmly support my hon. Friend the Member for Ayr for putting forward the Amendment in the way he has.
Mr. J. Bruce-Gardyne: I also support the Amendment moved by my hon. Friend the Member for Ayr (Mr. Younger). This is a matter of considerable importance, particularly for development districts in Scotland. As usual, we find that there are no representatives of the Scottish Office on the Government Front Bench, and so far as I can see there are no Scottish Labour Members present.
Mr. James Hamilton: The hon. Member should keep his eyes open.
Mr. Bruce-Gardyne: That is an attitude on the part of the Government to which we are getting all too used. It seems deplorable considering that we are discussing an Amendment of such importance to Scotland.
I want to draw the attention of the Chief Secretary to an article by Lord Polwarth in the Investors Chronicle last week in which he said:
"Scotland is moving into top gear and is beginning to realise the potential of which many have long known it to be capable."
He went on:
"The most immediately effective measure taken in recent years was undoubtedly the introduction in early 1963 of standard grants for plant and machinery and buildings in development districts, coupled with freedom to allow depreciation of plant and machinery against taxation in these districts at any rate chosen by the manufacturer himself. As a development organisation the Scottish Council knows from its own direct experience just how much these financial measures have stimulated the rate at which new industry has flowed into Scotland from other parts of Britain and from overseas, and encouraged expansion by established Scottish firms. During the past two years the recovery of industrial activity throughout Britain has also, of course, had a strong influence."
This is the point. These tax incentives introduced by my right hon. Friend

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the Member for Barnet (Mr. Maudling) marked a watershed in our efforts to attract additional industry and deal with the problems of the black spots of underdevelopment and higher levels of unemployment in the development districts. For the first time, we established the principle of differential taxation. Those who believe in the need for extension of this type of differential taxation must regard the decision of the Government to devalue these concessions in a most deplorable light. The meagre concession which the Chancellor has offered us is quite inadequate to our purpose. I hope that the Chief Secretary will look at this matter again and accept the suggestion by my hon. Friend the Member for Ayr and put this on a sensible basis so that we can continue to develop on the grounds laid so fruitfully by my right hon. Friend two years ago.
Sir D. Glover: I apologise for joining in what appears to be a Scottish debate, but Amendment No. 787 does not just apply to Scotland. I am appalled by the fact that not one hon. Member opposite representing the North-East Coast, or the Liverpool area—which is heavily represented on the benches opposite—has contributed to the debate, because it is deplorable that this Clause ever got into the Bill in its present form.
The Chancellor's Amendment goes some way to putting right the absolute enormity of what the Government did. Whether they did it without realising what they were doing, I do not know. It partly removes the disability that the Clause would have brought to development districts, but Amendment No. 787 would have put the development districts back into the position they occupied before this Bill.
One cannot but think of the nauseating hypocrisy of speeches made from this side of the Committee when right hon. and hon. Members opposite were sitting here. Month after month, they attacked what they called the inadequacies of our proposals for development districts. Then they cynically decided to bring in a Clause which would have devastated the growth of the new industries going to those districts. Only at the last minute, as a result of pressure from this side of the Committee and from outside, have the Government brought in an Amend-
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ment. But even that still leaves the development districts 15 per cent. worse off than they were.
I hope that, even at this late stage, the Chancellor will accept Amendment No. 787. If he does not, he will find that this 15 per cent. will be a severe disincentive to the growth of business in the development districts, although the Labour Party was committed to the hilt before the election to stimulating growth there. If the Chancellor does not accept Amendment No. 787, the people in the development districts will draw their own conclusions as to whether the Government really mean what they say about the need for expansion in those districts.
Mr. Diamond: Perhaps it will be convenient to reply now and to deal with the problem raised by Amendment No. 787 and with the wider question which hon. Members opposite from Scotland raised by referring to the devaluation of allowances. I hope that hon. Members who have spoken as to the generality of the topic without being tied too closely to the wording of Amendment No. 787 will not mind if I refer them to it a little more closely.
The Amendment seeks to provide that the profits of a company in a development district shall be taken to be its profit after normal capital allowances. The Government Amendment really deals with that problem completely, however, because the figure of 15 per cent. which has been adopted is the minimum normal rate of annual allowance for plant and machinery under the present Income Tax law. What hon. Members opposite are saying is that there are cases where certain plant and machinery qualify for higher allowances than 15 per cent. They therefore want a higher figure.
If they press me, of course I shall be glad to listen to any argument they make, but if they care to work out the conclusions of the Amendments, they will see that my right hon. Friend's Amendment suits their purpose better than their own. With my right hon. Friend's Amendment restricting the figure to 15 per cent., the calculation results in a higher figure of profit, which forms the basis of the percentage for this purpose. The hon. Members from Scotland have demonstrated their interest in their constituencies and their anxiety to make speeches

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at this time of the morning, and their inability to comprehend their Amendment. The hon. Member for Ayr (Mr. Younger) said that he hoped that I would not mind his being heated on this topic. I do not mind his being heated, but I would prefer him to be right.
I have considered the matter very carefully. The only result of altering the wording of my right hon. Friend's Amendment to correspond with the wording of the Amendment of hon. Members opposite is to reduce the figure of profit and therefore the figure of dividend which they want to be increased. If they repeat the argument on Report, against the interest of the development districts, then my right hon. Friend will have to give it very careful thought, but I doubt whether they will pursue that line.
The other matter is the complete misunderstanding, which they have repeated, about devaluation of the allowances for the development districts. In case the hon. Member for Ayr and his hon. Friends were not present when we discussed all this, may I say in one sentence that under the present law for Income Tax purposes there is a certain advantage to the business man who takes his business to, and invests in plant in, a development district and that that advantage is increased under Corporation Tax. I repeat "increased".
Mr. William Clark: I am sure that the Chief Secretary will accept that my hon. Friend the Member for Walthamstow, East (Mr. John Harvey) and my hon. Friend the Member for Ormskirk (Sir D. Glover) spoke to the Government Amendment and that that to which my hon. Friend the Member for Ayr (Mr. Younger) spoke has been called with it, but is not to be voted on. What the Chief Secretary has omitted to say and what my hon. Friends wanted to know was why the 15 per cent. had been left in the Government's Amendment. My hon. Friends will no doubt accept that the wording of their Amendment would not provide what they had in mind. Their idea was that free depreciation should be allowed, and we should like to know why it was thought right to leave the figure of 15 per cent. in the Government Amendment.
1416
The Chancellor of the Exchequer told us at the beginning of the afternoon that there were many concessions and then he withdrew the word "concessions" and said that he was proposing to do several things which would cost money. How much will the provisions in Amendment No. 756 cost the Exchequer? Could the Chief Secretary also say how much would be the extra cost if the 15 per cent. were deleted and we had a free depreciation allowance instead? He will appreciate that what my hon. Friends want is free depreciation and, although the right hon. Gentleman is no doubt right in his view of the wording of the Amendment of my hon. Friends, we are concerned with the spirit behind it. In any case, he has still left unanswered the questions of my hon. Friends the Members for Walthamstow, East and Ormskirk. Could he, when replying, give the two costs—the cost of his own Amendment, and the cost if the 15 per cent. were deleted?
2.30 a.m.
Mr. Edward M. Taylor: I should like to comment briefly on the reply which the Chief Secretary gave to the Amendment advanced so ably by my three hon. Friends who represent Scottish constituencies. They made three principal points and I would suggest that none of these has been answered. One of the principal points which my hon. Friend the Member for Ayr (Mr. Younger) argued was that investment allowances had been devalued. We heard the same argument as on previous occasions from the Chief Secretary that, because of the change which has been made in the investment allowances being reduced, the element of preference, if we can call it this, in the development districts has been increased.
We can accept that in one sense this is true. But he must accept that when we reduce investment allowances for the marginal business, which is thinking not of investing in one place or another but whether it will invest at all, the reduction of investment allowances does have an adverse effect upon development areas. If the Chief Secretary were to say that they would abolish all the investment allowances completely, this would on his own argument increase the preference of the development districts. This kind of argument will not wash in Scotland or any other place.

1417
What the right hon. Gentleman is saying is that by reducing one thing they are increasing that element of preference. This is a ludicrous argument and I hope we will not hear it again from him. What we are doing by reducing investment allowances is eliminating a number of potential marginal investments which, instead of investing at all, will decide just not to invest. We are not concerned with the question of preference but with the marginal firm which is deciding whether or not to go ahead. I suggest that, with regard to the special assistance we had for development districts to make certain firms decide to go ahead, they may not now do it at all.
The second question which my hon. Friend the Member for Dumfries (Mr. Munro) raised and which was not answered in any way was why, when this Amendment was known to be coming up and when it was of such interest and concern to Scotland, there was no one on the Front Bench representing the Scottish Office. It may well be argued that this is a question affecting the Treasury—that it is a Treasury Bill. On a question so vital to development districts and to Scotland in particular, we feel that we could at least have had some representation from Scotland on the Government Front Bench. It is noticeable that the great interest and enthusiasm that they shared on this matter in the previous Parliament has not been shown now. We feel particularly annoyed about this when we remember that in the election manifesto of the Scottish Labour Party it was put forward that their proposals would include an increase in the investment allowances and not a reduction.
The final point made, and again not answered, was why on earth this Amendment had proved necessary at all? Were the Government prepared to put forward a Bill without making any provision for relief in respect of these allowances? It seems to us incomprehensible. The only reason I am convinced why they put this forward at all was that the Chief Secretary and his hon. Friends heard that my hon. Friends were going to put forward this Amendment to draw the attention of the Committee and the nation to the fact that the Government were not concerned about the development districts. Until we get an answer to these three points the Chief Secretary has no right
1418
to deal with this Amendment in such an offhand and unkind way.
Mr. Younger: I am sorry to delay the Committee at this late hour, but this is of great importance. We are getting worried in Scotland that there is lack of drive in the real necessity to attract new industry to Scotland. It has been going terribly well over the last year or 18 months but there is a slackening off in the drive for new ideas.
The Chief Secretary did not appreciate the main point which I made, and that was probably my fault for not explaining it properly. These extra depreciation allowances for development districts as introduced in April, 1963, are supposed to be an incentive to persuade people to go to development districts who, for economic reasons, may not otherwise have been prepared to do so. They are supposed to be an attraction. There is an element in the Bill, even after the Chancellor's Amendment, which will make them less attractive.
The person who takes advantage of the extra depreciation allowance will suffer to some extent in these provisions in the computation of profits for this year. There is to be a deduction from his profits of the normal depreciation—that is not in dispute—and also deducted will be the special extra depreciation except for the 15 per cent. mentioned in the Amendment. That is a disincentive. I do not pretend that it is a big disincentive and we in the development districts—and I am delighted to include all other parts of the United Kingdom—will not be satisfied with anything which reduces to any extent the inducement to go to the areas until their problems are entirely solved.
Mr. Diamond: I have always said that the hon. Member is wrong. My right hon. Friend improves the situation, he does not imperil it. What the hon. Member asks me to do is to prejudice the profit ratio of a person carrying on a business in a development district. I do not want to do that.
Mr. Younger: I appreciate that. We shall probably save the time of the Committee if the Chief Secretary agrees to look in HANSARD at the example which I gave and to write to me with an explanation of it. That case shows clearly a loss of £22,500 of the amount of profits. Will he write to me about it?
Mr. Diamond Mr. Diamond indicated assent.
Amendment agreed to.
Mr. Diamond: I beg to move Amendment No. 757, in page 103, line 27, at the end to insert:
(7A) For purposes of this section the amount of a company's profits for any period when it was an overseas trade corporation shall be computed as if it had never been an overseas trade corporation; and any amount treated by virtue of this section as dividends paid in the year 1966–67 shall be disregarded for purposes of section 26 of the Finance Act 1957 (under which an overseas trade corporation is chargeable to income tax by reference to dividends paid out of exempt trading income), and shall for this purpose be treated as comprising dividends paid later rather than dividends paid earlier".
This Amendment—
Mr. Heath: Is drafting or for clarification or consequential.
Mr. Diamond: As the right hon. Gentleman said, it is drafting or for clarification or consequential. I am reading my notes to see which. [Laughter.] There is nothing to be said against a little candour in the Committee from time to time.
The Amendment corrects two defects in Clause 78 as printed referring to overseas trading corporations. As the Clause was originally drafted the overseas trading corporations were prejudiced to a minimum extent. It was not intended to give them worse treatment under the Clause than other companies. The Amendment remedies the defects. It is an improvement in the situation relating to overseas trading corporations, and I hope that it is acceptable to the Committee.
Mr. Barber: I am grateful to the right hon. Gentleman. He was wise not to trouble to read the next paragraph. We follow it completely.
Amendment agreed to.
Mr. John Peyton: I beg to move Amendment No. 680, in page 103, line 29, after "1965–66" to insert "after 27th April 1965".
The Temporary Chairman (Mr. Grant-Ferris): With this Amendment it would be convenient to take Amendment No. 681, in page 103, line 38, at end insert:
Provided that any capital dividend paid after 27th April 1965 shall be regarded for the
1420
purposes of this subsection as having been paid before that date if—

(i) it was declared by the company in general meeting before that date; or

(ii) it was declared in general meeting after that date but in accordance with a recommendation of the directors and the directors' decision to make that recommendation was, with the authority of the directors, publicly announced before that date; or

(iii) it was paid in accordance with a decision of the directors, and that decision was, with their authority, publicly announced before that date.

Mr. Peyton: I can assure the Committee that there lurks underneath all the verbiage a quite short and simple point and that I hope to be able to move it with considerable brevity. I am encouraged in doing so by this new mood of bountifulness which seems to have overcome the Treasury Bench.
The difficulty here is that it would appear from the Bill as drafted that all capital dividends, no matter when declared, which are paid during 1965–66 are caught. It seems perfectly reasonable to us for the Government to seek to discourage companies from forestalling the provisions of the Bill. We quite accept that, but it is quite another thing, very much more serious and unacceptable, to seek to punish companies for doing something which they already, or were already committed to doing, particularly where that commitment was of a public order from which they could not possibly resile.
The whole purpose of forestalling provisions is to stop a company doing something after a date on which a Government have announced a new policy. For the Government to seek to stop actions which have already been undertaken would be absurd. I feel confident that the Government will look at this and recognise that there is merit and substance in this point which they could not possibly refute. There is no magic in any particular date, the 5th of April or the 6th would be a perfectly convenient alternative to the 27th contained in the Amendments. I hope that the Government will accept this, or undertake to put down some alternative words of their own.
Mr. Diamond: The point is well made and is taken. Both Amendments are accepted.
Mr. Peyton: Perhaps I could say that I am obliged to the Chief Secretary.
Amendment agreed to.
Mr. Diamond: I beg to move Amendment No. 758, in page 103, line 32, after "it" to insert
"before that year and".
The Temporary Chairman: I suggest that it will be convenient to discuss, at the same time, Amendment No. 682, in page 103, line 33, after "business", insert
"calculated by dividing the aggregate of such dividend so paid since the beginning of 1962–63 and before the end of 1964–65 by the number of years in which such dividends were so paid in that period".
Mr. Diamond: This Amendment relates to the charge of an excessive capital dividend paid in the year 1965–66 over the average capital dividend in an earlier year. The Clause as drafted is not entirely clear, because subsection (8) might be read as providing that the average was to be the average of four years, including 1965–66. This was not the intention and the Amendment makes clear that the average is that of the three years before 1965–66.
This is a simple point and I hope that it will be acceptable to the Committee.
Mr. Peyton: I feel I need hardly mention the Amendment down in my name, because I cannot but believe that the Chief Secretary will not wish to maintain the splendid record he is establishing. The point is a short one and it is concerned with the whole nature of forestalling. If, over the three years which are dealt with in the subsection, a company has only declared a capital dividend once or twice that amount still has to be averaged over the three years. The total amount must be divided by three.
That seems to be unreasonable. If a company has paid a capital dividend in one or two years, it would surely be adequate if we were limited in future to an amount not greater than that paid in any one year. That would seem to me to protect the position which, I understand, the Government wish to establish and I commend it to the Chief Secretary with, I hope, seemly brevity as a point
1422
which deserves his respect and his welcome.
2.45 a.m.
Mr. Nicholas Ridley: I support Amendment No. 682 in the name of my hon. Friend, the Member of Yeovil (Mr. Peyton). As the Bill was drafted, it seemed strange that the year 1965–66 appeared to be included, which, in the case of an excessive capital dividend, would have raised the average, whereas no allowance at all is made for any of the years from 1962–63 to 1964–65. If in any of those years no capital dividend had been paid this would have the effect of putting the average down. Therefore, the Bill seems to be peculiarly self-contradictory. I thank the Chief Secretary for his Amendment, which at least clears up the point concerning 1965–66.
Whatever one may think about capital dividends and whatever may be their future treatment under Clause 43, it must be right that the average for this purpose should be only the average of those capital dividends which have actually been paid and that where there has been either one year blank or two years blank out of the relevant three years, it should be divided by only one or two, as the case may be. I hope that the Chief Secretary has taken the point. It is not a big one, but it is clearly one in which fairness is involved.
Mr. Diamond: I am sorry to say that although the point has been made with acceptable brevity and the argument is clear, it is not one which I can recommend the Committee to accept. First, we have the normal basis of the three years' average where, not capital dividends, but ordinary dividends were concerned, and we have all accepted that by now.
The Opposition now suggest that in the exceptional case of capital dividends, we should have regard not to the average, but that if there were, for example a dividend paid in one of the three years, the one year should equal the average of the three years. In short, that is to say, if a dividend of £1,000 was paid in one year and nothing was paid in the other two years, instead of taking the average as being £333 one should take the average of £1,000. I cannot recommend the Committee to do that,

1423
because I recognise the logic of the argument.
The logic of the argument is that capital dividends are not normal dividends and do not recur with normal frequency. I accept that they are not normal dividends. They should not be treated, therefore, as they have been treated with the special privileges which have attached to them. I should make it clear that we are doing what the Royal Commission recommended many years ago and what, regretfully, previous Governments were never prepared to do: that is, to treat capital dividends in exactly the same way as current dividends or dividends of a normal nature.
It is implicit in our attitude to that that we regard providing an average at all as a reasonable concession. One could take the view, as the Royal Commission recommended, that the payment of a capital dividend is an extraordinary thing. It results in the recipient receiving money free of Income Tax and Surtax. We take the view that the Royal Commission was absolutely right when it stated:
"… there is no sufficient ground for treating these 'capital profit' dividends as if their nature was different from that of other dividends".
The majority and minority were agreed about that, and that is what is happening. We say that they should pay tax in the ordinary way; that they should have the basis of the three years drawn in the ordinary way, as for other dividends. I am, therefore, not prepared to recommend the Committee to accept the Amendment.
Mr. Peyton: I do not wish to detain the Committee. I am grateful to the right hon. Gentleman for admitting that there is a point here. Would he undertake to consider, between now and Report, the sort of situation where a fairly large sum of money has been owing to a company for some time and where the repayment of this capital debt has, for one reason or another, been postponed? Would he consider such a situation and the possibility of the company finding itself prejudiced by the provision?
Mr. Diamond: Without entering into a commitment, I will, of course, as a
1424
matter of courtesy, look carefully at what the hon. Gentleman said.
Mr. Ridley: I am not satisfied with the right hon. Gentleman's reply. I agree that capital dividends are not particularly desirable and I have no objection to the proposed treatment of them. The law has hitherto been such that they have been permissible, although the right hon. Gentleman is suggesting that in some way they are not normal dividends. I entirely agree. However, that is no argument for treating them differently.
The Chief Secretary has shown that the more capital dividends are paid the better off will be the firm. If a company is paid only one capital dividend, it is divided by three. If it is paid three such dividends, it is still divided by three. The right hon. Gentleman is, therefore, defeating his own object. The logic of the case rests with my hon. Friend and me. I urge the right hon. Gentleman to consider the matter further.
Amendment agreed to.
Sir Eric Fletcher: I beg to move Amendment No. 759, in line 34, after "shall", to insert "as regards that company".
This Amendment has the same purpose as Amendment No. 749, which the Committee accepted.
Amendment agreed to.
Further Amendment made: In line 38, at end insert:
Provided that any capital dividend paid after 27th April, 1965 shall be regarded for the purposes of this subsection as having been paid before that date if—

(i) it was declared by the company in general meeting before that date; or

(ii) it was declared in general meeting after that date but in accordance with a recommendation of the directors and the directors' decision to make that recommendation was, with the authority of the directors, publicly announced before that date; or

(iii) it was paid in accordance with a decision of the directors, and that decision was, with their authority, publicly announced before that date.—[Mr. Peyton.]

Mr. Patrick Jenkin: I beg to move Amendment No. 778, in line 38, at the end to insert:
(9) Notwithstanding the foregoing provisions of this section the amount paid in dividends by a company shall be deemed not to exceed the standard amount to the extent to which

1425
it does not exceed the aggregate amount of the dividends received by the company in the year 1965–66 from another company or companies resident in the United Kingdom.
I have detected a shortfall in the Treasury's good will during the last few minutes and I hope that in moving this Amendment I will be able to persuade the Government Front Bench to recover it.
This is a perfectly simple and straightforward Amendment which, I am sure, must prove to be acceptable. It deals with the problem of one company which has received dividends from another company which, if passed on to the shareholders of the recipient company may be in excess of the standard, and if the dividends which the paying company has received have exceeded the standard they will have paid the appropriate penalties. In those circumstances, there seems to be no reason why the dividends cannot be passed straight on free of any additional tax at all in the hands of the shareholders.
This is a simple point. It does not arise only in the case of groups and controlling interests but in any case where one company receives dividends from another. If the relief which this Amendment seeks is not given it means that the dividends can be charged to tax twice, or more than twice, as they are passed on. If the dividends which are received by the ultimate company are passed straight on, even if that exceeds the company's own standard contribution, it should not give rise to any additional charge to Income Tax.
Sir Eric Fletcher: I do not think that the hon. Member has made the meaning of his Amendment clear, nor is it clear from the text of the Amendment what he has in mind. There is no question of double taxation here. We are dealing with forestalling, and there is no reason why, in regard to forestalling, receipt of dividends should be treated differently from trading income. There is no question but that the case of dividends paid by one member of a group to another is covered. The hon. Gentleman will appreciate that in the case of dividends paid by subsidiary to parent or vice versa no question arises, but that the same principles relating to forestalling should apply with regard to the whole of the
1426
profits of the company whether derived from trading or whether derived from portfolio investment.
If it has been the practice of the company in the past only to pass on to its shareholders a certain proportion of dividends received, the principle should apply in the current year. There should not be any departure, because in so far as it was a departure it would be just as susceptible of tax avoidance as if an undue part of the trading profits were passed on. So, on this occasion, I would say, with respect to the hon. Gentleman's normal ingenuity, that this Amendment is misconceived, and cannot be accepted.
Mr. William Clark: I would ask the Minister without Portfolio to look yet again at this Amendment. With the greatest respect to the hon. Gentleman, what my hon. Friend seeks to do is absolutely clear. Let us suppose that we have a company which receives a number of dividends from a number of companies. If we take the base year—say, 1963—and assume that company A from the operation of the companies in which it has invested receives gross dividends of £1,000, that sum, for company A, is its standard in 1965–66. Company A, from the same constituent companies, receives income dividends of £1,500. It cannot pass on that £1,500 to the shareholders without incurring the penalty of forestalling. The spirit of the Amendment is that as the constituent companies must have increased their dividends from their base year to the base year we are speaking of, then, already, those constituent companies have suffered the penalty of forestalling. What my hon. Friend tried to make clear is that in a case such as that there would be no double taxation.
3.0 a.m.
It may be that this point is adequately covered by Amendment No. 785, which the Government have agreed to table on Report in an amended form. There is no question here of tax avoidance. Where a company receives dividends from constituent companies and passes them on to its own shareholders, the very fact that in the standard period the dividends were in my example £1,000 and in 1965–66 it receives £1,500, the Government have already collected the extra tax of the

1427
increased dividends of each of the constituent companies.
I am sorry that at this late hour neither my hon. Friend nor I have been able to make ourselves clear, but I assure the Minister that this is a very valid point, although it is a reasonably small one. In order not to delay matters, perhaps he will say that between now and Report he will look at this matter again and say that there is a point which may be covered by the tax avoidance Amendment to replace Amendment No. 785.
Sir Eric Fletcher: I can either deal with the text of the Amendment, or with what the hon. Member for Nottingham, South (Mr. William Clark) said is intended. The text of the Amendment is unacceptable because it goes far beyond what the hon. Member said it is meant to mean. It would enable a company to pay out not only its standard profits but also the whole of the profits derived from portfolio investment. There would be the same element of forestalling in that case as in any other case. If, on the other hand, all that the hon. Member has in mind is circumstances in which there is no tax avoidance, of course the company he has in mind would have the benefit of the comprehensive character of Amendment No. 785 which we intend to put down for Report.
Mr. Patrick Jenkin: In view of the Minister's remarks, I beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Sir Eric Fletcher: I beg to move Amendment No. 760, in page 104, line 4, at the end to add:
"nor shall this section have effect by virtue of section 69 of the Finance Act 1960 in relation to the trustees of a unit trust scheme".
This Amendment is designed to exclude altogether from the Clause any authorised unit trust.
Amendment agreed to.
Motion, made, and Question proposed, That the Clause, as amended, stand part of the Bill.
Mr. Barber: No one can say that the debates we have had on this Clause have not been useful. A considerable number of concessions have rightly been
1428
made by Government spokesmen and some of our Amendments have been accepted. In particular, because Amendment No. 785 is to be replaced on Report by a Government Amendment with the same purpose, we shall allow the Clause to pass without very much further discussion.
I wish to ask the Minister without Portfolio one question which troubles me. Am I right in thinking that a close company which does not need to retain profit for development or any current purpose and so is open under the legislation to distribute 60 per cent. of its profits to shareholders, if the trend of profits is rising may nevertheless be caught by Clause 78 and have to pay additional taxation despite the fact that it is forced to pay taxation under Clause 72?
This is a somewhat important matter which could obviously affect many companies. Although I would not wish to debate it now, it seems to me that this is the consequence of Clauses 72 and 78. If so, we would like to consider it.
Mr. Lubbock: May I briefly draw attention to one consequence of the Clause which, I think, was not expected and which I have already drawn to the Chancellor's attention? Subsection (3,b) would appear to allow a pro rata increase in the dividend paid according to the amount by which the profit exceeds the profit in the base years. I am sure that that was the Government's intention, because they say so in terms on page 29 of the White Paper, which talks about
"the standard dividends, scaled up by reference to increases in the company's profits".
The amount of the increase in the profit above the standard profit may be nil when the actual profits are much larger than in the base year, because of the operation of subsection (4,d):
"the standard profits of a company are whichever is the greater of—

(i) one third of the company's profits for the standard period; and

(ii) fifteen per cent. of the company's share capital in the standard period."

I will try to make the matter clear by giving a simple numerical example. If the profit in the three years of the base period averages £1 million and if the company's share capital is £10 million, then 15 per cent. of the share capital is £1·5 million. Because that is larger than

1429
the profit earned in the base period, that is the standard profit according to the meaning of the Clause. Therefore, supposing that the profits increased to £1·25 million in the year to 31st December, 1965, one would have imagined, reading subsection (3,b) by itself, that the company would be allowed to pay a dividend 25 per cent. greater.
However, because the standard profit is £1·5 million and we are measuring differences between standard profit and the actual for the period, that is a negative amount and no increase in the dividend can be paid. I am sure this was not what the Clause intended. I hope that the Minister will clear this up.
Sir Eric Fletcher: I am sure that the hon. Member for Orpington (Mr. Lubbock) will appreciate that the provision in subsection (4,d,ii) is intended to deal with the case where in the past a company has paid large dividends, despite the fact that its profits were low. He will also appreciate that, without such a provision, an increase in profits in the current year might justify a very large dividend indeed, quite unwarrantably. I appreciate the point he has in mind. I will undertake on behalf of my right hon. Friend to look into the matter between now and Report and see whether there is any way in which that case can be met.
The rather more important point raised by the right hon. Member for Altrincham and Sale (Mr. Barber) was this. He asked whether there was some possibility of some inconsistency, or, indeed, injustice, arising by reason of the fact that the operation of the forestalling provisions in the Clause, coupled with the Clause dealing with close companies, might produce a situation in which, by reason of the fact that a close company had an uplift in profits, which it had to distribute, it might at the same time find itself caught by the deterrent effect of the forestalling provisions. No injustice of that kind would arise.
Under the Amendment on the lines of Amendment No. 785 which we will introduce on Report, the governing factor in considering forestalling will be motive. Therefore, where it was an inevitable distribution in excess of stan-
1430
dard profits, forestalling will not operate and the company will not be penalised.
Question put and agreed to.
Clause, as amended, ordered to stand part of the Bill.
Mr. Callaghan: I think that the Committee will agree that we have made considerable progress since midnight—[Interruption.] Let me put it in arithmetical form. Since midnight we have dealt with nine Amendments, on which there have been substantial debates, and that is good progress by comparison with the earlier hours.
Therefore, I beg to move—what is the form of words?—
That the Chairman do report Progress and ask leave to sit again.
I trust that we shall be able to make equally good progress tomorrow. If we do so there should be no reason why we should not see the glimmering of the dawn on the distant horizon.
Mr. Heath: I think that the Committee will be glad that the Chancellor managed to find the necessary words, after some effort. It would, indeed, be an ominous moment for the Committee if the Chancellor should ever forget the words entirely. In that case we should have to produce them for him.
It is just over three hours since I moved to report Progress in order to ask the Chancellor to state his intentions. I said at that time that were we to embark on Clauses 78 and 79 it would take us most of the night. We have had a concentrated discussion, a large part of which was on Amendments which the Chancellor has put down. The Committee has been greatly helped by the fact that the Chancellor and his colleagues have been able to accept or give undertakings about the remaining Amendments. Yet because of the nature of the points and the complex nature of the Bill, it has taken us over three hours to complete a Clause of the most complicated nature.
As it would take approximately the same time to deal with Clause 79, I think that we are in agreement with the Chancellor that, in view of today's ceremonies, this would be a convenient moment to report Progress.
Mr. William Yates: I would like to agree with the Chancellor, but it is very important that we should make faster progress with the Bill. I am sure he realises that there are many matters about which constituents are asking us, including the land sequestration Bill, the steel Bill and the cheaper mortgages Bill. There are many points on which we are being asked why the Government are not bringing forward their programme as laid down at the General Election.
Therefore, I hoped the Chancellor, rather than knock off now, would have continued at least till six o'clock to enable us to debate some of the things which people are asking us to discuss. I do not know what has happened to the steel Bill, but it is a matter of great anxiety to many of us—
The Temporary Chairman (Mr. Grant-Ferris): Order. The subject which the hon. Gentleman is raising does not arise on this Motion. Will he please keep strictly to the Motion?
Mr. Yates: I quite agree, Mr. Grant-Ferris. All I am suggesting is that we should proceed with our discussion so that there can be more Government time on another occasion to discuss matters which interest our constituents more than this Bill does. It is interesting as it is, and I am glad that discussion has been exact, but I wish the Chancellor to make more progress with the Bill so as to give the House more time to discuss urgent matters, in particular, foreign affairs,
1432
which must be of as much interest to his side of the Committee as it is to ours.
Question put and agreed to.
Committee report Progress; to sit again this day.

SCOTTISH STANDING COMMITTEES
Ordered,
That, for the remainder of the present Session, a second Standing Committee shall be constituted for the consideration of Bills certified by Mr. Speaker as relating exclusively to Scotland and committed to a Standing Committee.
Ordered,
That the said second Committee shall in respect of each Bill allocated to it, consist of not less than twenty nor more than fifty Members to be nominated by the Committee of Selection, of whom not less than twenty Members shall represent Scottish constituencies; and in nominating such Members the Committee of Selection shall have regard to their qualifications and the composition of the House.
Ordered,
That all Bills certified by Mr. Speaker as relating exclusively to Scotland and committed to a Standing Committee shall be distributed between the two Committees by Mr. Speaker.—[Mr. Bowden.]

ADJOURNMENT
Resolved, That this House do now adjourn.—[Mr. Gourlay.]
Adjourned accordingly at sixteen minutes past Three o'clock a.m.

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  CHINA (ADMISSION TO UNITED NATIONS)
  CHINA (ADMISSION TO UNITED NATIONS)
  SWEDEN (MILITARY NUCLEAR PROGRAMME)
  SWEDEN (MILITARY NUCLEAR PROGRAMME)
  EIGHTEEN-NATION DISARMAMENT CONFERENCE
  EIGHTEEN-NATION DISARMAMENT CONFERENCE
  CAIRO (MINISTERIAL VISIT)
  CAIRO (MINISTERIAL VISIT)
  EUROPE (DISENGAGEMENT)
  EUROPE (DISENGAGEMENT)
DUCHY OF LANCASTER
  Care of the Elderly
  Care of the Elderly
PUBLIC BUILDING AND WORKS
  Colliters Brook, Ashton (Caravan Dwellers)
  Colliters Brook, Ashton (Caravan Dwellers)
  Jewel House, Tower of London (Awning)
  Jewel House, Tower of London (Awning)
  Scotland (Ministers' Visits)
  Scotland (Ministers' Visits)
  Building Materials, Scotland
  Building Materials, Scotland
PENSIONS AND NATIONAL INSURANCE
  National Assistance
  National Assistance
MINISTRY OF HEALTH
  Pharmacists
  Pharmacists
  British Safety Council
  British Safety Council
  Drugs (Purchase from Overseas)
  Drugs (Purchase from Overseas)
  Doctors (Remuneration)
  Doctors (Remuneration)
  Isle of Sheppey (Travellers to Medway Towns)
  Isle of Sheppey (Travellers to Medway Towns)
  Sight Tests, Manchester
  Sight Tests, Manchester
HOSPITALS
  Modular Operating Theatres
  Modular Operating Theatres
  Anaesthetists, Swansea
  Anaesthetists, Swansea
  Regional Hospital Boards (Catchment Populations)
  Regional Hospital Boards (Catchment Populations)
MINISTRY OF LABOUR
  Unofficial Strikes
  Unofficial Strikes
  Industrial Processes (Carcinogenic Substances)
  Industrial Processes (Carcinogenic Substances)
  Foyles Bookshop (Visit by Wages Inspector)
  Foyles Bookshop (Visit by Wages Inspector)
  Shipbuilding Workers (Naval Construction)
  Shipbuilding Workers (Naval Construction)
NATIONAL FINANCE
  Information Services
  Information Services
  Registered Disabled Persons (Unemployment)
  Registered Disabled Persons (Unemployment)
  Rateable Assessments (Proposals for Reduction)
  Rateable Assessments (Proposals for Reduction)
  Anglo-German Agreement
  Anglo-German Agreement
BOARD OF TRADE
  Hire Purchase and Credit Sales Agreements Order (Trailers)
  Hire Purchase and Credit Sales Agreements Order (Trailers)
  May Trade Returns (Unauthorised Disclosure)
  May Trade Returns (Unauthorised Disclosure)
  Semi-Manufactures and Finished Manufactures (Imports)
  Semi-Manufactures and Finished Manufactures (Imports)
  Balance of Trade
  Balance of Trade
  Duty Remission Schemes
  Duty Remission Schemes
  Shipbuilding Industry (Skilled Tradesmen)
  Shipbuilding Industry (Skilled Tradesmen)
  Mail from France (Delays)
  Mail from France (Delays)
POST OFFICE
  Stamps (Numbers Printed)
  Stamps (Numbers Printed)
  Stamps (Special Issues)
  Stamps (Special Issues)
WIRELESS AND TELEVISION
  Milliard Radio Astronomy Observatory (Channel 6)
  Milliard Radio Astronomy Observatory (Channel 6)
  Land and Maritime Mobile Radio Services (Licence Revenue)
  Land and Maritime Mobile Radio Services (Licence Revenue)
ECONOMIC AFFAIRS
  Kettering (Representations)
  Kettering (Representations)
SCOTLAND
  Police (Injuries)
  Police (Injuries)
  Cervical Cancer
  Cervical Cancer
  Sugar Beet Factory, Cupar (1964 Crop)
  Sugar Beet Factory, Cupar (1964 Crop)
  Treasure, Shetland
  Treasure, Shetland
  Mental Patients (Temporary Release)
  Mental Patients (Temporary Release)
  Local Museums and Galleries
  Local Museums and Galleries
HOME DEPARTMENT
  Police Officers (Injuries)
  Police Officers (Injuries)
  Police Forces (University Graduates)
  Police Forces (University Graduates)
AGRICULTURE, FISHERIES AND FOOD
  Wool Production, Wales
  Wool Production, Wales
MINISTRY OF AVIATION
  Aircraft Industry, Bristol (Employment)
  Aircraft Industry, Bristol (Employment)
SWAZILAND, BASUTOLAND AND BECHUANALAND
  Political Refugees
  Political Refugees
MINISTRY OF DEFENCE
  Fine Weather Telegram Service
  Fine Weather Telegram Service
EDUCATION AND SCIENCE
  State Scholarships (Value)
  State Scholarships (Value)
  School Building (Price of Land)
  School Building (Price of Land)
HOUSING
  Council House Building (Subsidy)
  Council House Building (Subsidy)
MINISTRY OF POWER
  400 Kilovolt Grid (Extension)
  400 Kilovolt Grid (Extension)
RAILWAYS
  Richmond-Broad Street Line
  Richmond-Broad Street Line
  Closures, Cardiff Area
  Closures, Cardiff Area
ROADS
  A.35, Ashurst (Accident Rate)
  A.35, Ashurst (Accident Rate)
  Bank Holidays (Learner Drivers and Caravans)
  Bank Holidays (Learner Drivers and Caravans)
  Trunk Roads (Cost of Land)
  Trunk Roads (Cost of Land)

Preamble
The House met at half past two of the clock, The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Manchester
The Viscount Hill—Took the Oath.

TESTS FOR CONVICTED DRIVERS
2.35 p.m.
LORD COLWYN: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government whether, in the interest of safety on the roads, when a driver of a road vehicle (drunk in charge, or not) has been convicted and fined, his endorsed licence can be withheld until he has passed a police driving test.]
THE PARLIAMENTARY SECRETARY, MINISTRY OF TRANSPORT (LORD LINDGREN): My Lords, the courts already have powers to order drivers convicted of certain offences to be disqualified until they have passed the driving test.
LORD COLWYN: My Lords, while thanking the noble Lord for his Answer, may I make a suggestion to Her Majesty's Government?
SEVERAL NOBLE LORDS: No.
LORD COLWYN: In that case, my Lords, I will ask this question: when a licence is renewed after three years can all of us have a driving test?
LORD LINDGREN: My Lords, this is impracticable at present. The driving test organisation, with nearly 1,500 examiners, conducts two million tests a year. A new commitment of this order would require the addition of 2,000 or more examiners, even if such a test were confined to 45 minutes. At present there are at least half a million tests waiting
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to be conducted, involving a thirteen-week delay.
LORD REA: My Lords, is there any objection to the noble Lord, Lord Colwyn, having a driving test if he is very keen on having one?

FINANCIAL LIQUIDITY AND WORLD TRADE
2.37 p.m.
THE EARL OF DUNDEE: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government whether they have considered the proposals for improving liquidity put forward by the Director-General of the International Monetary Fund, M. Schweitzer, in a public lecture to the French Institute of Banking on June 2, which appear to be far wider than the measures described in the Government's White Paper (Cmnd. 2675) published on the same date; and whether Her Majesty's Government will urgently discuss with other subscribers to the Fund what further measures may now be necessary to prevent a slump in world trade.]
LORD SHEPHERD: Yes, my Lords.
THE EARL OF DUNDEE: My Lords, I am grateful to the noble Lord for his affirmative reply. I do not want to press him to say anything that he is not authorised to say, but do the Government agree that if Britain and the United States of America simultaneously try to redress their balance of payments, and if France at the same time goes on making believe that we are on the gold standard, a very severe trade depression is extremely probable? Do the Government think that these measures agreed on at Tokyo and described in the White Paper are anything like sufficient to prevent that?
LORD SHEPHERD: The noble Earl is quite correct in suggesting that the action taken by the United States of America and ourselves to redress our severe balance-of-payments position does affect the world liquidity. Her Majesty's Government feel that in the present instance we should support the proposals

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agreed at Tokyo and that we should carry on discussions through the International Monetary Fund to see what further steps should be taken to increase world liquidity.
THE EARL OF DUNDEE: My Lords, do the Government recognise that this may be urgent?
LORD SHEPHERD: My Lords, it is certainly urgent, but it is a difficult matter and many other countries are involved. The Government feel that we should proceed slowly but with a degree of urgency, and perhaps in the present instance the less said in public the better.

RESURFACING OF CROMWELL ROAD
LORD TWEEDSMUIR: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government when it is expected that the resurfacing of the Cromwell Road will be completed, and why it has taken so long.]
LORD LINDGREN: My Lords, I have been informed by the Royal Borough of Kensington and Chelsea, acting as agents for the Greater London Council, that the resurfacing of Cromwell Road between Exhibition Road and Earls Court Road, a distance of approximately one mile, should be completed by the middle of July. Some delay has been caused by the weather, but otherwise the timing of the work and the way in which it has been done have been agreed between the police and the Royal Borough authorities, in the interests of safety and of keeping to a minimum the interference with traffic on this busy road. The opportunity has been taken to make alterations to the traffic signals at intersections necessary as part of the West London Area Traffic Control Experiment which we hope will start next year. This should help to control and improve traffic flows over a wide area of West London.
LORD TWEEDSMUIR: My Lords, while thanking the noble Lord for his reply can he tell the House what was the original target date for the completion of this section of road, which is such a vital link with London Airport?
LORD LINDGREN: My Lords, the middle of July. But this road is being resurfaced by the hot, rolled asphalt process, and when one gets a morning like this morning no work can be done.
LORD MERRIVALE: My Lords, can the noble Lord tell us why Cromwell Road has been resurfaced between Exhibition Road and Earl's Court Road, because in fact it was in perfect condition?
LORD LINDGREN: My Lords, the original road surface was of rock asphalt and had been down for over twenty years, and those who are supposed to know about these things thought that it ought to be resurfaced.
LORD CARRINGTON: My Lords, I do not know much about these things, but I use that road quite frequently. May I ask the noble Lord whether he thinks it satisfactory that it should take almost three months to resurface one mile of road?
LORD LINDGREN: My Lords, it is not really an excessive time if one appreciates that this is a six-lane road and that, because of the heavy traffic, one lane at a time has to be done. These lanes are nine feet wide, so there is an appreciable total surface to be done.
VISCOUNT DILHORNE: My Lords, are the "Clearway" signs still exhibited?
LORD LINDGREN: My Lords, I could not answer that question without notice.

BUSINESS OF THE HOUSE
2.42 p.m.
LORD SHEPHERD: My Lords, with the permission of the House I should like to make three announcements on Business. First, I would inform your Lordships that at a suitable moment after half-past three my noble friend Lord Walston will be making two Statements, the first on the British contribution to the United Nations finances and the second on interest-free loans.
My second statement is that, in view of what may be a protracted Committee stage on the Sexual Offences Bill, suppers will be available in the Dining Room between 7.30 p.m. and 8.30 p.m. and it is proposed that the Committee stage should be adjourned for this period.

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Thirdly, I would remind your Lordships that the House will meet to-morrow at eleven o'clock for Prayers and will then proceed to Westminster Hall to present the humble Address to Her Majesty the Queen. It is hoped that as many as possible of your Lordships may find it convenient to attend Prayers, because, in addition to the usual prayers, a special prayer which has been written for this occasion will be read, and also because we shall have the company of the Presiding Officers of the Commonwealth Senates.
After certain formal Business the Leader of the House will move that the House do now proceed to Westminster Hall, for the purpose of presenting the humble Address which the House ordered on Wednesday last to be presented to Her Majesty the Queen, and thereafter that the House do adjourn during pleasure and do meet again in this Chamber at half past two o'clock. After the Lord Chancellor, as Speaker, has left the House with the Mace, Peers are asked to proceed individually to Westminster Hall, through St. Stephen's Hall, and your Lordships are asked to be seated by 11.30 a.m. Your Lordships will, of course, be sitting together as a House, and therefore wives and relatives who are in possession of tickets will be sitting elsewhere, as directed by the ushers. That is the end of the Statement.
VISCOUNT DILHORNE: My Lords, may I ask the noble Lord whether his announcement about the arrangements made for to-day's Business in any way precludes this House, if it so desires, from adjourning the Committee stage at an earlier hour? I have heard of a number of Members of your Lordships' House who were taken by surprise at this Business being taken on a Monday. Every time this subject has been debated it has been on a Monday. I am also told by a great many noble friends that they will not find it possible to stay to a late hour this evening. It would be very inconvenient, and I think very wrong, that a subject of this importance should be debated in a very thin House.
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Am I right in thinking that what the noble Lord has said will in no way prevent a Motion for the adjournment of the Committee at a more reasonable hour?
LORD SHEPHERD: My Lords, I think it may be said that Monday sittings are usual at this time of the year. In regard to to-day's Business, this is a Private Member's Bill, a Bill which received considerable support in this House, and the Government felt that it was right to find a day for this matter to be fully discussed in Committee. We have set aside this day for it. It is open to any Member to move the adjournment of the Committee stage, but I should have thought this was a course to which the House should give careful thought before proceeding. But obviously this is a matter for your Lordships' House.
LORD REA: My Lords, perhaps I may ask the noble Lord to clarify one point. I understood him to say that the Presiding Officers of the Commonwealth Senates will be with us to-morrow for Prayers. Does that mean in the Chamber, on the Floor of the House, or in the Gallery?
LORD SHEPHERD: I understand that arrangements have been made for Presiding Officers and their wives to attend this House below the Bar.
THE EARL OF GOSFORD: My Lords, as a matter of clarification, is there any truth in the statement in the Press that the House will be sitting on Fridays later during this Session?
LORD SHEPHERD: All I can say is that it has happened in the past, but we always try to avoid it if we can.

LONDON TRANSPORT BILL
Read 2a, and committed to a Select Committee.
ROCHESTER BRIDGE BILL
Read 2a, and committed to the Committee on Unopposed Bills.

SEXUAL OFFENCES BILL [H.L.]
2.48 p.m.
Order of the Day for the House to be put into Committee read.
Moved, That the House do now resolve itself into Committee.—(The Earl of Arran.)
On Question, Motion agreed to.
House in Committee accordingly.
[The LORD MERTHYR in the Chair.]
Clause 1:
Amendment of law relating to homosexual acts in private
1. Notwithstanding any statutory or common law provision, a homosexual act in private shall not be an offence provided that the parties consent thereto and have attained the age of 21 years.
VISCOUNT DILHORNE VISCOUNT DILHORNE moved to leave out the words from beginning of the clause down to and including "provision,". The noble and learned Viscount said: It would, I think, be to the convenience of the Committee if the first three Amendments in my name were considered together. The first and third are merely drafting and make no alteration of substance; they make the clause, I think, read better if the second Amendment is carried into the Bill or accepted by my noble friend Lord Arran. If these three Amendments are made the clause will read as follows:
"A homosexual act other than sodomy or attempted sodomy committed in private shall not, notwithstanding any statutory or common law provision, be an offence provided that the parties consent thereto and have attained the age of 21 years."
I regard this as a most important Amendment and I hope that we shall have a full discussion upon it. Very little consideration was given to the contents of this Bill in the debate on Second Reading. The usual practice is for this House to consider the terms of the Bill to see what it does and then to decide whether to read it a second time; but this practice was not followed on the Second Reading of this Bill.
On no fewer than four occasions my noble friend represented, and indeed asked your Lordships to vote for, this Bill not on account of what it did but as an expression of view that the law on
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homosexuality should be changed. If I may remind your Lordships, in moving the Second Reading he said he wanted—and I quote his words—
"to get a formal expression of the view of 'the House."—[OFFICIAL REPORT, Vol. 266 (No. 79). col. 632, May 24. 1965.]
He recognised that in its present form the Bill could not become law. At the end of his speech he said:
"What we shall have to say squarely from your Lordships' House this afternoon is this: Are we or are we not in favour of homosexual law reform? Do we or do we not think that the present law on homosexual practices is a good and workable law and should remain as it is?" [Col. 635.]
My noble friend later intervened in the speech of my noble and learned friend Lord Kilmuir, to make the same point, He said then:
"At this stage all we are being asked to vote upon—and I must ask your Lordships to remember this—is whether or not we think the principle of homosexual law reform is correct." [Col. 657.]
The noble Lord, Lord Boothby, indulged in what I regard as the same misrepresentation, and in his speech at the end of the debate, my noble friend Lord Arran said this:
"What we are going to say … is simply that this House wants, or does not want. homosexual law reform." [Col. 711.]
No doubt it would facilitate the task of the Government if the practice was, on Second Reading of a Bill, merely to consider whether some change or other in the law was desirable and to disregard entirely the contents of the Bill. And it may well be the case that many of those who voted for this Bill on Second Reading did so in consequence of the statements to which I have referred. But in fact what was done was to give approval to the legalisation of sodomy, and the purpose of these Amendments is to secure that this Bill does not do that. The noble Earl, Lord Arran, said that he had rushed into print on this Bill because there was to be a debate on the same subject in another place two days later. He no doubt thought that the view of this House might affect the decision in another place. Whether it did or not, I do not know. But the fact is that in another place a quite different view was taken from that expressed by your Lordships.
LORD BOOTHBY: By a small majority.
VISCOUNT DILHORNE: A quite different view was taken from that expressed by your Lordships. If my noble friend had just wanted an expression of opinion that the law on homosexuality should be changed, I dare say that that Motion would have been carried without a Division. But now, having got that expression of opinion for which he asked, he is asking us to devote our time to the Committee stage of a Bill which, at this stage of the Session, can have no chance of being enacted even if the other place were favourably disposed to it, which their debate shows not to be the case. It may well be that some noble Lords, realising this, will not take the same interest in the Bill that they otherwise would; and it may well be that, in consequence, some of the decisions made to-day will not be so representative as they might have been. Some noble Lords, as I have said, have been surprised by the fact that the Committee stage is being taken to-day, and are consequently unfortunately unavoidably absent. I hope that at some time in the course of our debates the noble Earl, Lord Arran, will explain why it is that he is asking your Lordships to spend so much time on this Bill when it has no chance of becoming law.
The Wolfenden Committee did, contrary to what the noble Lord, Lord Boothby, implied, recommend that sodomy between two consenting adults should be made legal. But that really should not conclude the matter—
LORD BOOTHBY: I must ask the noble and learned Viscount to forgive me. I never said anything like that, or anything remotely approaching it, in my speech.
VISCOUNT DILHORNE: If the noble Lord will refresh his memory on what he said on May 12, I think he will find that my words are justified.
LORD BOOTHBY: I have it here.
VISCOUNT DILHORNE: Read it again.
LORD BOOTHBY: It makes jolly good reading.
VISCOUNT DILHORNE: The Committee did recognise (to quote their Report) that it may be appropriate that the law should distinguish in some way between buggery and other homosexual
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acts. What I am asking this Committee to recognise is that it is appropriate to distinguish between buggery and other forms of homosexuality committed by consenting adults. I should like to make this clear. If this Amendment is carried, the effect will be that, although all other forms of homosexuality between consenting adults will be lawful, buggery will continue to be a criminal offence, even if committed by consenting adults. This Bill will then, if this Amendment is carried, effectually repeal the Labouchere Amendment for those over 21 consenting to such practices. That, the noble Lord, Lord Boothby (I am sorry to have to refer to him again), has stressed, is the main object of the Bill. I do not know whether the noble Earl, Lord Arran, agrees with that. I do not know whether the most reverend Primates and the right reverend Prelates, who are taking such a keen interest in this subject—and I cannot remember any Bill affecting the criminal law on which they took quite such an interest—agree with the noble Lord, Lord Boothby. But if they do, then this Bill, if the Amendment is carried, will achieve its main object; and I dare say that, if it is confined to that, the chances of the Bill's being accepted, either this Session or in any other Session, would be greatly increased.
I would remind your Lordships of the views expressed by the noble Lord, Lord Fisher of Lambeth (he was then Archbishop of Canterbury) in a debate on the Wolfenden Report on December 4, 1957. I quoted what he said in the course of my Second Reading speech; but what he said is so relevant to this Amendment that I hope your Lordships will not object to my reminding you of it again. He said this:
"I know many people have grave hesitation about this recommendation. They think it will lead to an increase in offences. Their information may be different from mine, and it is not at all easy to be dogmatic; but, like the Church Assembly itself, I feel that if there is a doubt the risk should be taken."—[OFFICIAL REPORT, Vol. 206, col. 757, December 4, 1957.]
We may disagree about that, but it is clear that the most reverend Primate, as he then was, was supporting recommendations that homosexuality between consenting adults should be made legal. He went on:
"I would add only this one further reflection: that if it proved legally possible—I do

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not know whether it is—to separate what the noble Lord, Lord Pakenham, called the extreme offence, and to leave that still a crime, I should wish to leave it a crime still. The Report goes on to say this: 'We believe that there is some case for retaining sodomy as a separate offence'. I believe that if that could be done "—
these are Lord Fisher of Lambeth's words—
"it would relieve the anxieties, fears and indignation of a great number of people; and, more than that, I believe that this crime does stand in a class by itself and is almost different in kind from other homosexual offences."
This Amendment is intended to do exactly what Lord Fisher of Lambeth desired, and I shall be interested to know whether or not the most reverend Primates and the right reverend Prelates agree or disagree with the noble Lord, Lord Fisher of Lambeth. As the noble Lord, Lord Goddard, reminded us, sodomy was a capital offence from the reign of Henry VIII to 1861. Since then, the maximum penalty has been imprisonment for life. The Offences Against the Person Act, 1861, described it as "an abominable crime." I would ask the most reverend Primates and the right reverend Prelates: Do they regard this conduct, sodomy, as abominable? Some of the words used by the right reverend Primate the Archbishop of Canterbury on May 12 gave me the impression—I hope it is wrong—that he equated sodomy with fornication. Then he said:
"If the line can reasonably he drawn anywhere, homosexual acts in private between consenting adults fall properly on the same side of the line as fornication."—[OFFICIAL, REPORT, Vol. 266 (No. 73), col. 82, May 12, 1965]
The right reverend Prelate the Bishop of Chichester said on Second Reading
"We should be inclined to say that the moral fibre of the nation may be just as much undermined by heterosexual misconduct as by homosexual misconduct."
On the face of it, those words suggest that he and whoever may be included in the word "we" do not think that sodomy is worse than fornication. I hope that I am wrong about this, but if it is the present view of the present leaders of the Established Church that sodomy is not abominable, that it is no worse than fornication, then I can only express my confidence that that is not the view of the vast majority of members of the Church of England.
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Are there not some forms of conduct so abominable in themselves and such an affront to decency that the State, whose function it is, as the Wolfenden Report recognises, to preserve public order and decency, should regard and treat them as criminals? The Wolfenden Committee said that they did not think that it is proper for the law to concern itself with what a man does in private unless it can be shown to be so contrary to the public good that the law ought to intervene in its function as the guardian of that public good. Sodomy which takes the form of bestiality is, I imagine, committed, when it is committed—and cases of it do come before the courts—in private. If the test is, as the noble Earl, Lord Arran, suggested, "Is anyone else the worse for what men over 21 do in private?" I would say that no one else is worse off as a result of the commission of this crime. Is it the view of supporters of this Bill in its present form, the view of the noble Earl, Lord Arran, of the most reverend Primates and of right reverend Prelates, that sodomy which takes this form should cease to be criminal? I hope that this question, too, will be answered.
Paragraph 93 of the Wolfenden Report reads as follows:
"It has not escaped us that the offence of buggery as known to the present law comprises some acts which are not homosexual offences and which are accordingly outside our terms of reference."
That, of course, is quite true. They went on to say:
"We assume, however, that if our recommendations are adopted, the Legislature will make corresponding adjustments, if it deems them necessary, in the penalties attaching to buggery in its other forms."
That, I think, indicates that, in the view of the Wolfenden Committee, there is a relationship between the different forms of buggery. If sodomy with an animal should remain a crime (and it will remain a crime, for this Bill does not touch it), then on what 'valid basis can it be distinguished from sodomy with a male person? I do not believe that there is any valid distinction, and I think that it is for those who oppose this Amendment to show that there is.
The right reverend Prelate, the Bishop of Chichester, said on Second Reading [Col. 660]:
"We must, of course, continue to assert, as one of the most reverend Primates did, that

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homosexual acts are always in principle wrong". [Col. 660.]
A little later he said:
"The noble Earl, Lord Dundee, in the last debate expressed the fear which has been shared by many, that any relaxation of the existing law would give the appearance of extending social approval to homosexual conduct. That is the last thing we should desire or support.…." [Col. 661.]
That is what he said. But no matter how frequently it may be asserted that homosexual acts are always wrong in principle, such assertions, will, I fear, have little, if any, effect once these acts are made lawful. It will be very much more difficult to convince people that such conduct is wrong if now, with the backing of the leaders of the Established Church, it is made lawful. Certainly relaxation of the existing law will make it appear that such conduct is not in future to be regarded as wrong, as it has been until now. The appearance of relaxation will be greatly enhanced if it be the case that the present leaders of the Established Church regard sodomy as no worse than fornication and if, with their support, sodomy between consenting males over 21 is made legal. I do not think that that can really be denied; and that is one reason why I invite support for this Amendment.
The noble Lord, Lord Stonham, when he spoke on Second Reading found some difficulty, it seemed to me, in maintaining his fence-sitting position; he obviously found it most uncomfortable. If it is any comfort to him, I would say that in reading his speech—it was my misfortune that I could not be present to hear it—I was left in no doubt whatsoever about his views. He did touch on the question whether this Bill should cover sodomy. I must confess that I thought that his arguments for saying that it should were very weak, indeed one might almost say specious. He made it clear that he did not regard buggery as less repulsive than other forms of indecency between males, and said that to distinguish between them would have no apparent basis in logic or morals. I agree with the noble Lord, Lord Fisher of Lambeth, that buggery stands on a different footing and is almost different in kind from all other homosexual offences. That is the view, too, which is taken in the courts. The sentences imposed for buggery are usually far more
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severe than for other forms of homosexual offences.
The noble Lord, Lord Stonham, went on to suggest that to draw such a distinction would make the task of the police in enforcing the law quite impossible. I really cannot accept that. If the law as to sodomy is not changed, it will be no more difficult to enforce it in the future than it is at present. Then he went on to contrast the estimated number of homosexuals with the number of prosecutions. He said that the conviction rate was only a fraction of one per cent. I do not know how many of the estimated number of homosexuals he assumed committed the offence of sodomy, but if the conviction rate is very small that does not seem to me any argument for altering the law and for making sodomy legal. The noble Lord might just as well argue that as dangerous driving is very prevalent and as only a very small percentage of those who drive dangerously come before the courts, dangerous driving should cease to be an offence. He said, too, and I quote his words:
"If we restrict the scope of the criminal law to that area of vice, which I hope we are firmly agreed should be relentlessly attacked, it might contribute to the strengthening of morality in general." [Col. 642.]
Is making sodomy lawful really likely to contribute to morality in general? I believe it will have just the opposite effect.
To sum up, if this Amendement is carried the effect will be, first, that the Labouchere Amendment is effectually repealed for those over 21 who consent; secondly, that sodomy with males will continue to be the abominable crime it was, and is; and, thirdly, that the carrying of this Amendment would at least do something to negative the appearance of a general relaxation of the law. I am certainly all in favour of doing everything that can be done to help those who have these unfortunate tendencies, but I cannot see any justification for the statement of the right reverend Prelate, the Bishop of Chichester, that the bringing of compassion and spiritual resources to this problem is any way prevented by the present state of the law. Is it really the case that the bringing of compassion and spiritual resources is affected by the law saying what conduct, homosexual or otherwise, is criminal?

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In paragraph 32 of the Wolfenden Report one finds this:
"There are no prima facie grounds for supposing that because a particular person's sexual propensity happens to lie in the direction of… his or her own sex it is any less controllable than that of those whose propensity is for persons of the opposite sex."
If this Amendment is not carried, sodomy will, I believe, become more prevalent than it is to-day. It will not be thought to be so wrong, and the removal of the sanction of the criminal law is likely to make an individual's tendency to commit this act less controllable. I beg to move.
Amendment moved—
Page 1, line 5, leave out line 5.—(Viscount Dilhorne.)
3.11 p.m.
LORD BOOTHBY: I have had a vicious attack made upon me by the noble and learned Viscount, Lord Dilhorne, in what I regard as the most disgraceful speech I have ever heard in Parliament in one House or the other; and I have been here for the last forty years.
SEVERAL NOBLE LORDS: No, no!
LORD BOOTHBY: He accused me of advocating buggery here. Let him repeat that accusation outside the House, and he will get what he deserves.
VISCOUNT DILHORNE: The noble Lord seems to be having some difficulty this afternoon. I did not accuse the noble Lord of advocating buggery. I said that the noble Lord had said what the main object of the Bill was. I also said that the noble Lord had misunderstood the Wolfenden Report when he said that all the Wolfenden Report had recommended was the repeal of the Labouchere Amendment. I pointed out to him that he was wrong about that. He made that error on May 12 when he interrupted my speech, and he is wrong about that as he will see if he will look at the Wolfenden Report. It made a recommendation to cover not only the Labouchere Amendment but also the offence of sodomy. That is the correction I made in the noble Lord's speech.
LORD BOOTHBY: If I may interrupt the noble and learned Viscount, I may say that I was dealing with the Bill introduced to this House on Second Reading
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by the noble Earl, Lord Arran. Fortunately, I happen to have a copy of the Hansard report of my speech. I said—and I am quoting from col. 669:
"But, my Lords, the law we are considering this afternoon, directly as a result of the noble Earl's Bill, is Section 11 of the Criminal Law Amendment Act. 1886; and that. I would remind my noble and learned friend Lord Kilmuir, was very much less than 400 years ago."
I then went on to quote, at great length, the opinions of Sir Travers Humphreys. I continued [col. 672]:
"This Bill, as the noble Earl who introduced it said, is not definitive or final in form. If I thought it was, I could not vote in favour of it."
I then said:
"If we pass this Bill we shall be dealing only with the main but vital recommendation of the Wolfenden Committee "
which related to the Labouchere Amendment. I concluded by saying:
"I regard this Bill as simply a question, put to your Lordships directly, on whether you think that some reform of the law regarding homosexuality is necessary or not; and I believe that, in saying this, I carry the noble Earl, Lord Arran, with me. He is not saying that this Bill is the last word, the only word on the subject, but is merely asking your Lordships to give a vote to say whether or not you think reform is necessary."
To be accused on that basis of advocating sodomy is a bit "over the odds."
VISCOUNT DILHORNE: The noble Lord seems to think that I accused him of that.
SEVERAL NOBLE LORDS: Order, order!
VISCOUNT DILHORNE: If he will be good enough to read Hansard again, he will see that I made no such accusation at all. His words are wholly unwarranted. I never accused him of that. I would not accuse anyone of that, except in the course of conducting a criminal prosecution. But I certainly never said anything from which that inference could properly be drawn by the noble Lord, or by anyone else.
LORD BOOTHBY: I am convinced, if I may say so—and I am going to sit down now—that the implication of the noble and learned Viscount's speech was that that was what I was in favour of, and what I advocated. It was no such thing; and I am on record in Hansard. And if I did not say it, why did he bring

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me into the matter at all, because as a matter of fact I agree with almost every word he said this afternoon, and I am going to support his Amendment.
VISCOUNT DILHORNE: I should like to make it clear, because there is an unfortunate misunderstanding, and I may have failed to make myself absolutely clear. My criticism of the noble Lord's earlier speech is supported by the passage that he has quoted; that I said he was wrong in suggesting that either the Bill or the Wolfenden Committee covered only the Labouchere Amendment. I never said anything—and if he reads my words I am sure he will find it is true—to suggest, by implication or otherwise, that the noble Lord was in favour of sodomy. I am sorry he should have gained that impression, because it really is not justified from anything I said.
LORD BOOTHBY: All right, we will call it a day.
3.16 p.m.
THE JOINT PARLIAMENTARY UNDER-SECRETARY OF STATE, HOME OFFICE (LORD STONHAM): I hope that it will assist the Committee if, at this very early stage in the Committee's proceedings, I re-state what will be the Government's attitude both during the Committee stage and in the remaining stages of this Bill. The Government's attitude will continue to be one of neutrality, which means of course that Ministers will be quite free to vote if there are Divisions on any Amendments according to their own private views and according to their consciences.
LORD SALTOUN: I beg the noble Lord's pardon for interrupting him, but I think I ought to tell your Lordships that all the hearing aids at this end of the House have failed, and it is very difficult to hear the noble Lord. If he will speak a little more slowly, I shall do my best to hear him.
LORD STONHAM: I am most grateful to the noble Lord. If I may quickly paraphrase what I have already said, it was that at this early stage I propose to re-state what the Government's position will be during the Committee stage and on subsequent stages of the Bill. Ministers, and Peers supporting the Government, will be entirely free to vote on any
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Amendments according to their own individual feelings.
But so far as my own replies to any Amendments, and those of my noble friend Lord Shackleton, who will deal with some of them, are concerned, we shall hope to point out any practical or legal difficulties to which the Amendments may give rise, and will say whatever we can by way of clarification without commenting on matters of policy or principle. I hope that in most cases, even within the limits that I have suggested, the Government's view of the merits of a particular Amendment, apart from the question of principle, will be clear from our remarks.
On this particular set of three Amendments, the substantive one of which is No. 2, the noble and learned Viscount, Lord Dilhorne, explained that his purpose is to keep within the criminal law buggery and attempted buggery between consenting adults in private. He pointed out, quite rightly, that its effect would be to restrict the scope of the clause to the repeal of the Labouchere Amendment in the Criminal Law Amendment Act, 1885—not 1886—which made indecency between males an offence.
LORD BOOTHBY: It passed into law on January 1, 1886.
LORD STONHAM: I am most grateful to the noble Lord, and I shall see that his information is sent on to the proper quarter. But the result, if the noble and learned Viscount's Amendment were accepted—and this should be quite clear—would be that one form of indecent conduct, buggery, attracted a maximum sentence of life imprisonment, whereas other forms of indecency which to many people would be no less repulsive would be no offence at all if committed in private.
I tried to make it clear during the first debate that we had on this subject that I did not pretend to any expertise, though I had, perforce, studied a great many documents and opinions on this subject. But I believe that I am expressing the general view when I say that all forms of indecency of the general kind that we have been talking about are abhorrent to most people. Therefore, while agreeing with the noble and learned Viscount that there can be different opinions on these matters, personally I could not, for

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example, share the view which he has just expressed, that there is no difference between the ultimate offence being committed with an animal—which will still be an offence—and its being committed with a human being. But that is entirely a matter of opinion. However, I do not depart from the view which I expressed before—and I was then expressing a view on behalf of the Government, and not merely a personal and private opinion, as the noble and learned Viscount appeared to think—namely, that this alleged distinction between one form of indecent conduct and others has no apparent basis that we can see in either logic or morals.
The noble and learned Viscount was also kind enough to quote what I said about the difficulties of the police, and I should have thought that their difficulties in matters of this kind would have been clearly apparent to everyone. We are not talking about all offences of this filthy nature; we are talking about the offence when committed among consenting adults in private. Therefore, one must consider the difficulties of the police in getting information, first of all, that there has been gross indecency between males, and. secondly, of the particular nature of the offence. I do not withdraw in any way what was previously said: that the police have great difficulty in establishing whether buggery has been committed. And what the noble and learned Viscount asked for would in large measure be virtually unenforceable.
He quite rightly mentioned—and I agree with him—that this Amendment raises a most important matter of principle, but, in terms of statistics, the Wolfenden Committee estimated that the total number of convictions of consenting adults in private was about 100 a year, and the particular offence we are now talking of was at the rate of about 60 a year. There is no knowing just what the current numbers are, but there is reason to think that they have since declined. But that is the order that we are now considering—a possible 60 offences a year. I have no further comments upon the principle of the Bill, but I thought it proper to make that explanation as clearly as I could, particularly in view of the comments from the noble and learned Viscount.
EARL ATTLEE: I should like to ask the noble Earl, Lord Arran, to accept these Amendments proposed by the noble and learned Viscount. They do what is required. They reverse the Labouchere Amendment, and they make the law as it was before that was introduced. I think that is all that is required, and I voted for the Second Reading of this Bill just on that basis. I think the noble Viscount's Amendments should be accepted.
3.24 p.m.
THE EARL OF ARRAN: It is with deep regret, the noble Earl, Lord Attlee, having spoken as he has, that I must say I cannot accept the Amendments, and that I oppose them squarely and forthrightly. I do so because I think that the arguments are on the most emotional and illogical basis and because, as has been pointed out by the noble Lord, Lord Stonham, the Amendments are unenforceable.
What are we being asked to say? We are being asked to say that homosexual practices shall remain a crime if they affect a certain part of the human body. To sexually normal people, as has been pointed out, the whole thing is unattractive enough; but to discriminate in this way, to say that one area is permissible and another is not, seems to me to be carrying one's instinctive physical distaste to an absurdity which is unbecoming in a civilised age. It is, I know, a tradition in the history of this country that special abhorrence should be expressed of the misuse of the excretory organs; and, as the noble and learned Viscount has himself said, the crime of buggery has attached to it the word "abominable". Murder is murder, treason is treason, but buggery is the abominable crime. I stress this point because to me it epitomises the almost hysterical attitude taken in the past, and seemingly in the present, towards this most disgusting but socially and medically unimportant act. Incidentally, in no other European country, except in Norway, is discrimination made between one form of homosexuality activity and another.
Next—and this is the practicable point—there is the question of enforceability. As has been said, to prove that an act of buggery has taken place is one of the most difficult things in the world to do, and it depends upon the most primitive of tests. If the noble and learned Viscount's Amendment is passed, we shall have the

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absurd situation of the police still with a mandate—indeed, a duty—to investigate homosexual acts in private lest there shall have been buggery, but having to concentrate on one small part of the human anatomy. The job of the police in these matters is squalid enough in all conscience—and how they must hate it!—but the proposed Amendment would make it more odious still.
Lastly, I come to the paint that was made on Second Reading: that the law relating to buggery has been in existence, I think, for four or five centuries, and should therefore, perhaps, be inviolate. I think the noble and learned Lord, Lord Goddard, particularly made this point. On this, I would simply say that the argument that, because a law is an old law, it is therefore a good law and should never be changed, seems to me unlikely to appeal to your Lordships. What are we here for—what is Parliament here for—if not to make new laws and repeal old ones? As for this particular law, and the dangers that are said to attach to it, may I remind the Committee of what Lord Ellenborough, himself a Lord Chief Justice, said in this House when it was proposed to remove the death penalty for stealing more than five shillings? He said:
"I am convinced, with the rest of the Judges, that public expediency requires that there should be no remission of the terror denounced against this description of offenders. Such would be the consequences of the repeal of this Statute that I am certain depredations to an unlimited extent will immediately be committed."
Despite Lord Ellenborough's warnings, Britain survives. Perhaps, despite the warnings of the noble and learned Viscount, Britain, if this Amendment is rejected, may still survive. I ask the Committee to throw out this Amendment. To vote in favour would, I suggest, be not to vote with one's head or even one's heart, but in accordance with one's physical distastes, one's most primeval instincts—and that, surely, cannot be a right thing to do.
THE LORD ARCHBISHOP OF CANTERBURY: The noble and learned Viscount put one or two questions to me and to right reverend Prelates who sit on these Benches. Let me say, not for the first time, that I regard homosexual behaviour as abominable, utterly abominable. I am a supporter of this Bill in
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the belief that this Bill will help and not hinder the forces making for morality in this respect. The noble and learned Viscount strongly dissents from that view, but I am sure he will respect the motives of those who seriously believe that. The noble and learned Viscount challenged me about the moral relationship between homosexual behaviour and fornication. I think it is extraordinarily hard for any of us to assess the relative seriousness of sins. When we start doing that we get into questions to which the Almighty Himself knows the answer and we do not. I would say that, comparing the two, homosexual behaviour has an unnaturalness about it which makes it vile. On the other hand we are encouraged to measure the vileness of sins by the question of motives and personal circumstances. I think there can be behaviour of a fornicating kind as abominable as homosexual behaviour and as damaging to the community.
But that is not the issue on this Amendment. The issue is whether it is possible for us to distinguish morally, and therefore rightly, and to ask for a distinction in the criminal law between different species of homosexual intercourse. The noble and learned Viscount has said vehemently that sodomy is in a category by itself, and he quoted long traditions of deep feeling in favour of that belief. He also quoted my most reverend predecessor. He did not give arguments for his view; he gave no real arguments at all. I do not criticise him for not giving arguments because there are matters of moral judgment which are so deeply affairs of feeling that we find it impossible to put arguments into words. I know that is how my noble and learned friend feels about it and I understand it. But when one, for the purpose of forming a judgment, sets oneself to reading things that normally one would not care to read, I can only say that there are forms of homosexual intercourse every whit as disgusting and horrible as sodomy. Which of us can really say that we know there is a big moral distinction between anal intercourse and oral intercourse? One hates to mention such things, but by doing so one is perhaps able to clarify the issue.
I think the deep tradition of abomination of sodomy is utterly right, but I think the concentration upon sodomy as the exclusively horrible sin may have

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been due in the past to our very natural ignorance of the whole existing range of homosexual behaviour. There is, and has been for centuries, a general emotion linked in the mind between the crime of sodomy and the behaviour of the people of Sodom and Gomorrah in the story in the Book of Genesis, who incurred the Divine anger for the most horrible sins. But in reading that story, while it appears that homosexual behaviour was the sin of the Sodomites, we simply do not know what particular form or forms of homosexual behaviour the people of Sodom and Gomorrah were guilty of; and it is well to notice in some other books of the Bible that the term "Sodomite" is used as a term of abomination not only for this particular offence but for other offences connected with prostitution as well.
I do not subtract one whit from the sense of the abominableness of it; yet it is impossible to distinguish between the abominableness of various kinds of homosexual actions, and I do not really think it makes for morality when there is embodied in the criminal law a distinction that is not really a rational moral distinction. For that reason, I greatly hope that the Committee will reject the Amendment moved by the noble and learned Viscount and, in rejecting it, will enable the Bill—which I still believe, by and large, will promote and not hinder the ways of morality in this country—to go forward.
3.37 p.m.
THE EARL OF KILMUIR: We have discussed this topic and expressed our views; but I think it is very important that we should have in mind the issue before the Committee at this moment. The issue before the Committee is whether we should legalise and remove from the criminal sanction sodomy, which is—and I use the words of the most reverend Primate—the offence of penetration per anum. That is what we are discussing. We are no longer discussing the general principle, which attracted so much support, of some change in the law; nor are we discussing particularly the question of Labouchere's Amendment about which we have heard over and over again, and of the Parliamentary procedure which produced it.
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I have waited to hear from my noble friend Lord Arran, who has given such careful consideration to the matter, and who, if he will allow me to say so, has expressed his views with great care on these subjects, and I have also waited to hear from the most reverend Primate, the justification for legalising and removing from the criminal sanction the offence of penetration per anum. I do not see how it helps to say that there are other offences, or, at least, the one other offence to which the most reverend Primate referred. He referred to an offence committed through the mouth—though that is not an offence under the law affecting sodomy or buggery—but how it makes it any better, any more moral, any less disgusting, any less unnatural, to have penetration per anum, I must say that none of the speeches I have heard so far has convinced me. The speeches we have heard have not brought the argument to the approach of the mouth of reason.
It is easy, as I have said before, to make everything that has roots deep in the past ipso facto the subject of criticism. I do not happen to share that view, but it is most material, on what has been said by noble Lords with regard to enforceability, that sodomy was an offence under our Statute Law and was tried in the King's courts for some 452 years. There was no greater or less difficulty about enforceability before 1886 than after, and therefore it is at any rate some argument in favour of the view which I am putting forward that that has been a recognisable and enforced offence for 452 years.
I know that my own country has always been accused of attaching too great an importance to the Old Testament. I hope that I do not, but I would say that in my view it would be a great pity if the impression were to be created that the teaching and moral standards of the Old Testament are wrong simply because they occur in the Old Testament. It would be a great pity to say that the law on this point has been wrong in England for nearly 500 years. My Lords, why? I come back to the same point, and I put it like this because the most reverend Primate has put it on this point. I say that the attempt to-day to legalise, to remove from criminal punishment and therefore, I still feel, automatically to laud the disregard felt for such an offence, is one of the most serious matters that

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has ever been put to your Lordships' House. That is why, with my noble and learned friend the noble Viscount, Lord Dilhorne, and with my colleague of past years, the noble Earl, Lord Attlee, for whose opinion I have such respect, I ask the House to accept the Amendment.
LORD BOOTHBY: Before the noble Earl sits down, may I ask how he justifies the number of Abraham's wives and concubines?
THE EARL OF KILMUIR: Some day we shall have a debate on the more general points of the Old Testament and I shall be glad to deal, to the best of my knowledge, with all the points raised by my noble friend, but that is hardly relevant to the matter that I have put before your Lordships' House this afternoon.
3.42 p.m.
BARONESS GAITSKELL: My Lords, listening to the noble and learned Viscount, Lord Dilhorne, putting his Amendment, and the noble and learned Earl, Lord Kilmuir, one might think that all the sex habits between men and women were confined to a kind of platonic friendship with a plastic model of Brigitte Bardot, all wrapped up and hermetically sealed, not with the temptations of the flesh. It seems to me it is a great pity that Nature has gone in for a division of labour and made childbirth an entirely female function. If men had babies, they would be less squeamish about their own bodies and perhaps less insistent about their disgust about homosexual behaviour. There are many things which are not aesthetic about the natural functions of the body, both in sickness and in health. We quickly overcome these revulsions. Disgust is not a consistent emotion. It often varies with age. It may be a cliché, but one man's disgust is another man's pleasure. How can any civilised law be based on such a capricious emotion?
There are all sorts of abominable crimes, as has been said. I once visited South Lodge during the crisis of London's homeless, when some of those people were housed there temporarily. In one room there was a mother with eight children. She was not married to the father of the children so, having no legal binding, he had abandoned them all. I felt a wave of disgust for that most natural act
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that was coupled with such irresponsibility. All irrational feelings of disgust should be examined with great scepticism. I very much hope that we shall reject the noble and learned Viscount's Amendment.
LORD SALTOUN: May I trespass on your Lordships' attention for a few minutes, because I am very much afraid that I may not be able to wait to move my Amendment, which follows, as I accepted an engagement, which I cannot fail to attend, long be-for this debate was arranged for to-day. I should be very grateful if any noble Lord would take my Amendment off my hands and move it. Otherwise, I shall be compelled to move it at the Report stage, which would be more difficult, and we should not get it properly discussed.
With regard to the present matter on which we are engaged, I should like to remind your Lordships that when the noble Earl who is sponsoring this Bill sat down, he did so with a very strong expression of disgust upon his lips for the practice we are considering. I suggest to your Lordships that those feelings of disgust are due to our own moral sense and racial sense. I listened with great attention to what the most reverend Primate has just said on this matter. I can see his point and I sympathise with it. I should like to remind him of what I think is the truth: that the Christian religion was adopted by the world because it advocated a code of morals which was higher than that of the normal run of the world at that time. I would remind him that the whole of that very beautiful poem, Prudentius, was part of the debate on this precise matter and is a witness on my behalf. That being so, I should like to remind your Lordships that the races from which we have sprung have a very ancient literature of their own with which I am fairly familiar, because it is possible to get most of it in an English translation.
In the whole of the Icelandic sagas and the Norway sagas there is practically no mention of this practice at all. It is utterly alien, as alien to them as I believe it is to Homer, which shows what the moral sense of our country and our race has always been. The only time I can remember that it is mentioned at all is in the Volsung Saga, by

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Siegfried, as one of the deadliest insults that he could hurl at any of his enemies. I submit to your Lordships it is because of that moral sense that the law we are trying to change to-day has come into existence and I certainly hope that your Lordships will continue to support it.
THE LORD BISHOP OF CHICHESTER:The noble and learned Viscount asked for our opinions. I should like to say that I sympathise with him, and the point of view he expressed, in wishing to pin the strongest possible condemnation on sodomy, but I believe that over-emphasis upon this particular issue is really putting a distortion upon the whole question before us. It is a two-way question. If we label one act a crime and others not, then, on the one hand, we may be bringing home to people the abominable nature of this particular act, but, at the same time, we may be suggesting to them that the others are not abominable because they are not criminal. I think we are strongly dividing the issue here. I would say, and I think that I represent others who have been speaking from these Benches, that we have supported the main proposal, not because we want to withhold our own condemnation of all these practices, each one of which is as disgusting as the other, but because we believe that they ought to be put on a level of personal, moral responsibility and not on the level of criminal offences. If we label one as criminal in this way, then I think we are suggesting to people that it is all right if they go a certain way, but not that way. That is just the opposite of what we want to secure.
LORD MOLSON: We are engaged on the Committee stage of a Bill and, therefore, it behoves us to consider how this Amendment would operate. It is not enough to consider moral judgments on different kinds of action. As we have accepted the principle of this Bill on Second Reading, we should not accept any Amendment which is likely to prove unworkable or defeat the main purpose of the Bill. All speakers on Second Reading deplored homosexual activities. The main arguments that were put forward in favour of this Bill were, first, that this is the kind of matter, like adultery and fornication and Lesbianism,
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which is greatly to be deplored, but with which it is inappropriate and frequently harmful for the law to seek to intervene. Secondly, it was a fact that it does lead largely to blackmail.
As we have accepted the principle that the law relating to homosexuality should be amended, it seems to me that the passing of an Amendment of this kind would defeat a large part of the purpose of the Bill. It means that instead of a whole realm of deplorable private activities being removed from the purview of the police, there would still be an obligation on the police to seek to find out what exactly happened in private on some particular occasion. I cannot do better than quote what was said by the Parliamentary Secretary on Second Reading. He said that he regarded it not only as almost unworkable but as imposing an intolerable burden upon the police. He said:
"Such a distinction between one form of indecent conduct and others would have no apparent basis in logic or in morals. It would also make the already difficult task of the police in enforcing these laws quite impossible. How could they be expected to tell the precise form of indecent homosexual conduct which had taken place in private between consenting adults?"—[OFFICIAL REPORT, Vol. 266 (No. 79), col. 640, May 24. 1965.]
I know that a great many people feel that the most important result of passing this Bill will be to do away with the opportunity of blackmail, which, on fairly authoritative evidence, has been said to amount to something like 90 per cent. of all cases that occur. It obviously would be extremely possible, and perhaps it would be easier, if this Amendment were carried and the Bill were passed, for blackmail of this kind to take place.
The main purpose of the Bill, as I understand it, is to give effect to the recommendations of the Wolfenden Report. The Committee spent many months going into the whole of this difficult matter. They saw many witnesses of every kind. Obviously it was put to them that a distinction should be drawn between sodomy and other kinds of homosexuality. They considered the matter most carefully and came to the conclusion that it was undesirable and unworkable that any such distinction should be drawn. When I say "any such distinction", I should make this correction: that they said they thought it

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would be appropriate that the law should distinguish in some way between buggery and other homosexual acts (I leave out some words which do not change the meaning) and
"the law ought to have regard to their gravity as measured by the circumstances surrounding their commission and not merely to the nature of the physical act".
I hope that we shall give effect to the recommendations of the Wolfenden Committee. I believe that this Amendment would prove entirely unworkable and would largely defeat the purpose of this Bill, and would do so in a way which would give scope to increased blackmail in a realm which is already rife with that particular evil.
LORD RATHCAVAN: I will most certainly vote for this Amendment. I dislike the whole Bill and I think that this Amendment, if it is carried, will make it to some extent less objectionable. So far as I can see, this Bill has no chance whatever of becoming law. It is a Private Member's Bill and, presumably, when it goes to another place, it will take its place at the bottom of the queue of Private Members' Bills. And only the other day, the other place threw out a similar Bill by quite a substantial majority. What I cannot understand about this Amendment is the attitude of the leaders of the Church of England. I know what the most reverend Primate the Lord Archbishop of Canterbury and other right reverend Prelates have said in this House, but I cannot believe that the attitude which they are adopting will be approved by the great mass of the decent, honest, clean-living members of the Church of England. I have been a member of the Church of England all my life. But I wonder what is going to become of the Church, when we see the attitude of the Bishops on this Bill?
THE LORD BISHOP OF LINCOLN: Is the noble Lord aware that the Wolfenden Report was given a long and careful debate in the Church Assembly and that it was overwhelmingly approved by the Church Assembly and, moreover, that a similar decision was taken by the Methodist Conference?
LORD RATHCAVAN: I know all that, but there are some occasions in this world when learned reports by learned people do not represent the real
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feelings of the mass of the people of the country, and I believe that that is the position here.
I was not present at the debate that took place on Second Reading. It came on a Monday—indeed, this is a Monday—and it was a bit rushed, after the previous Resolution had been carried. I cannot help feeling that the noble Earl, Lord Arran, spent some little time in trying to whip up support for it. The result was that this Bill was carried on Second Reading. A most admirable speech in that debate was made by the noble and gallant Viscount, Lord Montgomery of Alamein. I agree with every word that he said. I very much hope that the decency of the great bulk of Members of this House will make itself felt, in that, at any rate, this Amendment will be carried and thereby, to some extent, reduce what I consider to be the very undesirable effects which would result if this Bill were passed.
LORD BYERS: I rise to support what has been said by the most reverend Primate and others who have spoken in terms against this Amendment. I am sorry the noble Lord, Lord Rathcavan, should have imported the idea of decency or indecency into our motives in supporting or voting against this Amendment. We all have a very real revulsion for the practices with which we are dealing. I think, if I may say so, that the most reverend Primate and the right reverend Prelates have taken a very fine step in leading public opinion, as so many of us have been trying to do over the years.
The noble and learned Earl, Lord Kilmuir, said that the issue before the Committee was whether we should legalise and remove from the criminal code the act of sodomy; and, although he did not say so, I think he must have meant, between consenting adults in private. But why should there be anything wrong in this? The fact that it has gone on for 452 years is not necessarily a recommendation. This is what reform and change are about: that these things should be gone into, and should be looked at. And the Wolfenden Committee certainly did a thorough job. I believe that he would be a brave man who would go against the findings of the Wolfenden Committee. But, quite

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apart from that, there is a principle involved here, and that is the principle of the freedom of adults to behave as they wish in private, provided that they consent, and provided that no third parties are harmed.
I want to quote three short extracts from the Wolfenden Report. They said in paragraph 84:
"If, therefore, the question of the maximum penalty were to be considered simply in relation to its deterrent effect on the particular offender or to the possibility of successful treatment, there would be no clear case for attaching to buggery a penalty heavier than that applicable to other homosexual offences."
They said also, in paragraph 87:
"There is therefore no convincing case for attaching a heavier penalty to buggery on the ground that it may result in greater physical, emotional or moral harm to the victim than other forms of homosexual behaviour."
The noble and learned Viscount, Lord Dilhorne, referred to paragraph 89, in which the Committee said that there might be some case for "retaining buggery as a separate offence", but what he did not state was that they went on to say:
"But it is ludicrous that two consenting parties should be liable to imprisonment for life simply because the act of indecency takes a particular form, while they would be liable to only two years' imprisonment if the act took some other form which may be no less repulsive to ordinary people."
This has been gone into most thoroughly. I hope that the House will be on the side of the reformers.
LORD SOPER: The most reverend Primate the Archbishop of Canterbury and his friends have not asked for my support, but as a Methodist Minister I give it most enthusiastically, and on one simple ground, namely, that it is our business—and I am sure that my friends of the Anglican Communion agree with this—not to follow public opinion, but to seek to lead it in the light of what we believe to be the Christian principle. What has emerged in the recent comments that have been made about this particular adventure in leadership is that the Church will not be behind us, and that the people of this country—moral, right thinking, and so forth—will reject what we seek to do. This I believe to be quite in error. Whatever may be the undemocratic elements that exist in this
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country, the Methodist Church is predominantly a democratic institution, and in 1958 the Methodist Church at its annual conference agreed enthusiastically, and almost unanimously, with the general priciples—not only recommendation I but also recommendation 7—of the Wolfenden Committee's Report.
In addition to what was said in the actual decisions to which the conference came, I beg leave to occupy just two minutes by saying two things which were appended in the document which was report of the Christian Citizenship Committee of the Church. I think they are germane to this issue. The first is that, whatever may be the particular æsthetic and moral objections to the practices of homosexual behaviour, they do not necessarily constitute crimes, and in this particular regard they do not as between consenting adults; and, secondly, that it is quite impossible, practically as well as in the actual commission of these particular offences, to discriminate between particular practices as if some have a greater abhorrence in the eyes of the godly compared to others. This is an impossibility, if only for the simple and, to me, irrefragable fact that there is, if it be a sin, quite often affection, compassion, tenderness and genuine love between those who are practising homosexuals. That does not, in my judgment, remove it from the category of sin. But it would be entirely improper, as it seems to me, to rule out these practices automatically as if they are constructed out of wickedness and practised in vice. They are unnatural; to me they are abhorrent—and I would use the word "abominable". But having said that, I am sure that to discriminate between certain areas of human behaviour, and to say that certain of these practices are abominable to the extent that they should entail a criminal prosecution, while others may be committed in private, seems to me quite unrealistic and quite illogical, and, I would say, heretical, as well. Therefore, I very much hope this Amendment will not be passed.
VISCOUNT DILHORNE: I think the Committee would wish quite shortly to proceed to a Division on this Amendment, but before we do so, I should like briefly to reply to some of the things that have been said in the course of the

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debate. I am sorry to have had this little argument with the noble Lord, Lord Boothby, who made some critical observations about my speech at the very beginning of the debate. They were obviously based upon a complete misapprehension, and I shall welcome his support in the Division Lobby.
The noble Lord, Lord Stonham, repeated the two observations which made on Second Reading. He did not seek to elaborate them by argument. He said that if this Amendment were carried the difficulties of the police would clearly be increased and that it would become virtually unenforceable.
LORD STONHAM: The noble and learned Viscount will forgive me for interrupting. I certainly did not say that the difficulties of the police would be increased.
VISCOUNT DILHORNE: I am sorry if I made an incorrect note of the noble Lord's speech, but I am sure he will agree that the theme of his speech was that if this Amendment were carried the law with regard to sodomy would be virtually unenforceable.
LORD STONHAM: In so far as acts between consenting adults in private were concerned.
VISCOUNT DILHORNE: With that limitation, if the noble Lord likes. May I point out to him that sodomy is more usually than not committed in private at the present time, and has been. What I say to the noble Lord is that keeping the law as it is with regard to sodomy cannot possibly increase the difficulties of enforcement. It is always difficult to deal with such crimes—sexual matters, rape or incest. The task of the police is difficult in all these cases, I agree. There may be many cases where the crime is committed and a prosecution cannot be brought. But the acceptance of this Amendment cannot conceivably make the offence of sodomy more difficult to establish than it is at the present time. That was the theme put forward by the noble Earl, Lord Arran, in seeking to resist the carrying of this Amendment, as it was of the noble Lord, Lord Molson. I would ask them to bear in mind that these inquiries, these investigations, and these prosecutions often relate to sodomy in private, to rape when there are no
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other members of the public present, and to incest also committed in private.
The real issue here is that put in one short phrase by my noble and learned friend Lord Kilmuir: Are we now going to make this sort of conduct, long established as an offence, cease to be an offence? He said that the arguments against this Amendment did not approach to reason. The strongest argument put against this Amendment was that put by the most reverend Primate, and I should like to add a word or two in answer to him. He sought to twit me for putting forward arguments as to why sodomy was a more abominable offence than an act of gross indecency, which was an offence created by the Labouchere Amendment. I will not take up time with that, because our views obviously differ; but I think I should make this rejoinder to him. He did not seek to put forward arguments to show why the change of the law which this Bill proposes would lead to increased morality. I was delighted to hear his strong expression of the view that homosexual practices were utterly abominable. There we can completely agree. But he went on to say, in the very next sentence, that he believed that this Bill would support morality. He did not put forward any argument.
THE LORD ARCHBISHOP OF CANTERBURY: May I interrupt the noble and learned Viscount? Of course I did not, because I did not want to indulge in a repetition of arguments used by myself and others at some length on the Second Reading. Your Lordships' House gave a Second Reading to this Bill, presumably in the belief that these measures, broadly speaking, would assist rather than hinder morality. What we are now discussing on this Amendment is a distinction between particular categories of homosexual behaviour.
VISCOUNT DILHORNE: The most reverend Primate has said that the House, broadly speaking, gave an opinion on the question of morality. I should have said that, broadly speaking, this House, on Second Reading, expressed the view that the law with regard to homosexuality should have some change. We are now discussing whether the change should extend to making sodomy lawful. What one has not heard argued at all, either on the occasion of the Second Reading or on

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this occasion, is why it is thought that making sodomy lawful, when it has been for so long unlawful, will in any way increase morality.
I have, of course, great respect for the views put forward by the most reverend Primate and the right reverend Prelates, and by those who take an attitude different from mine. But it seems to me to be almost a contradiction in terms to say that if we make abominable conduct, which has been unlawful for years, lawful, we are thereby going to increase morality. I must say that I thought when the right reverend Prelate the Bishop of Chichester came to speak he rather gave away the case for the opponents to this Amendment. He said that if one is labelled a crime, that will suggest that the other, which ceases to be a crime, is less objectionable. I think I have stated it correctly. That means to say that people will be led to think that the other, which ceases to be a crime, is less wrong. Therefore, he argues, it would be much better to make both cease to be a crime.
The logical conclusion to his argument is not to change the law. But I come back to this point, in conclusion. In the course of my speech, I put the ques-
tion, was there any conduct in private which was so abominable in character that it was right for the law to treat it as a criminal offence? I put the question with regard to bestiality, one form of sodomy. I asked whether any distinction could be drawn between that form and the form now under consideration. No effort has been made to draw any such distinction at all. The noble Lord, Lord Byers, has again reiterated the proposition that for adults to behave as they like in private should be entirely lawful. If that be the test—if the test be that proposed by the noble Earl, Lord Arran—then, indeed, there is something to be said for treating bestiality as the opponents to this Amendment would treat sodomy between consenting men. I do not think it would be right to treat it in that way.
I say no more. I ask those who think that the Labouchere Amendment should be repealed and the Bill restricted to that, and that the law of sodomy should be left unaffected to support me in the Division Lobby.
On Question, Whether the said Amendment (No. 1) shall be agreed to?
Their Lordships divided: Contents, 52: Not-Contents, 86.

CONTENTS

Alport, L.

Erroll of Hale, L.

MacAndrew, L.

Ampthill, L.

Fortescue, E.

Mancroft, L.

Attlee, E.

Goddard, L.

Merrivale, L.

Auckland, L.

Goschen, V.

Middleton, L.

Blyton, L.

Granville-West, L.

Monsell, V.

Boothby, L.

Greenway, L.

Montgomery of Alamein, V.

Bossom, L.

Grenfell, L.

Rathcavan, L.

Brocket, L.

Grimston of Westbury, L.

St. Aldwyn, E.

Brooke of Ystradfellte, Bs.

Hobson, L.

St. Helens, L. [Teller.]

Clifford of Chudleigh, L.

Hodson, L.

Shannon, E.

Crook, L.

Horsbrugh, Bs.

Shepherd, L.

Daventry, V.

Howard of Glossop, L.

Simonds, V.

Derwent, L.

Iddesleigh, E.

Somers, L.

Dilhorne, V.

Kilmuir, E.

Soulbury, V.

Douglas of Barloch, L.

Lambert, V.

Tucker, L.

Drumalbyn, L. [Teller.]

Leatherland, L.

Tweedsmuir, L.

Dudley, L.

Lindgren, L.

Williams, L.

Ebbisham, L.

NOT-CONTENTS

Aberdeen and Temair, M.

Boston, L.

Chorley, L.

Addison, V.

Bowles, L.

Clwyd, L.

Ailwyn, L.

Brabazon of Tara, L.

Cohen of Brighton, L.

Airedale, L.

Brain, L.

Colgrain, L.

Archibald, L.

Bridgeman, V.

Colville of Culross, V.

Arran, E. [Teller.]

Bridport, V.

Colwyn, L.

Baldwin of Bewdley, E.

Burden, L.

Cranbrook, E.

Balfour of Burleigh, L.

Burton of Coventry, B.

Cromartie, E.

Bedford, D.

Byers, L.

Denham, L.

Beswick, L.

Canterbury, L. Abp.

Dinevor, L.

Blackford, L.

Chichester, L. Bp.

Emmet of Amberley, Bs.

Ferrers, E.

Maugham, V.

Savile, L.

Francis-Williams, L.

Merthyr, L.

Shackleton, L.

Gaitskell, Bs.

Milverton, L.

Sherfield, L.

Gardiner, L. (L. Chancellor.)

Mitchison, L.

Sinha, L.

Glasgow, E.

Molson, L.

Soper, L.

Grantchester, L.

Monson, L.

Sorensen, L.

Haire of Whiteabbey, L.

Norwich, V.

Stamp, L.

Hertford, M. [Teller.]

Ogmore, L.

Stonham, L.

Hill, V.

Plummer, Bs.

Strang, L.

Huntingdon, E.

Ponsonby of Shulbrede, L.

Strange of Knokin, Bs.

Jessel, L.

Queensberry, M.

Twining, L.

Kennet, L.

Raglan, L.

Wade, L.

Kinross, L.

Rea, L.

Walston, L.

Lincoln, L. Bp.

Reay, L.

Wellington, D.

Listowel, E.

Redesdale, L.

Wells-Pestell, L.

Lloyd of Hampstead, L.

Royle, L.

Woolton, E.

Longford, E. (L. Privy Seal.)

St. Davids, V.

Wootton of Abinger, Bs.

Manchester, L. Bp.

Sandford, L.

Resolved in the negative, and Amendment disagreed to according
House resumed.

FINANCING OF U.N. PEACE-KEEPING OPERATIONS
4.29 p.m.
THE PARLIAMENTARY UNDER-SECRETARY OF STATE FOR FOREIGN AFFAIRS (LORD WALSTON): My Lords, with your Lordships' permission, I should like to repeat a Statement being made by my right honourable friend the Secretary of State for Foreign Affairs in another place on the present situation concerning United Nations finances and peace-keeping arrangements.
A United Nations Peace-Keeping Committee was set up in February this year to review the whole question of peace-keeping operations and the present financial difficulties of the United Nations. As the House is aware, we played an active part in setting up this Committee and in its subsequent work. So far, however, no agreement has been reached on the settlement of the constitutional or the financial problems of the Organisation. It is clear that the financial problems can only be solved eventually by the voluntary contributions from member States.
In these circumstances, we have decided that it is essential to make a voluntary, unconditional, financial pledge to the United Nations. My noble friend Lord Caradon has therefore informed the Secretary-General to-day that we pledge a sum equivalent to 10 million dollars. This decision arose from discussion with a number of other countries, and in the
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course of to-day several other delegations will make similar voluntary unconditional pledges to the Secretary-General. This contribution is designed to help restore the United Nations to solvency and improve the atmosphere for further discussions in New York. In this improved atmosphere there is a better chance for some compromise on the peace-keeping problem to be worked out before the autumn. Our pledge represents, indeed, an act of faith in the United Nations. It is made entirely without prejudice to our position of principle, and we are fully aware that it does not immediately solve the constitutional problem.
There have been gloomy voices recently hinting that the United Nations has been going the way of the League of Nations. I am not on any account going to accept this. It is the policy of this Government to work to strengthen and support the Organisation, and one of the practical ways in which we have demonstrated this earlier was our offer of logistic support for peace-keeping operations for up to six battalions last February. We shall continue to do all in our power to ensure that the United Nations, far from being allowed to wither and die, emerges strengthened from its present difficulties and better equipped to serve the cause of international peace.
LORD CARRINGTON: My Lords, I would thank the noble Lord for repeating that Statement. Ten million dollars is a very large sum of money, at a time when the international finances of this country are not very strong, and I wonder whether it is wise to give unsolicited gifts when the total reserves of this country are some £1,000 million, of which we

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owe £900 million to the International Monetary Fund. The noble Lord has said that gloomy voices have recently been hinting that the United Nations has been going the way of the League of Nations and that he is not going to accept this. I am very glad to hear that. But, of course, one of the gloomy voices has been that of U Thant himself, and I think we ought to pay attention to what he says.
Nobody in this House wishes the United Nations to fail, and everybody wishes it to be more effective. But it does not necessarily follow that the United Nations will be more effective if those who already contribute more than their share—that certainly applies to us, in particular in regard to Cyprus—pay once again, while those who fail to contribute can get away with their refusal to pay. Postponing a situation that, in the end, has got to be resolved is not necessarily wise. I suppose that if the situation is still not resolved in six months or a year's time the Government will once again give an unsolicited gift—I do not know. But it may well he that a gesture of this sort may make the settlement of this problem seem rather less urgent in New York than it does at the present time. May I ask the noble Lord who else has contributed and how much they have contributed?
LORD WALSTON: My Lords, to deal first with the last two questions of the noble Lord, I think it will be better to wait until the actual announcements have been made by the other countries, rather than possibly cause them embarrassment by slightly premature announcement. The total amount that we have reason to believe will be forthcoming as a result of our initiative in this will be in the nature of 20 million dollars. That, I think, answers the first two questions. In other words, we shall be putting up at this stage one half of the amount that we expect will be announced within the next day or so. But we certainly hope that our example will be followed by many other countries in the weeks to come, and that very considerable progress may be made in providing the total amount which is required.
With regard to the more general points made by the noble Lord, all I would say is this. I do not believe that it is suffi
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cient simply to make pious expressions of hope and faith in the United Nations, or in any other organisation: those expressions of faith and of hope have to be backed up with actual concrete acts. I do not think it is right that this country should lag behind. We have a great part to play, which we have played so far, and we are here taking the initiative, being the first to make this contribution. I hope that the noble Lord will agree that that is the right thing for us to do, rather than sit and wait for other people to make the first move.
LORD CARRINGTON: My Lords, is the noble Lord suggesting that in the past we have been lagging behind in our contributions to the United Nations?
LORD WALSTON: No. What I said was that I hoped the noble Lord would not suggest that we should now, in this crisis of the United Nations functions and finances, lag behind and wait for some other country to take the lead. And I hope that he will agree it is right that this country should take the lead in this matter.
LORD OGMORE: My Lords, I should like on behalf of my noble friends and myself to welcome this step. I think the noble Lord, Lord Walston, is quite right. There comes a time when men who believe in world peace and international security have got to stand up and be counted. I congratulate Her Majesty's Government on this resolve. I hope that many more countries will follow the example. But unless we make an example, there will not be anything to follow.
There is one question that I would ask the noble Lord. As he knows, on many occasions I have urged both this Government and the previous Government to try to get a command structure and staff formed by the United Nations for the peace-keeping force. I believe this to be most important. In the debate that we had, as the noble Lord will remember, in 1963 (I think it was in February), there was widespread support in this House for that suggestion. I would ask him now, as we are putting up this very handsome contribution, whether Her Majesty's Government would try to get set up at least a beginning to the command structure and staff of the permanent international force.
LORD WALSTON: My Lords, I am grateful to the noble Lord for his welcome to this initiative. With regard to his question, I would remind him of what I said in answer to a question of his some months earlier. At the present time it is Her Majesty's Government's view and that of the Secretary-General that the time is not right for any advance on the lines he has mentioned. I hope, however, that if this example of ours is followed and the immediate financial problems of the Security Council's peacekeeping force are solved, it may then be a more apt time at which to reopen this question.
LORD COLYTON: My Lords, I should like to associate myself very much with the doubts expressed by my noble friend the Leader of the Opposition on this matter. Is not this decision going to have precisely the contrary effect of that intended? Is it not in fact a deliberate attempt to flout the decision of the International Court at The Hague, which decided last year that all members of the United Nations must contribute pro rata towards the peace-keeping activities? Is this not going to be regarded as disrespect on the part of Her Majesty's Government towards the decision of the International Court?
LORD WALSTON: No, my Lords, it certainly is not. We fully accept the advisory opinion of the International Court, and our pledge of this assistance, we have made it quite clear, is unconditional and without prejudice to our views on Article 19. There can be no misunderstanding on this point. I would remind the noble Lord and other noble Lords who may have doubts that there are always many reasons for not doing anything. That is something from which we have suffered much in the past. If we continue with it we shall simply sit on the sidelines and complain. We believe the time has come to do something positive and set an example.
LORD BOOTHBY: My Lords, before the noble Lord, Lord Carrington, speaks, may I ask my noble friend whether he does not think it is a very odd thing that in our desperate international financial position at the present time we should put up half the amount for the United Nations, which has never done us any good of any sort of kind, ever? May I ask the noble Lord these ques
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tions: first of all, how much the French are putting up; secondly, how much are the Germans putting up; and thirdly, how much are the Japanese putting up?—never mind the Communist countries. I should like to know why he thinks we should impose such a burden on ourselves, to pay for an organisation which has never done us any good for the last twenty years.
LORD WALSTON: My Lords, I was gratified at the noble Lord referring to me as his noble friend, but I was not quite so gratified by some of the comments he made later on. I repeat my original answer to the noble Lord, Lord Carrington, with regard to other countries. They will announce it in their time, some of them shortly, possibly today, and some of them we hope eventually; and some of them undoubtedly will give nothing at all. With regard to the value that we get out of the United Nations, this is not the place to enter into a long discussion of this question, but I would remind the noble Lord of certain occasions, such as in Korea, when the United Nations has, I believe, prevented world war from breaking out. That, I think, is a debt we owe them.
As for this sum of money, 10 million dollars is a large amount of money. I would, in passing, say that the majority of it will be spent in the sterling area and therefore will impose no strain on our balance of payments. It is, however, money going out. But look at that in comparison with the £2,000 million plus which we spend on armaments and defence. Looked at in that light, I think most noble Lords will feel that this is not an unreasonable amount.
LORD CARRINGTON: But is it not a fact, my Lords, that the reason why the United Nations are in financial difficulty is that a number of other countries have defaulted on their legal obligation to pay and contribute? As I understand it, Her Majesty's Government are now, in effect, paying a proportion of those monies due to be paid by other countries. Is that not likely to have the effect of slackening the urgency of settling this matter, and making it less urgent to settle it? It will make it less urgent to settle it. Far from making things easier, Her Majesty's Government will, in effect, be giving a lead in postponing any decision.
LORD WALSTON: My Lords, in spite of the urgency, this is after all, a matter which has been going on for many months; and faced with the situation as it is today we had the alternative either of the United Nations possibly rather rapidly following the fate, as the Secretary-General warned us, of the League of Nations, because we stick to the legal situation and say that we will not make any payment other than that to which we are legally bound, or of passing beyond the strict legal interpretation, still making quite clear where we stand legally, and taking a practical course which we believe will ease the present situation.
LORD KENNET: My Lords, may I associate myself with those noble Lords who have welcomed this Statement? It is of particular interest to me, because I am Chairman of the British Committee for International Co-operation Year, which groups more than 300 organisations, voluntary and otherwise, in support of the United Nations during this year of its 20th anniversary. I know all our organisations will be glad to know of this decision that the Government has taken. May I go on to ask whether the noble Lord will take a suitable opportunity in future to make a fuller statement on the background of this decision, or, if it is possible, to publish a White Paper relating the sum we have undertaken to pay, half of 20 million dollars, to the amount undertaken by other countries; stating whether this settlement was endorsed by the Committee of Thirty-three and whether the Committee of Thirty-three sends a resolution to the Assembly in September; and giving all these background details which, although I am convinced that the decision has been a right one, will yet be of the greatest interest to the public of this country to read?
LORD WALSTON: My Lords, I will certainly bear in mind what the noble Lord has said, and I thank him for his support.
LORD ALPORT: My Lords, may I ask the noble Lord whether the 10 million dollars is being provided to support the peace-keeping operations of the United Nations, and therefore is conditional; or whether it is to be paid to the General finances of the United Nations?
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Can the noble Lord also tell the House how many British troops are at the present moment serving under United Nations auspices on peace-keeping operations; and what has been the average over the period of, say the last year?
LORD WALSTON: My Lords, the 10 million dollars is being paid into the general funds of the United Nations. The second and the third questions I am afraid I cannot answer without notice. The noble Lord can put down a Question.
LORD BOOTHBY: My Lords, I apologise for going on with this, but I should like to ask my noble friend—if he will allow me to call him that just once again—when the Government are going to come to a decision to cut down our overseas defence expenditure; and, above all, when they are going to bring back from Germany the troops, who are serving no useful purpose there whatsoever?
LORD WALSTON: My Lords, as the noble Lord will know, this is a matter which is being pursued with a great deal of care, and it is, I expect, an entirely different question.
VISCOUNT DILHORNE: My Lords, would the noble Lord make quite clear that the 10 million dollars which is being paid into the general funds is being paid in, as I understand it, to make good the deficiency that is due largely to the failure of other countries to pay the contributions which they are liable to pay under the decision of the International Court? And is he really suggesting that the payment of the 10 million dollars is likely to accelerate the discharge by these other countries of their liabilities?
LORD WALSTON: My Lords, as I have already said, this is what I believe is called in legal circles an ex gratia payment, without prejudice, and therefore it does not in any way alter our legal position, which we have made abundantly clear. We do not believe that this is going to accelerate the payment by other countries—certainly not; but we do think that it is going to make it easier for the United Nations, which is an organisation in which we believe, to carry on its work, which we believe is highly important.
VISCOUNT DILHORNE: My Lords, I think the noble Lord has misunderstood

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me. I was not asking the legal character of our payment, whether it was ex gratia or anything else. What I was asking was whether this payment of 10 million dollars into the general fund, was being paid in because other countries have failed to discharge their liabilities. I gather that this is so, and I gather that the noble Lord will not quite say so; but what he seems to be implying is that he does not expect that payment by other countries will be accelerated by the example set by us.
LORD WALSTON: My Lords, I say, frankly, that I do not expect that the countries which are at present defaulters will be influenced, one way or another, by our action. But I hope that other countries which are not defaulters will follow our example and also make ex gratia payments. The object of this is not to shame the defaulting countries into making their payments: it is simply to enable the United Nations to carry on in its job, and to give a practical as opposed to a simply hortatory indication of our belief in the United Nations.
BARONESS HORSBRUGH: My Lords, will the noble Lord say whether Her Majesty's Government have given up any hope of keeping to the Charter and the arrangements that are being made for the various member countries who support this organisation? Are they going to give up hope of ever having that again? And is anything to be done about the voting rule, now that we are told that certain countries have not paid, and since we apparently regard it as very improbable that they will ever pay?
LORD WALSTON: We have not given up hope. We always have hope that even the most difficult people will become less difficult as time goes on; and we have, as I say, faith in the United Nations as an organisation. That is why we have made this act of faith.
LORD BROCKET: My Lords, may I ask whether the noble Lord can state the total sum of money which will be required to put the United Nations on a sound financial basis? Secondly, might not the rule of clubs, that members who do not pay their subscriptions do not have very much power in future, be applied to the United Nations?
LORD WALSTON: The total amount of money which is owing to the United Nations at the present time on the peacekeeping operations is, depending on what method of accountancy is used, somewhere between 80 million and 110 million dollars.
THE LORD PRIVY SEAL (THE EARL OF LONGFORD): My Lords, as there is another Statement coming, and most noble Lords have had a pretty good go in regard to this matter, and as we are in the middle of a debate, perhaps the House might feel that it is now time to move on.

INTEREST-FREE LOANS TO DEVELOPING COUNTRIES
4.50 p.m.
LORD WALSTON: With your Lordships' permission, I should like to repeat a Statement by my right honourable friend, the Minister of Overseas Development, being made in another place on interest-free loans.
Her Majesty's Government have had under consideration for some time the terms on which aid is provided in the form of loans to the developing countries. The importance of the general question of the terms of aid was emphasised at the United Nations Conference on Trade and Development in Geneva last year, and one of the recommendations agreed without dissent was that in establishing repayment terms and interest rates, the overall repayment capacity of the borrowing country should be taken into account. Her Majesty's Government have had the opportunity, since the Conference, of discussing the problem with fellow members of the Development Assistance Committee of the Organisation for Economic Cooperation and Development.
The terms of aid provided by the United Kingdom have been progressively softened over the last few years. A substantial amount has always been provided in the form of grants. Since 1958 the maturity period of development loans has lengthened from a norm of 15 years to between 20 and 25 years. Grace periods on the repayment of capital during periods extending up to the first seven years of the life of the loan have been granted on a widening scale. In 1963 we

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announced our readiness to grant waivers for periods of up to seven years of the interest payable during the early years of loans by countries whose position justified such a concession. This has had the effect, in some cases, of reducing the effective rate of interest payable over the life of the loan by nearly half, compared with the normal rate, which is based on that at which Her Majesty's Government can itself borrow, plus a small management charge.
Her Majesty's Government recognise, however, that the value of the waiver is in some respect limited, and that some more flexible means are needed of giving relief in certain cases. They have decided, therefore, to make loans free of interest to certain developing countries. This concession, combined with appropriate arrangements for the repayment of capital, will give us greater freedom in the determination of terms, and, in particular, will enable us to lighten the burden of debt service in the middle and later years of the loan. The concession will be applied in selected cases, and with due regard to the economic position of the country concerned and to its capacity to achieve balanced and effective development. It will be understood that we naturally cannot afford to extend these very liberal terms to all developing countries. Since interest-free loans will take the place of loans which would otherwise be made under the waiver arrangements, there will not, of course, be any additional burden on Britain's balance of payments during the first few years of the loans.
When circumstances warrant it, countries which do not receive interest-free loans may receive waivers of interest for the initial years of the loan. We have decided to make a similar concession in appropriate cases to the Commonwealth Development Corporation. In order to help the Corporation to undertake a greater variety of projects, the Government has decided to waive the interest on selected projects during the period when the investment is fructifying, instead of merely postponing the interest as at present. This concession will apply to certain agricultural and local development projects. both in cases in which the Corporation
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invests in the equity and in cases in which it makes loans.
LORD ERROLL OF HALE: My Lords, on behalf of your Lordships I should like to thank the noble Lord, Lord Walston, for repeating the Statement which has just been made in another place. I am sure that noble Lords appreciate the greater amount of aid which has been made available to the developing countries of the world since the war. Therefore, we are all interested to learn what the Government are now proposing to do.
I should like to ask the noble Lord one or two short questions. Some of the announcements in the Budget and in the Finance Bill are designed to make British private investment in developing countries more expensive and more difficult. Why therefore are Her Majesty's Government now, at this time, proposing to make easier—indeed, interest-free—loans available to those self-same countries? Secondly, how can the Government at the present time afford to do themselves what they say they cannot afford to allow private enterprise to do? Thirdly, will not the pressure for interest-free loans of this kind increase the strain on our reserves? I am not here concerned with the interest crossing the exchanges, but with the fact that when the loan is made the money leaves the United Kingdom, and the pressure for these interest-free loans will, of course, be very great. Finally, could the noble Lord say whether these interest-free loans will be tied to the provision of British goods and services?
LORD WALSTON: My Lords, I think I can answer the first three questions together. I should like to repeat what was in fact said in the Statement, and certainly what was implicit in it: that this does not in any way increase the total amount of aid which we are giving to developing countries. There will therefore be no additional strain on our resources at the present time. Secondly, these interest-free loans will replace to some extent loans for which waivers of interest have been granted in the past. Therefore, had we continued under the old system with waivers of interest we should have received no interest for the next five, six, seven years. So the strain on our balance of payments by way of giving extra

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loans now does not arise because there are no extra loans to be given. The sacrificing of rates of interest does not arise either, because that would be covered by waivers of interest. We hope that by the time those interest payments would have become due our balance-of-payments position will be very much more healthy than it is at present. I think that that answers the first question of the noble Lord in which he compares it with what he describes as the disincentives to private investments overseas, because there is no additional incentive and no additional outflow.
His final question was, are the loans to be tied? They are not in any way different from existing loans. The only difference is that interest rates will not be charged on certain selected loans. They will be selected very carefully with a view to our own economic position and that of the recipient country.
LORD BYERS: My Lords, on behalf of my noble friends on these Benches I welcome the statement from the Government on the initiative they have taken. Will the noble Lord bear in mind that there is usually a greater value to the developing nations where the investment of money is allied to management services and to scientific know-how?
LORD WALSTON: That is very much borne in mind, and my right honourable friend the Minister of Overseas Development has it very much in the forefront of her mind and the activities of her Department.
LORD CARRINGTON: My Lords, does the important Statement boil down to the fact that we are not going to spend any more money and we are not going to forgo any interest because we should not have got any anyway?
LORD WALSTON: No, it does not. I will not suggest that the noble Lord did not listen carefully to what I said. I can only assume that it was either inadequately written or was not delivered as clearly as it might have been. What it means is that we are not committing ourselves to any more money being given, and for the next few years we shall not be losing anything by way of interest; but for the years thereafter—which are important, particularly with a developing country which is planning its develop
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ment programme—we shall undoubtedly be losing interest and the receiving countries will not be building up a burden of debt such as they had in the past.
LORD ALPORT: My Lords, may I ask the noble Lord whether any of the other countries providing development aid are joining in this policy, or whether this is entirely a unilateral decision by Her Majesty's Government? What is the total sum of interest that will be forgone over future years, and what is the prospective cost to the Exchequer?
LORD WALSTON: This is in one way a unilateral matter in that a decision has been taken by Her Majesty's Government alone. On the other hand, the other donor countries and also our other creditor countries have all been informed of it in advance and have all expressed their approval. The terms are complex and it is hard to balance up terms of loans from this country compared with those in the United States, France, Germany and so on. I cannot say whether this puts us in a position of giving softer loans on an average or not, but we are well in line with our fellow members of D.A.C. They are well aware of what we are doing, and are much in favour of it.
I cannot give a definite answer to the noble Lord's second question. In the first place it is not known how many of the loans will be given interest free. In the second place, and more important, it is not known, and never can be known, how many of the previous loans which we have given with waivers of interest will have to be renegotiated when the time comes because a recipient country has been unable to meet the accumulated interest.
LORD BROCKET: My Lords, in view of the fact that charity is supposed to begin at home, perhaps the noble Lord could tell us when Her Majesty's Government will be suggesting interest-free loans for house purchase in this country.
LORD DRUMALBYN: My Lords, may I just ask the noble Lord this further question? Any selection of types of loan for special investment must give rise to discrimination, and a feeling of discrimination, between the recipients. Could the noble Lord say a little more about the criterion of such selection? Is the criterion to be the purpose of the loan, or is it to be the country concerned?

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Has this matter been discussed extensively with those who are recipients at the present time, and are those who are recipients themselves in favour of such discrimination? Also, is the noble Lord satisfied that the discrimination will not give rise to ill-feeling?
LORD WALSTON: My Lords, I am afraid that I cannot answer that question as lengthily as I should like, as it would detain your Lordships too long. There will of course be difficulties, as there have been, with different rates of loan and waivers of interest. That we are not frightened of. The criteria are, roughly speaking, the need of the country, its ability to repay and the type of project for which the loan is required. Those are the three types of criteria which will be used.
LORD COLYTON: My Lords, as the noble Lord knows, of course this is a practice which has been carried on for some time by the Communist Chinese in East Africa and Central Africa. May I ask him whether, in deciding to which countries these loans are to be made, the Government will have in mind the need for helping those countries in which the Chinese are making this particular effort through interest-free loans to undermine the sovereignty of the country?
LORD WALSTON: My Lords, it is, of course, a practice which has been carried out by Her Majesty's late Government as well as by the Chinese. We certainly will take into account all the relevant factors—those which the noble Lord has mentioned, and many others also.

ADMINISTRATION OF ESTATES (SMALL PAYMENTS) BILL
Brought from the Commons; read 1a, and to be printed.
BRITISH NATIONALITY BILL
Brought from the Commons; read 1a, and to be printed.
HIGHLANDS AND ISLANDS DEVELOPMENT (SCOTLAND) BILL
Brought from the Commons; read 1a, and to be printed.
PUBLIC HEALTH (NOTIFICATION OF BIRTHS) BILL
Brought from the Commons; read 1a, and to be printed.

SEXUAL OFFENCES BILL
5.4 p.m.
House again in Committee.
VISCOUNT DILHORNE: As we discussed the first three Amendments together, I do not propose to take up any time in moving the second Amendment. But, of course, I shall be free to raise it again on Report, if there ever is a Report stage.
THE CHAIRMAN OF COMMITTEES: Your Lordships will observe that there are two Amendments, Nos. 4 and 5, dealing with the Bill at the same point. I think it might be for the convenience of the Committee, if I informed your Lordships that I have a third Amendment also affecting the Bill at the same point—a manuscript Amendment by the noble and gallant Viscount, Lord Montgomery of Alamein, and it is:
Page 1, line 7, leave out ("21") and insert ("80").
THE EARL OF IDDESLEIGH THE EARL OF IDDESLEIGH moved to leave out "21" and insert "25". The noble Earl said: On behalf of my noble friend Lord Saltoun, who asked me to do so at somewhat short notice, I beg to move the Amendment standing in his name. This is a point on which the Wolfenden Committee gave a somewhat hesitant answer. Owing to the shortness of the notice (I was not expecting to speak) I cannot quote verbatim from the Report, but it will be within your Lordships' recollection that words were used to the effect that there was considerable discussion as to the age at which these practices should be made legal; that various ages were suggested, and that the age of 21 was consequently put forward, with some degree of hesitation. I ask

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your Lordships to give consideration to this point.
I would remind your Lordships of a point which I made on the Second Reading of the Bill, and that is how very lonely a young man of 21 may be. I have in mind the young man who has been to a day school, lived all the time in the bosom of his family, and has then attended a university in his home town. That is common enough as it is, and will probably become more common. We are agreed that university development cannot be held up until we have built enough hostels to accommodate university men and women from other districts. Therefore, I think it likely that in future more and more young men will stay at home for their university course, and that at about the age of 21 they will leave home, very often for another city and very often, indeed, for London, in order to take their first post. Be it in an office, be it in a laboratory, be it in the public service, be it in industry, they will be coming out for the first time.
I am quite sure that the right reverend Prelate the Bishop of London will bear me out that this loneliness of the young men who come to London is a very real pastoral problem, and I trust that when he considers the points that I am going to make I may win some sympathy at least from him, and perhaps from other Members of the episcopal Bench. The young man will have had certain opportunities of meeting girls and even of doing a little flirting in his own home town, but to make friends among the smart young girls of London, with their different attitude towards things and their sophisticated point of view, is a very different matter. He will be lonely and a little bit in awe of life, and he will be very grateful to an older man who takes him up and shows him affection and kindness. If that older man is homosexually inclined, he will have very great power to influence that young man in the direction of homosexuality.
We know very little about the causes of homosexuality. Some say that people are born homosexuals. That may he so; or they may become homosexuals as a result of childhood influence. But the Wolfenden Report itself, in a striking passage contributed by two of its medical members, I think, admits that what we are really dealing with is a great un
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differentiating force of affection which may take a homosexual or a heterosexual form. A young man in the circumstances that I have described may very easily be urged in a homosexual direction. Besides, it may well be that the older man is of importance in the boy's firm. He may be the head of his laboratory or of his office, and here the young man will find it singularly difficult to resist any advances that may be made.
If we raise the age to 25 we have a very different situation indeed. The young man can afford to leave his firm; he is mature; he has more sense, and he will perhaps be able to make the moral choice with a little more knowledge of the circumstances and the way of life which he is adopting. There are many other points. My noble friend Lord Saltoun is particularly concerned with the effect upon youth. At 21 there is too great a difference between the young man—or, indeed, the boy—and the older man. I would urge that 25 is an age at which we may assume a degree of maturity that at 21, whatever the legal position may be, does not in fact exist. I beg to move.
Amendment moved—
Page 1, line 7, leave out ("21") and insert ("25").—(The Earl of Iddesleigh.)
5.13 p.m.
THE EARL OF HUNTINGDON: Might I suggest to the Committee that it might be convenient, as we have three Amendments dealing with the question of age, to take them all together? I suggest that we have the discussion on the first, if that is agreeable. I should like to say, in moving my Amendment, to substitute for 21 the age 18—
LORD SHEPHERD: I am afraid that the noble Earl cannot move his Amendment now. He can speak to it, and then move it formally when we have dealt with the Amendment which has just been moved.
THE EARL OF HUNTINGDON: I apologise to the Committee. I should like, then, to speak to my Amendment without at present moving it. I should also like to make it clear, before adding a few words on this subject, that I am expressing entirely my own opinions and feelings, and in no way attempting to put forward the opinions of the Homosexual Law Reform Society, to which I

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belong. This is a quite independent line of thought.
The Amendment that I am speaking to would reduce the age from 21 to 18, and I should like to examine a little the Wolfenden Report to see exactly what the Committee say about it. Like many other noble Lords, I commend that Report very much. The Wolfenden Committee went to infinite trouble, infinite care, and examined a tremendous number of witnesses before finally reaching their conclusions, so I think it would be worth while just looking at their arguments and finding out what their conclusions were. It will be noticed from paragraph 66 of the Report that, for convenience, the Committee considered this subject under four sets of considerations. For convenience, they took four sets of considerations when deciding how they should consider this question of age.
I am going to deal first with paragraph 67. They recognise, as I feel we all recognise, the tremendous importance of protecting youth and immature persons. I do not think that, either in the Second Reading debate or in this debate, anyone has for a moment attempted to belittle this argument, or to suggest that we should not protect children or young, immature persons from the unwelcome advances of older men. But, in paragraph 67, the Report goes on to say that is seems strange that we should think it more important to preserve the young boy or the young man than the young girl. It would seem, at first sight, that it should be exactly the opposite. The young man is physically stronger, and the whole tradition of a man is to go out into the world. He is brought up to do that; to make his way in the world; to be the bread-winner, to manage, to control. On the other hand, it is, on the whole, the training of a girl to comply. After all, to many women marriage is still a career, and their tradition is to conform with what the man does. One would therefore think that, on the face of it, it is much more important to protect girls than men.
Particularly is that so for one reason which stands out from among all others—and that is the tremendous risk that a woman takes in that she can have a child. If a woman is seduced, the results may be an illegitimate child which she
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cannot get the father to accept, and for the rest of her life she is in difficulty by way of supporting this child and looking after it. That is a real menace. Yet, in spite of all those disabilities, the age of consent in the case of a girl is 16. It does seem rather strange that we should say that at 16 our girls are perfectly capable of looking after themselves, of supporting themselves and of facing all the dangers of the world, but that when it comes to a young man we say he cannot be allowed to do that. If I may quote for a second the Report, it says (in rather cautious wording, as always), in the last sentence of paragraph 67:
"On this view, there would be some ground for making sixteen the age of "adulthood" since sexual intercourse with a willing girl of this age is not unlawful."
Therefore, I should like to point out to this Committee that, on this first set of considerations, the Report comes to the conclusion that 16 would be the reasonable age.
I come now to the second set of considerations, which is paragraph 68. Here, the argument also applies, I think, to the Amendment moved by the noble Earl, Lord Iddesleigh. When does a man become more or less sexually fixed in his habits, and when does a man's sexual pattern, whether it is homosexual or heterosexual, become clear? I think that this is tremendously important, because on Second Reading many of your Lordships argued that young men go through a homosexual phase at school which nearly always goes over later into a heterosexual one, but that if, too early, someone comes along and excites them or induces them to practise homosexuality, they may be diverted into homosexuality instead of to their normal sexual relationships. I think it is very interesting indeed to see what the Wolfenden Committee said on that.
LORD SOMERS: May I interrupt the noble Earl for one second? Is he taking into consideration the fact that there is a difference between maturity physically and maturity mentally? It is admitted that both boys and girls reach physical maturity to-day probably a good deal earlier than they used to, but I do not think it can be said that they reach mental maturity any sooner—it is possibly later—than they used to; and,

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of course, that is the thing which is going to safeguard the victim.
THE EARL OF HUNTINGDON: I thank the noble Lord for that intervention, but I would suggest that an argument to divide physical and mental maturity into two completely separate compartments would be very difficult to maintain. One encroaches upon the other, as a person grows up, and although physical activities may, so to speak, go a little ahead or a little back, it is difficult to put into two compartments. But I will proceed with what the Committee said in this paragraph. The medical witnesses were unanimous in saying that the sexual behaviour was fixed at an early age. The majority said that it happened well before the age of 16, and a minority of the witnesses thought that it happened in early infancy. So the Wolfenden Committee, on this set of considerations, argued that the age of 16 would be the reasonable age of the attainment of adulthood for the homosexual.
The third set of considerations is dealt with in paragraph 69. This is the only paragraph in which it is suggested that 21 might be the best age. This seems rather strange; for when one studies this paragraph it appears to be somewhat nebulous; it seems to be based on semantic considerations, on words rather than on facts. It does not consider moral behaviour, effects or anything like that. It poses the question, when discussing the age of consenting adults: What is an adult? The Report says that, although people hold various views on this question, the Committee came to the conclusion that the consensus of opinion is that 21 is usually considered the age of adulthood. That is reinforced by the fact that that is the age at which a person can enter into legal contracts, and the age at which, on his own responsibility, a man can make a marriage. Therefore, says the Report, in effect, as in the popular conception 21 seems to be the age of adulthood, let us take 21 as the age.
I submit that this is a very flimsy argument on which to base this important question. I ask myself: Why was 21 originally chosen as the age of adulthood? Though it may sound far-fetched to some, I think this choice goes back a very long way—back not only to the
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time when the father of a family ran his business or estates and did not want his sons to interfere, but, possibly, to even earlier times when there was a widespread belief in magic. The number "seven" among the ancients was considered a magic number. Even in our Christian community seven was the number of days associated with the Creation. We have now a seven-day week; and, if you look into other cultures, you find this magical number seven always occurring. When the ancients were considering this question of coming of age I think they may have said: "Seven is much too young; twice 7 is 14, but that is still too young; three times 7 is 21. This will be the age." I suspect that something of that nature was the origin of the choice of the age of 21. I suggest that when we come to consider the facts, and not just a general conception of words, this paragraph has no rational validity.
The fourth and final set of considerations are dealt with in paragraph 70. This, I think, is the hub of the matter; because, in paragraph 66, when the Committee were dealing with these different sets of considerations they said that the fourth one dealt with the consequences which would follow from the fixing of any particular age; and that, I think, is very important. Paragraph 70 starts by asking what would be the consequences if the age were fixed at 21. Here, one runs into difficulties straight away; because it is rather an anomaly to say that two young men of 20 who enter into a homosexual relationship are criminals and can be tried in the courts and sent to prison, when, a few months later, if they do the same thing they will be perfectly guiltless. It is a difficult situation. The Committee go on to say that whatever age is decided upon, there will always be a moment in time when an act is illegal, though a month or so later it will not be illegal. But, if the age were fixed at 18 that would get over this difficulty to a large extent, because under the provisions of the Children and Young Persons Acts a young person under 18—say, one of 17—would be considered a fit subject for "care or protection". But I do not think that anyone could argue that a 19-year-old or a 20-year-old could claim to come under those provisions.
THE EARL OF IDDESLEIGH: The legal position is that if a young person up to the age of 21 is undergoing full-time education, he remains a "child" within the definition of the Children and Young Persons Act.
THE EARL OF HUNTINGDON: I still feel that in practice it is very difficult to take a young man of 20 and treat him as in need of care or protection, under the Children and Young Persons Acts. This is perfectly logical with a 14-yearold child, but difficult with a 20-year-old.
BARONESS WOOTTON OF ABINGER: The care-and-protection provision ends at 17.
THE EARL OF HUNTINGDON: I thought that was the case. I am much obliged to the noble Baroness for her support. As I was saying, if we take this age we get over some of these difficulties to a large extent, so that if two young people have a homosexual relationship they need not come before the courts or to be charged. One of the objects of this Bill is to enable us to avoid sending to prison young people who are perfectly respectable, hard-working citizens in all respects other than this one attitude, which they cannot help. We want to prevent them from coming before the courts, being made criminals and having their whole lives spoiled.
Of these four sets of considerations, the Wolfenden Committee in the first one suggested the age of 16; in the last, under-18; and in only one of them, a very curious one, the age of 21. It is difficult to think why, with those solid arguments, they should have done so; and I suspect that there was a difference of opinion on the Committee. But that we shall probably never know. Some clue is given in paragraph 71, which is the final summing-up. I think that two things had influenced them. One was the question of National Service: what would happen then? That, I submit, no longer applies; because we do not now have National Service.
The other point, which I think perhaps is the only argument for fixing the age at 21, has some validity. I should like to read a short sentence from the Report which I think clarifies the matter. The Committee, after saying how great was the difference of opinion among them,
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finally decided on the age of 21. They then went on to say:
"Nevertheless, most of us would prefer to see the age fixed at twenty-one,"—
and this is the important thing—
"not because we think that to fix the age at eighteen would result in any greater readiness on the part of young men between eighteen and twenty-one to lend themselves to homosexual practices than exists at present, but because to fix it at eighteen would lay them open to attentions and pressures of an undesirable kind from which the adoption of the later age would help to protect them."
I think that was the one and only argument that could be used against making the age 18, rather than 21. Therefore I should like to say a few words about that case, because I think it is a valid argument which we ought to examine.
We are all aware, I imagine, that both young men and, much more, young women are seduced by other men, or other people—far more young women than young men, obviously. In these seductions, no doubt certain arguments are used. The advantage of money and a job, or promotion, may be argued. We all know from hearsay—I do not know how true it is—that particularly in the theatrical profession this is a tremendous temptation to young women. That profession is immensely overcrowded and it is hard to get a start in it at all. Most of the young girls in the profession are good-looking, and therefore tempting to male members of the profession. A good many, no doubt, secure their first jobs on the stage by complying with someone's importunity; that could well have happened and we admit it. But in order to combat that, which I am sure we all deplore, no one would suggest that we should make it a crime or a felony for any man to sleep with any girl who was under the age of 21 and not his wife. That is the equivalent of what we shall do if we make the age 21 rather than 18 for these people.
I would emphasise, too, that the whole position of that age, which must have been a menace to a good many young people, has during the last fifty years changed out of all manner from the reason nowadays, when it is not a question of a person looking desperately for a job but of a person with a job to be filled looking for a young man to fill it. To-day there are many more jobs available than young people to fill them. I

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suggest that in these days any self-respecting young man, if, as the noble Earl, Lord Iddesleigh, suggested, he were approached by his boss or employer in this way, would just walk out. If he were any good, he would find no difficulty in getting a job elsewhere. In other words, the situation of fifty years ago which greatly lent itself to seductions of this kind has very largely ceased to exist.
There will, of course, always be some people who will do anything for money. We cannot legislate for them. Also, I think the question of this seduction is a small one, but it would open the door, if the age were 21, to additional blackmail. One can well imagine that some young man aged 18, 19 or 20 might pretend that he was 21 and persuade some other homosexual to sleep with him and then start this awful blackmail business again. There is that small consideration, but the main point I wish to make is that we do not realise sufficiently how much more mature young people have become.
After the Second Reading debate on this Bill, I had a very interesting letter from a psychiatrist who had worked for many years in the East End, at Bow. Among other things, he said that people had not realised over the many years he had worked there how young people are becoming much more mature much earlier. If one wanted a rough yardstick, he thought that every year a given state of maturity was reached a month earlier. If we think of people twenty years ago and of the state of maturity then, we find that the position is very different to-day, and it will be very different in two or three years' time. I say, with respect, that it is ridiculous to look at young men of 18, 19 or 20 who are perfectly responsible and grown-up, who have gone to jobs and are working—some are married with children, one young man I know is managing an estate office at the age of 20—and to say that these young people are immature, unable to look after themselves and must be protected. It is a completely false situation which will lead to a lot of trouble and difficulty and I strongly suggest to your Lordships that, when I come to move it, you accept my Amendment and reduce the age from 21 to 18.
5.35 p.m.
VISCOUNT MONTGOMERY OF ALAMEIN: We have heard a very
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great deal to-day, and previously, about what is right and what is wrong at various ages, and so I handed in to-day a manuscript Amendment to say that the right age was not 21 or 25; it was 80. The purpose of that, of course, is that after the age of 80 it does not really matter what we do. I myself am rising 78, and the great thing is that at the age of 80 at least one has the old-age pension to pay for any blackmail which may come along. I regard the act of homosexuality in any form as the most abominable bestiality that any human being can take part in and which reduces him almost to the status of an animal. The time will come when we shall have to choose a title for this Bill, and I think that instead of, "Sexual Offences Bill [H.L.]" the proper title should be, "A Charter for Buggery". I beg to move.
THE CHAIRMAN OF COMMITTEES: If the noble and gallant Viscount, Lord Montgomery of Alamein, will excuse me, he cannot move his Amendment now, but I will call it later. The Amendment we are now discussing is Amendment No. 4. As has already been said, I think it would be best—although it is entirely for the Committee, and not for me to say—and probably more convenient to debate all three Amendments together. Only one Amendment can be called at a time; the second cannot be called until the first has been disposed of.
LORD STONHAM: I did indicate at an earlier stage this afternoon that it might be helpful on an occasion such as this if I gave the Government view, not on the question of principle but on the practical effect of the Amendments, and that I would have to work within the somewhat rigid parallel bars of my brief. Your Lordships will be aware that, as the Amendment of the noble and gallant Viscount, Lord Montgomery of Alamein, was a manuscript Amendment and put in only at the last moment, I had not had time to consult the Department and therefore cannot give the official view on the Amendment. If I may be so daring as to express my personal view, I think that the Amendment really means that the noble and gallant Viscount thinks that we do not reach the age of discretion until we are 80. He has just confessed to being still on the sunny side of 78, and what he is really doing—this is very

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surprising to me—is giving notice that he does not think he will reach the age of discretion for another two years. I hardly think that would be the general view, although I appreciate that this Amendment is put forward—at least I hope it is—with the idea of good clean fun, and anything that is good clean fun on a subject such as we are discussing is most welcome.
I shall therefore address myself to the two Amendments, one on the age of 25 as Moved by the noble Earl, Lord Iddesleigh, on behalf of the noble Lord, Lord Saltoun, and the other on the alternative age of 18, which my noble friend Lord Huntingdon put so appealingly. The two arguments to a large extent cancel each other out. The noble Earl, Lord Iddesleigh, said that a young man of 21 could be very lonely, and if an older man who becomes a friend of this young man happens to be a homosexual, he will have a great influence on the young man. My noble friend Lord Huntingdon pointed to the fact that in the case of a girl, the age of consent is 16, yet we are proposing to fix a young man's age of responsibility in this respect at 21. He quoted the Wolfenden Report fairly with regard to the view that there was some ground for making 16 the age of responsibility, but I do not think he dealt in full with the arguments which the Committee put forward for rejecting this idea.
I would quote from paragraph 71 the passages which my noble friend did not quote:
"While there are some grounds for fixing the age as low as sixteen, it is obvious that however 'mature' a boy of that age may be as regards physical development and psychosexual make-up,"—
my noble friend made the point about maturity at a younger age—
"and whatever analogies may be drawn from the law relating to offences against girls, a boy is incapable, at the age of sixteen, of forming a mature judgment about actions of a kind which might have the effect of setting him apart from the rest of society."
Then, a line farther on, with regard to young men between 18 and 21, the Report says:
"We have, however, encountered several cases in which young men have been induced by means of gifts of money or hospitality to indulge in homosexual behaviour with older men, and we have felt obliged to have regard to the large numbers of young men who leave
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their homes at or about the age of eighteen and, either for their employment or their education or to fulfil their national service obligations, are then for the first time launched into a world in circumstances which render them particularly vulnerable to advances of this sort."
I am bound to say that my noble friend Lord Huntingdon appeared to put a strong case, but it is the view of the Government that the views expressed by the Wolfenden Committee in paragraph 69 on this point carry very great weight and ought to be decisive. In other fields of behaviour, the law recognises the age of 21 as being appropriate for decisions of this kind. For example, it is at that age that a man is held to be capable of entering into legal contracts, including marriage. Apart from legal and medical technicalities, we believe that it would be accepted as a matter of ordinary usage that a man should come of age at 21. We believe it is a matter of common sense and of logic that at the age of 21 a man should be regarded as mature and responsible for his actions. Of the three gradations, 80, 25 and 18, it would seem that 21 may be accepted as the mean age for adulthood, and I think that as a matter of commonsense, that would be the thing to do.
THE LORD BISHOP OF CHICHESTER: May I support what the noble Lord, Lord Stonham, has just said? Within the two ages, 18 and 25, the standard age of 21 seems to fall as quite the natural answer. I admit the average is slightly queered by the intervention of the noble and gallant Viscount and his particular age. It is clear that the Wolfenden Report considered in close detail all the arguments, and we could go on for a long time analysing the point of when psychologically, physically or civically a person becomes fully responsible for his own judgments, fully matured in his own feelings, fully able to assess the situations and the pressures of other people around him. Clearly this would vary greatly between one individual and another. For that reason, I think the Wolfenden Committee were wise in coming down on what would be recognised by the general public as the normal age at which everyone might rightly expect to have full responsibility for his actions, and if he pleaded irresponsibility at that age no one would support him in it.

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I think that to advance the age to 25, tempting though it may be, is unrealistic, unless it was balanced by a similar kind of advance to 25 in many other ways in which people are responsible for their own lives, contractual obligations and the like. Therefore, tempting though it is, I do not think that we could carry it through. On the other hand, in spite of all the arguments for an earlier age which have been so forcefully put again by the noble Earl, Lord Huntingdon, there are certain obvious reasons why we should wish to retain within the area of general protection young men up to the normal age of 21. One is because many of them, whatever their condition and development at 18, are just at that age going into a number of occupations which call them into peculiar and different situations. For instance, many of them go into the Services—but that is being dealt with on an Amendment that follows.
Another serious situation arises with the developing educational programme. More and more young men will be going away from their homes, for the first time, it may be, at the age of 18, to go to university or to further education of some sort. They are then in new kinds of communities, rather artificial communities, in which there are a great number of young people together, experimental communities, in which they are themselves growing and curious and perhaps a little less on their guard. I think it is our duty, if we can sustain it, to see that within that general field of education we should carry up to the age of 21, the age provided in this Bill, a great degree of provision for their security, rather than leave them at an early age still to feel their own way in a society which is extremely complex and extremely difficult for many young men to see their way through.
THE EARL OF ARRAN: I welcome the spirit of both the Amendments put down. One is concerned with the protection of youth and the other with justice and reason, and all these things are close to our hearts. Taking the Amendment of the noble Lord, Lord Saltoun, I honestly think that he is going too far in his excellent intention. There comes a time in every man's life when he has to make his mind up for himself, when he has to be a free agent and legally responsible
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for the things he does. He has a vote at 21, and though some would say that that age has been fixed arbitrarily, on the whole it works pretty well. Why should we make this one exception in this one aspect of life? And why 25?—why not 35 or 45 or, as it has been suggested, 80?
I have more sympathy with the Amendment of the noble Earl, Lord Huntingdon. I confess that it will be an utterly illogical position if the age of consent for a girl is 16 and for a man 21. How can we possibly defend it in logic? Are girls tougher than boys, better able to look after themselves than boys? Surely not. Surely we must still regard women as the weaker sex. There is this great complication, adverted to by the noble Earl, that girls have babies and boys do not. I find it difficult to resist the Amendment of the noble Earl, Lord Huntingdon. But I do so, all the same. I am no slavish follower of the Wolfenden Committee's Report, but the more I hear it referred to, the wiser the document seems to be. But, after considerable discussion, they decided that 21 was the best age; and they were probably right. It may well be that if experience shows, as I think it will, that we are being over-cautious in the matter, and reform, if it comes, will not open those dreaded, and I think imaginary, flood gates to the whirlpool of homosexuality, there may be further legislation. Meanwhile, let us play it safe. If the noble Earl, Lord Huntingdon, presses his Amendment to a Division—and I shall well understand it if he does—I personally will abstain. In logic, I must be with him; but I am afraid lest we go too far.
VISCOUNT MONTGOMERY OF ALAMEIN: It would seem that we can make some progress in this battle, and if it will help in any way I beg leave to withdraw my suggested Amendment for the age of 80, and let us get on with the battle.
THE EARL OF ARRAN: I am grateful to the noble and gallant Viscount. Nobody has a better sense of humour than he, and I share that with him. But we have to be serious in this debate and, as he says, we must press on.
LORD BROCKET: I spoke on the noble Earl's Motion originally and in the Second Reading debate, and my views

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are therefore well-known. I am against the Bill, and having voted in favour of the Amendment moved by the noble and learned Viscount, Lord Dilhorne, this afternoon, I am willing to do anything to prevent this Bill from becoming law. But in this particular case we have had an interesting debate, and I must say I am quite relieved that the noble and gallant Viscount has withdrawn his Amendment. I notice that he said that if blackmail were demanded of anyone of 80 he would be in receipt of the old age pension anyhow and that would be useful. Of course, that starts a little earlier, and he might have withdrawn it and gone down by easy stages. But in this case I think the Wolfenden Report defeats the suggestion of the noble Earl, Lord Huntingdon, of a reduction to the age of 18. I am not going to read out anything of paragraph 71, but it is well argued; and I think the noble Earl, Lord Arran, is right in saying that the conclusions reached at the end of paragraph 71 are right.
I should like to say one other thing. The noble Earl, Lord Arran, used the words, "Let us play it safe". I should like to play a little safer. I have previously said in this House that if teenagers have inclinations this way, and if this Bill becomes law, they will say: "Everything is all right when I am 21. Therefore, I am going for this particular form of perversion". I should like to give them the little extra age suggested by the noble Earl, Lord Iddesleigh, of 25. Therefore, if it comes to a vote on these Amendments, I will support the Amendment moved by the noble Earl, Lord Iddesleigh.
THE MARQUESS OF HERTFORD: I was greatly impressed by the arguments of the noble Earl, Lord Iddesleigh, and I should have been more impressed by them had I not read the Wolfenden Report. Until I read the Wolfenden Report, I was certainly under the impression that the young man between the age of 18 and 25 was very liable to be influenced in this matter by a homosexual friend. But it appears that I was wrong. I think others of your Lordships may well have thought alone the same lines. But if you read carefully the relevant part of the Wolfenden Report, you will find that the Committee, which, after all,
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studied the matter for, I believe, three years, came out clearly with a statement that a man's sexual inclinations are fixed either at birth or in the first few years of his life. Therefore, it would not seem to be terribly important if a man of about the age of 21 does or does not have a homosexual experience with another man. If he is a homosexual by nature, he will sooner or later feel those inclinations; and if he is not, he will almost certainly revert to normality as soon as opportunities offer. For that reason, I do not think that one need be too worried about the possible dangers of homosexual behaviour in universities. Therefore, I would support the noble Earl, Lord Arran, in leaving the age at 21.
THE EARL OF IDDESLEIGH: I am grateful to the noble Lord, Lord Brocket, for his support. I have not received the support I had hoped for from another quarter, or general support from the Committee, and I should not wish to put your Lordships to the trouble of a Division. I am bound to say that I cannot accept for one moment the view that homosexual inclinations are formed at birth or shortly afterwards. All experience contradicts this. If we consider the most noted case of a homsexual prosecution in this country, there was a man with a wife and two children, and a mistress, who afterwards took up homosexual practices. It is completely contrary to all experience to say that homosexuals are formed at birth or at any early age. I hope that we shall not hear this argument again. I will not trouble your Lordships to divide. I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
THE EARL OF HUNTINGDON THE EARL OF HUNTINGDON had given notice of an Amendment to leave out "21" and insert "18". The noble Earl said: I do not want to say much more on this Amendment, but just to answer the noble Earl, Lord Iddesleigh, I would say that it seems rather contradictory to go against all the medical evidence of the Wolfenden Report in regard to the sexual pattern being formed in childhood. I do not know the case the noble Earl referred to, of the homosexual, who, I think he said, had a wife and children.
THE EARL OF IDDESLEIGH: It was a man who had a wife and two children, and a mistress, and then he became a homosexual.
THE EARL OF HUNTINGDON: I think one of the important arguments I left out was that some genuine homosexuals really do try to make a marriage, but in the end it is usually a wreck, as this one was. However, as everybody seems to be divided, if it pleases your Lordships, I will not move my Amendment.
VISCOUNT MONTGOMERY OF ALAMEIN: And it seems that 80 is out.
5.57 p.m.
VISCOUNT DILHORNE VISCOUNT DILHORNE moved to add to the clause
"provided that the parties thereto are not members of the armed forces".
The noble and learned Viscount said: After that interesting discussion on age limits, which covered a very wide range of ages (and whether or not we have reached the right decision on it we can at least come back to it on another occasion) we now turn to another subject which I consider to be one of considerable importance. Your Lordships will not need to be reminded of the powerful speech made by my noble friend Lord Montgomery of Alamein on Second Reading, when he drew the attention of the House to the position of the Armed Forces under this Bill as it then stood. He then said:
"If these unnatural practices are made legal, a blow is struck at the discipline of British Armed Forces.…."—[OFFICIAL REPORT, VOL 266 (No. 79), Col. 647, May 24, 1965.]
He said that with all the weight of his authority. Then, your Lordships will recollect, an argument developed with regard to Section 66 of the Army Act. There are similar sections in the Air Force Act and in the Naval Discipline Act, but for the sake of convenience I will refer only to the Army Act.
LORD REA: Would the noble and learned Viscount excuse me? Am I wrong in thinking that it was decided to discuss this Amendment with No. 13? Is he addressing himself to both?
VISCOUNT DILHORNE: The noble Lord, Lord Rea, is wrong in thinking that at this stage. I was going to say
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something about my Amendment, then refer to the other Amendment, and suggest that we should not be out of order to discuss the other Amendment. I shall ask the Committee to divide on the Amendment I am moving and I shall explain why, although, so far as I can see, on this occasion the noble Earl, Lord Arran, has come some way to meet me.
THE EARL OF ARRAN: I think our Amendment goes further than the Amendment of the noble and learned Viscount.
VISCOUNT DILHORNE: I hope the noble Earl is right; but I shall be most surprised if he is. Intentions are one thing—
LORD SHACKLETON: May I interrupt—
VISCOUNT DILHORNE: I should like to get on.
LORD SHACKLETON: Do I understand that the noble Viscount is hoping to speak on the subject of Amendment No. 13, because clearly it will save the time of the Committee if we can discuss them together. This would seem to me to be a convenient moment. I am all for the noble and learned Viscount getting on, but it would seem to be for the convenience of the Committee to discuss the two together.
VISCOUNT DILHORNE: I hope to speak to the Amendment I am moving. I shall have no objection to any reference being made to the Amendment in the name of my noble friend, which is No. 13. I do not go quite so far as to say I have been looking forward to speaking on that Amendment, but the two are related.
I was reminding your Lordships of the discussion which took place when the noble Lord, Lord Shackleton, I think it was, intervened in the speech made by my noble and gallant friend Lord Montgomery of Alamein on Second Reading as to the effect of this Bill on Section 66 of the Army Act. That section makes it possible to punish those in the Army who are guilty of disgraceful conduct of an indecent or unnatural kind. I said in the course of the Second Reading debate that, as this Bill in terms states that it is to take effect notwithstanding any statutory or Common Law provision,

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it must override Section 66 to this extent: that no one in the Armed Forces who is over 21 could be convicted under Section 66 by court-martial of homosexual conduct with a consenting adult.
I have thought about the matter again since our debate, and I adhere to the opinion I expressed then. It is to make clear beyond all doubt that this Bill, if enacted, would not affect members of the Armed Forces that I propose to move this Amendment. I put it down a very short time after our Second Reading debate. Later on on the Order Paper there is Amendment No. 13 in the name of my noble friend Lord Arran and others of his friends. The object of the Amendment, if I understand it correctly, is to leave Section 66 with its full effect, but to let this Bill override Section 70 of the Army Act, 1955. That is the section which makes it possible to charge before a court-martial a member of the Armed Forces with an offence against the criminal law. The purpose of that Amendment would seem to me to permit the charging of a member of the Armed Forces with disgraceful conduct of an indecent or unnatural kind, but to prevent a member of the Armed Forces who committed buggery from being charged with that offence. I must say that I cannot see any valid reason for that distinction. If a member of the Armed Forces does commit that offence, why should he not be charged with it? Why should it be sought to put a gloss on the offence by describing it as "indecent or unnatural conduct"?
My noble friend made a very powerful speech on Second Reading (or it may have been the earlier debate) saying that these acts which are called "unnatural" are natural for homosexuals. If the Amendment that he is to move is carried, it will be open to the defence before a court-martial to argue that conduct of a homosexual character was not, if it was committed in private, indecent and not unnatural. Whether or not that argument would prevail, I do not know; but if we were to deal with it in the way the noble Earl proposes we should be creating that opportunity for debate and argument before a court-martial, and a great opportunity, it may be, for barrack-room lawyers. Courts-martial, of which I have had some experience in years gone by,
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take long enough in all conscience, without raising this further opportunity.
I can see no point in the distinction made by my noble friend in his Amendment, if I have understood it correctly. Instead of seeking to affect one part of the Army Act, one part of the Naval Discipline Act, and one part of the Air Force Act in their application to members of the Armed Forces, I put down this simple Amendment to make it perfectly clear that this Bill should not operate at all in relation to any members of the Armed Forces. I do not think I need add anything to what I have said. I do not think that any Amendment in this context, in seeking to make the Bill not apply to members of the Armed Forces, could go further than mine, and I can see no valid reason whatsoever for the limitation which is proposed in my noble friend's Amendment. The fact that it has gone a little way to meet the point of view expressed on Second Reading will, I hope, induce the noble Earl now to go this further stage and to make it quite clear, by the acceptance of this Amendment, that this Bill is not to apply to members of the Armed Forces. I beg to move.
Amendment moved—
Page 1, line 7, at end insert the said words.—(Viscount Dilhorne.)
6.7 p.m.
THE MINISTER OF DEFENCE FOR THE ROYAL AIR FORCE (LORD SHACKLETON): It might be for the Convenience of your Lordships if I intervened at this point, and I hope your Lordships will agree, since we are really considering the merits of different Amendments, that we should also discuss at this moment Amendment No. 13. I intervened during that rather extreme speech by the noble and gallant Viscount, Lord Montgomery of Alamein, purely from the standpoint of the Services. I should make clear again that, whatever my personal views about this Bill, I am arguing from a Departmental point of view. I am not concerned with the merits of this particular Bill.
I must first of all disagree with the noble and learned Viscount that the Army Act or the Air Force Act does not adequately provide the powers that are necessary, and I am surprised that he should suggest that, whatever the civil

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law should be, homosexual acts between Servicemen would not be described as disgraceful conduct. And I am surprised that he should think that the passing of this Bill would alter the judgments involved. Of course, this particular section of the Act to which he referred is not the only one; indeed, the Amendment, as I understand it, is so drafted as to provide for action under other sections—for instance, Section 64, which refers to officers who behave in a scandalous manner. Again, I hope that the noble and learned Viscount would accept that courts-martial would regard this as behaving in a scandalous manner. There is another section under the Air Force Act, Section 69, "Conduct to the prejudice of Air Force discipline", the penalty for which can be a considerable period of imprisonment, which I should have thought was at least comparable to the imprisonment which may be ordered by the courts where they order imprisonment in such cases as these.
It may be convenient for your Lordships to know that although, from the technical point of view, the Amendment in the name of the noble Earl, Lord Arran, is not, as now drafted, entirely satisfactory, it is the view of the Government that we ought not to oppose it. However, I hope that the noble Earl will accept an Amendment on Report stage to leave out the words "save and except", and from there on; but this is a detail into which we can go later.
VISCOUNT DILHORNE: May I interrupt the noble Lord? I should like to follow what he is saying. If he is suggesting that we leave out the words "save and except" and the words which follow on, then there is nothing between us except the language in which it is expressed. There is nothing in content between that Amendment, as so amended, and the Amendment standing in my name; that is to say, that the Bill will not apply to proceedings under the Army Act, the Air Force Act or the Naval Discipline Act. If that is the noble Lord's view, it is very different from Lord Arran's Amendment, but is entirely in accord with the Amendment that I have put down. I hope that the noble Lord will make the position clear.
LORD SHACKLETON: If the noble Viscount will allow me to make my
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speech, I will come in a moment to his Amendment. The noble and learned Viscount's Amendment fails on legal grounds. The effect of his Amendment would be to make only Servicemen liable to prosecution in the civil courts for behaviour which is no longer an offence for the rest of the population. I am sure that it was not his intention that matters which normally fall within the disciplinary and legal responsibility of the Services should, in respect of these offences, be transferred to the civil courts. We should have a most anomalous position in which the civil courts would be in a position of having to take action on homosexual offences only in relation to Servicemen.
I speak having been fully advised on this matter, and the noble and learned Viscount said that he had put down his Amendment in a good deal of a hurry. I do not disagree with his general approach, and I am sure the noble Earl, Lord Arran, does not disagree with it. But I hope that the noble and learned Viscount will not press his Amendment, on the grounds, first, that it would mean transferring to the civil courts offences which rightly belong to the Services to deal with, and, second, that it is the view of the Service advisers, who certainly have not at any time expressed views for or against this Bill, that the provisions of the present Act take care of this particular matter. If necessary, my noble and learned friend the Lord Chancellor would, I am sure, support this view. In those circumstances, I hope that the noble and learned Viscount will agree that his Amendment would not quite achieve what he set out to achieve.
VISCOUNT DILHORNE: I have listened with great interest to what the noble Lord has said. There seems to be far less between his view and mine than I thought from his introductory remarks. I would make it perfectly clear that I was not suggesting that if the argument was put forward that this conduct was not indecent, or unnatural, it would necessarily succeed. What I was saying was that if proceedings for what is now sodomy are to be brought under Section 66, or under the section charging behaviour in a scandalous manner—or, indeed, conduct to the prejudice of good discipline—it would be open to argument and would be a matter for the court in each case to

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decide whether the conduct proved comes within that general description.
The point I was making was that, if a man is charged with committing sodomy, it seems to me that there is a great deal to be said for letting him be charged with that offence before a military court. I thought I had made it clear that I was concerned to keep in effect Section 70 of the Army Act, and the equivalent sections of the other Acts. Those sections provide that any person subject to military law who commits a civil offence, whether in the United Kingdom or elsewhere, shall be guilty of an offence. It is under those sections that the courts-martial now have power, and would continue to have power, to try persons charged, for instance, with gross indecency. Unless Section 70 applies, a person cannot be charged on a civil charge before a court-martial.
When the noble Lord, Lord Shackleton, tries to shoot down this Amendment by saying that it would transfer jurisdiction to the civil courts, I must say, with the greatest respect to him, that that is really complete rubbish. The jurisdiction is kept by the courts-martial under Section 70 of the Army Act and the equivalent sections in the other Service Acts. What he might have said was that if my Amendment was accepted it would be possible for a trial to take place for these offences in the civil courts; but when he accuses my Amendment of being bad in law because it would transfer jurisdiction from the courts-martial to the civil courts, I am afraid that he has not correctly appreciated Section 70 of the Act. So long as it is perfectly clear that Section 70 will remain in full effect—although I will certainly consider what the noble Lord has said—I think that that would be acceptable to me. However, I would ask the noble Lord to bear in mind that this Bill is not removing sodomy entirely as a criminal offence, nor is it completely abolishing the offence of gross indecency. It is making them not an offence only where the act has been between consenting adults; so that we are not getting a complete repeal of the existing law.
Of course, I did not know what attitude the Government would take either to my Amendment or to that of the noble Earl, Lord Arran, but if there is agreement as to what we want to achieve,
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the finding of a correct form of words should not involve insuperable difficulty. I want to be quite sure that Section 70 is preserved in fact, and that this particular Bill does not tamper in any way with the Army Act, the Air Force Act, or the Naval Discipline Act. If that is secured, I shall be perfectly prepared to agree to it; and if the noble Earl, Lord Arran, is prepared also to express his agreement with what the noble Lord, Lord Shackleton, has suggested, I am ready, subject to what my noble friends may say, to withdraw the Amendment that I have moved. But I want to consider carefully the Amendment that the Government move and reserve the right, if I am not satisfied with it—because I think it is an important matter—to table a further Amendment on the Report stage.
LORD BOOTHBY: I make no claim to the legal knowledge of the noble and learned Viscount, Lord Dilhorne, or, indeed, of the noble Lord, Lord Shackleton, who has equipped himself so well with legal knowledge for this debate, but it seems to me that the point at issue between the noble and learned Viscount and the noble Lord is extraordinarily narrow. Reading the Amendments as a pure layman it seemed to me that my noble friend Lord Arran went rather further than the noble and learned Viscount, Lord Dilhorne. I think it might be helpful to the House if the noble and learned Lord the Lord Chancellor gave us an opinion, but if he is not prepared to do so to-day perhaps he could do so at the Report stage. It seems to me that the issue is indeed a narrow one. The two noble Lords have come very near to agreement, and it seems to me that by discussion between them they can come to agreement, and therefore perhaps the noble Viscount would see his way to withdraw his Amendment
6.20 p.m.
LORD SHACKLETON: I do not know whether the noble Earl, Lord Arran, is going to contribute to this debate; it would clearly be to the satisfaction of the noble and learned Viscount if he were to do so. Perhaps I might say that I do appreciate the rather esoteric but none the less fundamental points that the noble Viscount made, that there are certain offences which will still remain offences after the passing of this Bill, and there is of course no intention—and

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I will deliberately state this—to repeal Section 70 of the Air Force Act. I think that is the same as the corresponding section in the Army Act, and I would certainly give the noble Viscount that guarantee. Perhaps the noble Earl would indicate that he would be prepared to consider a further Amendment on Report stage. Indeed, were it not for the fact that it might make the Committee more happy to have his Amendment in, so far as it goes, it might have been better to have left it to the Report stage. I think this will go a long way to meet the point. On this, as the noble Viscount says, there is not much difference between us. I am always nervous at tangling with Lord Chancellors or ex-Lord Chancellors on legal points. But I am sure we can get it satisfactorily agreed.
LORD BYERS: Since my name appears on the Amendment, may I say that I think the procedure suggested is a very good one? This is a highly technical matter. Perhaps discussions could take place before Report stage to get an agreed view. We are advised that exclusion of Section 70 is an important feature, and this is what we would have divided on. I would suggest that we should defer it to the Report stage and not technically agree to the Amendment the noble Viscount has indicated. I should like to know at a later stage exactly what relationship it will have to Sections 12 and 13 of the Sexual Offences Act, 1956. I think there is more to it than the simple Amendment which the noble Viscount has suggested.
VISCOUNT DILHORNE: I have done my best to understand that. It is very difficult to deal with questions of drafting at the present moment. I do not think the noble Earl, Lord Arran, was here when we started this discussion. Also, I do not think my noble and gallant friend the Field Marshal was here.
THE EARL OF ARRAN: I was here.
VISCOUNT DILHORNE: I was right about one. What I should like to see whether we can get agreement upon is this: so far as members of the Armed Forces are concerned, if they commit gross indecency together or sodomy or any homosexual activity when they are over 21 they will be triable by and can be dealt with by court martial. That is all I am wanting to secure. But I go one
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stage further than that and say if they have committed sodomy I think they ought to be charged with that offence, and I say that for the rather technical reason that it would deprive them of possible arguments of the nature I have suggested; and that is why I should like to see Section 70 retained in operation in this context. I would be perfectly prepared to withdraw this Amendment but for the words which fell from the noble Lord, Lord Byers. We could perhaps agree to have a meeting to discuss this.
There is one further point which I did think would be commented upon as a possible ambiguity in the Amendment in my name. I am glad it escaped the notice of the noble Lord, Lord Shackleton. We spoke about misconduct between members of the Armed Forces. I am not sure whether it is the view of the Committee that if misconduct is committed between a member of the Armed Forces and a civilian the member of the Armed Forces should still be subject to military discipline for that conduct. I would have thought it would be right he should be. But if that be so, that again is a matter which we should consider. I am not trying to waste time, but I do regard this as a very important question. Before we have our discussions I do think it would be useful if we could get at least the tentative view of this Committee as to whether a member of the Armed Forces who takes part in misconduct should remain within the scope of military discipline, whether it be with another member of the Armed Forces or with a civilian. I would have thought it would be right that should be so, and if it is so and we have agreed I do not think the drafting of the necessary Amendment would be very difficult. If that is agreed, I would certainly ask leave to withdraw the Amendment.
THE EARL OF ARRAN: I am going to speak very briefly, but as my name is on the Amendment and I have been referred to, speak I must; and also because on Second Reading I gave the House, speaking through the noble and learned Lord on the Woolsack, an assurance that Section 66 of the Army Act would be preserved. We should like to think we have gone further in our Amendment than the noble Viscount has, and for the very good

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reason that so far as it reads at the moment his Amendment seems to indicate if two members of the Armed Forces do something wrong together they can be court martialled, but if it is done by a civilian and a member of the Armed Forces it would seem that the charge might not be enforceable. I want to make it absolutely clear to your Lordships that we feel very strongly on this point. I know many of your Lordships feel equally strongly. I can only say that we have no intention to allow homosexual law reform, if it should become law, to interfere in any way in the discipline of the Armed Forces on which the safety of this country depends.
LORD SHACKLETONPerhaps I might reply briefly to the noble and learned Viscount. I should not like to-day to advise on what matters should properly fall within the jurisdiction of Service courts and what should fall under civil courts. I take his point. But I think this is clearly a matter on which I should express no opinion, because it might well be that the military authorities will not wish in such circumstances, where a civilian was involved, to exercise jurisdiction. So I would not want to mislead the noble Viscount. Quite clearly anything involving members of the Services is a matter of great concern to the Services. In these circumstances, I suspect the noble Viscount will be satisfied as of now. I understand that the Report stage is to be next Monday, so we shall have to talk rather quickly, and I understand the noble Earl, Lord Arran, would be prepared to have talks at any rate before whenever we next meet.
LORD BOOTHBY: But it is absolutely vital, I think, to get this question perfectly clear. I think the noble Viscount is absolutely right. I think the view of this House is overwhelmingly in favour of the Services Acts: that is to say, that disgraceful conduct between members of the Services should be punished by court martial. But I think that if you once get into the realm of trying to punish offences committed between members of the Forces and civilians in civilian courts you will get in the most awful mess. The Committee must make up its mind about this.
VISCOUNT DILHORNE: I was never for one moment contemplating, nor indeed was I suggesting trials before a civilian court where a member of the Armed Forces and a civilian were involved. The point I wanted to get established and recognised, as I think the noble Lord has done, is that a member of the Armed Forces who commits such conduct should be amenable to military, naval or Air Force discipline. That is what I wanted to see secured. It may be that as a sort of backhander my Amendment preserves some jurisdiction of the civil courts. But my experience has been—the situation may have changed now—that offences of this sort committed in this country are not ordinarily tried in the Assize Court, but by court martial. That may have been altered, and I may now be wrong. But I am quite willing to discuss this question with the noble Lord. I think we are clear in our minds what we want to achieve, and, in the circumstances, I beg leave to withdraw the Amendment.
LORD MOLSON: Before the noble and learned Viscount withdraws it, may I say that the point that has been under discussion is whether the case of some homosexual offence by a member of the Services with a civilian should be punishable, and punishable by court martial. It appears to me that there is great danger—
LORD BOOTHBY: Not in the civil court.
LORD MOLSON: We have to be most careful about this matter. I think we might find a position which would be really most unjust, where a soldier would be subject to punishment and the civilian would not. So it is of the utmost importance that this matter should be safeguarded.
VISCOUNT DILHORNE: That can happen now. That is one of the necessary consequences of the acceptance of enforcement of military discipline. I do not think that is a valid argument at all. I am quite content to leave the matter, on the understanding that we can have talks to try to achieve our object. I ask leave to withdraw this Amendment.
Amendment, by leave, withdrawn.
6.32 p.m.
VISCOUNT DILHORNE VISCOUNT DILHORNE moved to add to the clause:
"( ) The commission of any such act when more than two persons are present shall not be deemed to be in private."
The noble and learned Viscount said: I do not know how long the noble Earl, Lord Arran, intends to ask us to continue this evening, but I think this is a most important Amendment and I rather hope that we can have a full discussion upon it. The Amendment is to deal with the question of privacy. The Wolfenden Committee did not seek to define what they meant by the words "in private". The Report contained no definition of what "in private" meant. But the Committee did say that it was their intention that the law should continue to regard as criminal any indecent act committed in a place where members of the public may be likely to see and be offended by it.
I see that the Amendment of the noble Earl, Lord Arran—Amendment No. 20—seeks to give effect to that intention as expressed by the Wolfenden Committee. To me, the commission of a heterosexual or homosexual act in private means something quite different from applying the test whether any member of the public is available to see it or whether it is committed in a public place. I would remind your Lordships that on Second Reading reference was made to what are commonly called "buggers' clubs". Presumably, they operate on private premises. If this Amendment is rejected and that of the noble Earl is carried, as I see it, it will mean that buggers' clubs can operate with complete impunity. Then, again, if a house in a town or in a country village becomes a place of resort by sodomites, it need not necessarily constitute a brothel but a place of common resort that is bound to give rise to great scandal. Yet this Bill, even if Amendment No. 20 is accepted, will make such conduct lawful.
I put this question in all seriousness to the noble Earl and others who support this Bill: is that really what they want? Surely, the right test is this: that the conduct shall be deemed to be in private unless more than two persons are present when the homosexual conduct takes place. If there are only two people, then, surely, that can be regarded as in private, unless of course it takes place in a public
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place. But then there will not be just two people together. If that test is taken, then it prevents this Bill from becoming a charter for these buggers' clubs, which really do exist. I do not myself think that many people will consider that heterosexual intercourse in the presence of more than two persons was taking place in private. But if you accept my noble friend's Amendment, then homosexual conduct taking place between more than two persons can still be taking place in private.
I do not think I need say any more about this, except to suggest to your Lordships that if this Amendment is accepted it will make the Bill much more workable and much more acceptable. When one looks at Amendment No. 20, one has to determine that the place where the act was committed was not a public place. The words "in private" mean in a place which is not a public place. One does not wish to have an argument as to what really constitutes a public place. In my noble friend's Amendment a "public place" is defined as meaning
"any highway, public path or garden, any sea beach and any public bridge, road, lane, footway, square, court, alley or passage, whether a thoroughfare or not; any public lavatory or cubicle therein; and those portions of any building or open space to which, at the time of the alleged offence, the general public have a right of access, whether on payment or otherwise."
If that Amendment is carried, any homosexual activities which are conducted in a place which does not come within a "public place" as so defined are to be held as committed in private. I must say that I think that is not right. I think that the right test—it is quite a simple test—is as I put it in this Amendment—namely,
"the commission of any such act when more than two persons are present shall not be deemed to be in private."
I beg to move.
Amendment moved—
Page 1, line 7. at end insert the said subsection.—(Viscount Dilhorne.)
6.39 p.m.
THE LORD ARCHBISHOP OF CANTERBURY: I should like to support the Amendment just moved by the noble and learned Viscount. I think that his Amendment hits upon a workable definition of the words "in private"

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which will improve the measure. His Amendment will clearly bring clubness, and anything approaching clubness, still under the condemnation of the law. I feel it my pleasure and duty to support the noble and learned Viscount.
LORD BOOTHBY: No doubt to his amazement, I find myself in total agreement with the noble and learned Viscount; and if this Amendment is pressed to a Division I will support it.
THE EARL OF HUNTINGDON: I am afraid that I find myself in total disagreement with the noble and learned Viscount, because I think this is an extraordinary definition of "privacy" which is altering the whole basis of what, up till now, has been the law. Suppose it were to be taken as a precedent that the amount of people in a room made it public rather than private. To take ridiculous examples, if a married couple in summer weather were sitting up in bed in the morning, the lady being clad only in her nightdress, one supposes that that would be perfectly all right, and perfectly legitimate; but on this basis, when the maid came in with the breakfast, bringing the number in the room up to three, it would then be a public place. Or supposing the noble Lord is having a late supper with myself—
VISCOUNT DILHORNE: The noble Earl, in the instance he has given, is not suggesting that anything improper is taking place. It depends what they are doing.
THE EARL OF HUNTINGDON: Surely if she were in a public place dressed only in her nightdress, that under this definition would be improper.
VISCOUNT DILHORNE: I am not suggesting that this is a public place. I am abandoning the test of "a public place". My Amendment just says:
"The commission of any such act"—
that is, an act of an homosexual character—
"when more than two persons are present shall not be deemed to be in private."
THE EARL OF HUNTINGDON: That surely strengthens my point of view. I was giving an illustration of the married couple who are in bed, and who are then in private, but was pointing out that
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immediately the maid comes into the room with breakfast, there are three people, and presumably that puts the matter out of the category of private. In other words, so long as there are two people present they are "in private"; but the moment the third person comes into the room the situation is different. Think of the complications that might arise when having a light supper with a bottle of port, with two people dining together. When two friends came in would that mean that one could not serve them with a glass of port because one would require a licence.
Those are exaggerated examples, but I suggest that the definition of "in private" as being when not more than two people are present might lead to extraordinary abuses and difficulties. Surely the difficulty could be more simply overcome by saying that anywhere that was not private would be a public place; a place to which the public, either by payment of money or any other ways, have the right of access. That would seem to me to be a form of words which would define "a public place".
BARONESS HORSBRUGH: Are we trying to define "a public place" or "in private"? I thought that our object was to find a clear definition for "in private".
LORD BOOTHBY: Before the noble Earl replies, does he not realise that most people who wish to indulge in sexual activities of any kind prefer to do it alone?
THE EARL OF HUNTINGDON: I agree. I am only saying that it is setting a dangerous precedent to lay down that whenever there are more than two people in a room then it is no longer in private. That is all I am suggesting.
LORD BOOTHBY: You don't want an audience.
THE EARL OF HUNTINGDON: I am suggesting on the other hand, that it would be easier to define what is "in public", as the noble Earl seeks to do in a later Amendment. Then one can automatically say that what is not in public must be in private. That would be an easier way. I suspect that the matter of homosexual clubs, and so on, is much exaggerated. In any case an Englishman's home is his castle. I do not follow the idea of defining "in private" as related

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to when three people are in the room as against two. It seems to me to be stretching the point.
LORD BOOTHBY: It spoils the whole thing.
6.45 p.m.
THE EARL OF ARRAN: I naturally respect the purposes of the noble and learned Viscount's Amendment. No one likes the idea of homosexual orgies. If it comes to that, no one likes the idea of heterosexual orgies, either. As these "buggers' clubs" have been referred to, perhaps the noble Lord, Lord Stonham, could tell the Committee to what extent they exist. The principle, surely, is that if people wish to make love, they do not want to do it in the presence of others. To try to define what is meant by the words "in private" seems to me to be an impossible task. No one, I am advised, has ever attempted it in the English law, except in the negative formula which means that "in private" means in a place which is not a public place.
The noble and learned Viscount is now laying down a new definition of privacy which, I am advised, will seriously affect the law of the land. We for our part are more diffident. We stick to Wolfenden, paragraph 64 of the Report, which says:
"Our words 'in private 'are not intended to provide a legal definition. Many heterosexual acts are not criminal if committed in private but are punishable if committed in circumstances which outrage public decency, and we should expect the same criteria to apply to homosexual acts. It is our intention that the law should continue to regard as criminal any indecent act committed in a place where members of the public may be likely to see and be offended by it.… It will be for the courts to decide, in cases of doubt, whether or not public decency has been outraged, and we cannot see that there would be any greater difficulty about establishing this in the case of homosexual acts than there is at present in the case of heterosexual acts."
That sounds to me good sense. But, in fact, as Lord Dilhorne pointed out, we have gone a little further, and have attempted a definition of what constitutes "in public". It is an easier thing to do. We have taken as our precedent, in particular, the Public Order Act, 1936, which I think is almost word for word the same. Perhaps we have gone too far, and your Lordships may decide that we should rest content with the definition in line 3 of Amendment 20:
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"'in private' means in a place which is not a public place".
I should be happy to have that, if that were your Lordships wish.
These are points of law and I am quite unable to dispute them. As your Lordships know very well, I know nothing whatever about the law. Where I should like to challenge the noble and learned Viscount is on the battleground of common sense. What does Lord Dilhorne's Amendment imply? It means simply that there must be no one else in the room when the homosexuality takes place, otherwise it becomes a crime. In short, the people must lock the door and make sure they are alone. Laying aside the fact that few people, heterosexual or homosexual, are so depraved as to wish others to witness their erotic activities—and depravity is not the monopoly of homosexuals—who are the other people likely to be? A policeman looking through the window or hiding behind the curtain?—for under the terms of the Amendment the police would have the right to secrete themselves if they had reason to suspect that a homosexual act was likely to take place. Or the milkman on his daily round? The man selling life insurance? Immediately upon their entrance, fortuitous or deliberate, it ceases to be sin and becomes a crime. "I happened to be passing", says the third party, "and I saw …". Could there be anything more conducive to blackmail? Could there be anything more absurd?
As I have said, I see the point and purpose of the Amendment; indeed, I sympathise with it. But these, I submit, are not very good arguments. They are based largely on prejudice and upon emotion. Once again the wish is to discriminate between homosexual and heterosexual sin: to make, as it were, one law for the rich and another for the poor. Let us make no mistake about it, the heterosexuals are rich indeed in the blessings conferred upon them. For my part I regret that I cannot accept the Amendment.
VISCOUNT DILHORNE: I shall ask your Lordships to support me in the Lobby. When the noble Earl refers to people passing by, I would point out to him that that is the very test suggested by Wolfenden in paragraph 64, which I

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read and which he read again. If a person passing by sees the act, then it is suggested by Wolfenden that it should be a criminal act. I do not believe myself that the courts would apply that test in interpreting what is meant by the words "in private".
We are not contrasting here a private place and a public place, and that is where the noble Lord, as a matter of common sense, has gone wrong. What we are discussing is whether certain conduct takes place in private, and to determine that we can use our ordinary common sense. I would suggest to the Committee that the best test of privacy in that context is to say that it shall cease to be private if the commission of the act takes place in the presence of more than two people. That would exclude all these homosexual societies, clubs or whatever you like to call them, and I think it accords with the true intent of Wolfenden when it is correctly appreciated.
LORD STONHAM: I was not quite clear from the first remarks of the noble and learned Viscount, when he moved his Amendment, what he felt would be the extent of the effect of this proposed new subsection. I do not know whether he felt that the Amendment would have repercussions on the meaning of "in private" in relation to other offences. From our looking at it, it appears that the new subsection would stand on its own and it would apply only to Clause 1 of the Bill. I am grateful to have the noble and learned Viscount's affirmation of that. I was somewhat confused by the reference during his speech to Amendment No. 20, which contains a definition, and I should not like it to be thought because at this stage I am not commenting on Amendment No. 20, that we would necessarily accept what is said there. There are quite a number of questions which we can very usefully—
VISCOUNT DILHORNE: I am sorry if I misled the noble Lord. I spent quite a lot of time criticising Amendment No. 20, because it is very artificial in character. It is not really seeking to define what is meant by "in private", but to contrast a public and a private place, which are two different things.
LORD STONHAM: I am most grateful to the noble and learned Viscount, but I had to reserve the position until the end of the day. The only other point that I should wish to make, because I do not desire on behalf of the Government to express any opinion on the principle of this Amendment, is on the question of the buggers' clubs which was raised by the noble Earl, Lord Arran. I remember the graphic description which was given by the noble and learned Lord, Lord Goddard, during, I think, the debate on Second Reading, and of course I made it my business to see what information we had at the Home Office about these clubs. I am in some difficulty because I think we need a definition of what is meant. I should not have thought that the term, used in the way that the noble and learned Lord, Lord Goddard, used it, would be meant to cover, say, a number of men just dancing together. They might even be dancing together in a public place and would not necessarily be committing any indecency. I took his meaning to be places, houses, you might say male brothels, where men congregated together for homosexual purposes.
VISCOUNT DILHORNE: As I understand it—and I know of one or two of these cases—this description is usually applied when there is a whole collection of people who have gathered together in one place to engage together in homosexual activities.
LORD STONHAM: I am grateful for the noble and learned Viscount's confirmation, because that is exactly the kind of place about which I have information. My information is to the effect that in the 1930s there were several causes célèbres when, perhaps, 20 men were arrested in one house and charged at the same time with this offence of indecency, and in most cases a woman housekeeper was present and charged also. But my further inquiries have not revealed any similar cases in recent years—at least, known to the police. But I should mention, of course, that the noble and learned Lord, Lord Goddard, spoke about these cases as when he was on circuit.
VISCOUNT DILHORNE: Is there any record of these cases? Because when the noble Lord says that, I am afraid it conflicts rather with my recollection of what I have heard in recent years. I am

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not suggesting that these cases are many in number—I do not think the noble and learned Lord, Lord Goddard, did that—but they do occur from time to time. I think that was his point. There may be no record at the Home Office.
LORD STONHAM: I am not disputing that they may occur. I merely wish to point out that we have records of cases to which I referred which occurred some years ago, but similar cases have not come to our attention in recent years. I am quite prepared to accept that somewhere this sort of thing may still continue.
LORD DERWENT: I do not like to interrupt, but I think I am right in saying that the only Home Office records would be of cases taking place in the Metropolitan Police area. Is that not so? If it takes place in Birmingham or Liverpool, the Home Office would have no record of it.
LORD STONHAM: As the noble Lord will doubtless know, there are many occasions when we consult chief constables in other police forces, but on this occasion there has not been time to consult chief constables in the Provinces. But we have, of course, made inquiries in the Metropolitan area and I felt it right to mention that fact. Apart from that, I have no observations to make on this Amendment.
THE JOINT PARLIAMENTARY SECRETARY, MINISTRY OF LAND AND NATURAL RESOURCES (LORD MITCHISON): May I, with great respect to all concerned and without wishing to take up more than a minute or two, just suggest that there is possibly room for further consideration here? The phrase used in the Wolfenden Report was "in private" and I suppose that what is not in private is in a public place. I can hardly see much distinction between the two. The term "public place" is used in the Streets Offences Act. There is no definition of it, but it has been held to be a place to which the public has access, whether on payment or otherwise. That is, I think, the foundation of some sort of definition, and if one looks at the Wolfenden Report itself one sees that that is the kind of test which they have in mind.
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It is quite true that such words are not intended to provide a legal definition, but they suggest a question of the public's being able to look in, as it were. A place is public, says Stevens on Criminal Procedure, within the criminal law against indecency, if it is so situated that what passes there can be seen by any considerable number of persons if they happen to look. I think it may well be that if one sought to apply that, one would come to a definition which was rather wider than that suggested by the noble and learned Viscount, and rather narrower than that suggested by the later Amendment on the Order Paper. I believe that that is a possibility and, clearly, it is most advisable, if one takes the whole matter seriously, as indeed we are doing, that there should be a similar test in this Bill to that in the Streets Offences Act as regards indecency generally in the criminal law.
I do not think that the presence of two or more people is that kind of test at all, and one would get cases under indecency generally, or if you like under the Streets Offences Act definition, where someone was in public, while it was not so under what it is sought to introduce here. I suggest, therefore, with great respect to everybody concerned, and as a very junior and unlearned Member of this House, that it might be a good thing to look at this subject again. After all, there are going to be talks on other matters. This is a subject which could be dealt with at the same time, and it seems to me that there is a case for it.
VISCOUNT DILHORNE: This is not by any means such a technical matter as the last Amendment that we discussed. Does the noble Baroness wish to speak?
BARONESS GAITSKELL:I want to say a word. I wanted to learn from the noble and learned Viscount how we were to know that there was more than one person present. How many persons—one more? Are we going to employ agencies to track down the third man? Why should we not apply the same criteria of privacy to homosexuals as we apply to heterosexuals? Are we going to set up a pool of King's proctors, or are we going to resort to micro-television sets in the keyhole and methods of that kind? In this way we are simply going to escalate

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towards a Puritan police state. We should be very jealous of our position, and guard the privacy of our private lives. With the rapid growth of communication, few of us would wish Telstar or Early Bird to be transmitting from the interior of our bedrooms. So long as private behaviour of adult homosexuals does not outrage public propriety, I do not think that in a civilised society homosexuals should be persecuted, victimised or convicted for this kind of thing.
As for the "buggers' clubs" that Lord Goddard mentioned, I may be very ingénue about this, but I did not realise, when he spoke of these clubs, that it meant that people were committing this abominable act, as it is referred to, at these clubs. I myself thought that this was a place where homosexuals gathered to be together, and I do not see any reason why they should not do that. In Holland, I understand, there are homosexual clubs, and it may be that a case can be made out for people of like tastes getting together. That would be a question for the Committee to go into.
LORD BOOTHBY: Before the noble and learned Viscount replies, may I just say a word to the noble Baroness who has just sat down? I think there is an enormous difference to be drawn between what are called "clubs" where homosexuals meet to establish contact, and sexual activities on the part of more than two or three people. I am very anxious to see this Bill go through. I do not think it will go through this Parliament, but I think it will almost certainly go through the next Parliament if it is sensible. However, I think that, if Parliament were to be asked to legitimise sexual parties, by the heterosexual or the homosexual, for the conduct of sexual activities and for the benefit of some people who are described as voyeurs—and we all reach that stage sooner or later—it would prejudice the chances of this Bill. Therefore, I am against that. I am not in the least against the kind of pubs or clubs which exist in this country and undoubtedly in Holland, as the noble Baroness has said, where people of homosexual tendencies meet for the purpose of making acquaintance with each other, but I do think that if this House were to legislate for sexual activities of any kind, heterosexual
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or homosexual, in public, with more than ten or fifteen people present, it would do irreparable damage to this Bill.
LORD BROCKET: We have had a very interesting debate, in that so many different expressions of opinion have been given, but, having studied the question raised by these Amendments, I do feel that the ex-Lord Chancellor, Lord Dilhorne, has struck on an extremely foolproof Amendment, if I may call it that. As he is backed up by the noble Lord, Lord Boothby, I think we ought to press this Amendment to a Division.
BARONESS WOOTTON OF ABINGER: There is just one point which I think ought to be borne in mind. If we accept this Amendment it will mean that, if a third person is present when one of these acts takes place, that third person will be in a magnificent position to blackmail.
VISCOUNT DILHORNE: I do not know why that third person should be in a better position for blackmail than person No. 1 or person No. 2. What this Amendment is directed at is what you might call a homosexual party, where three or more are engaging in homosexual activities; and that should not be regarded, in my view, as homosexual activities in private.
If I may say so to the noble Baroness, Lady Gaitskell, I am not seeking to make the law too tight. Cases of homosexuals merely gathering together would never have been before the criminal courts in the cases to which Lord Goddard referred. There must have been homosexual activities as well. I think they were of the character referred to. The noble Baroness referred to pools of King's proctors. I am not for one moment suggesting that the King's Proctor's staff, which is large enough in all conscience, should be increased for this purpose; that really does not come into it. Nor do I think the Street Offences Act is in the least degree relevant. At the time, so far as I can recollect, I had a great deal to do with securing the passage of that measure, which was a very controversial measure. In that case there was very great difficulty in defining satisfactorily, for the purposes of the jurisdiction of that Act, what constituted a public place in a town. It was not easy. But here we are concerned about what can properly

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be described as homosexual conduct in private.
Whether homosexual conduct is in private or not in private is a question of fact. It must depend upon the circumstances of each case. And I do not believe for one moment that any court would say that homosexual activities were not in private just because, while they were being carried on, someone opened the door of the bedroom and happened to see in. That would not make the commission of the act in public; it would be between two people in private, and it would not become criminal because someone happened to see what was going on. On the other hand, it would become criminal if there were more than two people in that room engaging in homosexual activities.
LORD BOOTHBY: If there was a party.
VISCOUNT DILHORNE: If there was a party—and I think that is right.
BARONESS WOOTTON OF ABINGER:
If the noble and learned Viscount would give way, that is not what the Amendment says. The Amendment says,
"… when more than two persons are present."
VISCOUNT DILHORNE: If more than two persons are present it might well be described as a party. A party has not been defined, either, but it would be quite a party if there were ten or twelve present, would it not? It might be a "liberal party". But if there were more than two present I do not myself think that you could accurately describe the conduct as being carried out in private. I am not trying to get an exclusive definition of "privacy", because I do not think that that is possible—
THE EARL OF ARRAN: If the noble and learned Viscount—
VISCOUNT DILHORNE: I should like just to finish the sentence; I will give way then. I do not think it is possible to give an absolute, exclusive definition of "in private", because a lot will depend upon the particular circumstances. All I am seeking to secure here is that, if more than two are present at the commission of the conduct, it cannot be
regarded as taking place "in private". I think that is common sense.
THE EARL OF ARRAN: I was wanting to ask the noble and learned Viscount whether, if a policeman were present in the room hiding behind the curtains or under the bed, the conduct would be in private.
VISCOUNT DILHORNE: So far as the parties to the conduct were concerned, I should think that any court would say that they, so far as they knew and were aware, were in private if they said that they thought they were alone and had no reason to suspect that they were not. I think that any court, if it believed that evidence, would say that the act was done in private and that it would not cease to be in private because of that. If, 100 yards away, the noble Earl, Lord Arran, with a pair of binoculars, was able to look through the window to see what was going on, the commission would still be in private. There would be no more than two persons present. I should like to press this Amendment. I feel very strongly about its desirability and I think it will make this Bill better than it is now.
LORD BOOTHBY: The noble Viscount is not suggesting that the noble Earl, Lord Arran, would look through a bedroom window with binoculars, I am sure.
VISCOUNT DILHORNE: No.
BARONESS GAITSKELL: May I ask the noble and learned Viscount what is the position with regard to orgies, as he described, of heterosexuals? Is it a criminal offence for other people to be present when men and women are enjoying themselves?
VISCOUNT DILHORNE: I should not like to give an answer offhand. The noble Lady says, "enjoying themselves". I should think that orgies of that sort would be ordinarily amenable to the criminal law. I can only give that answer "off the cuff".
7.10 p.m.
On Question, Whether the said Amendment (No. 7) shall be agreed to?
Their Lordships divided: Contents, 41; Not-Contents, 26.

CONTENTS

Albemarle, E.

Beswick, L.

Bossom, L.

Arwyn, L.

Blyton, L.

Boston, L

Auckland, L.

Boothby, L.

Bowles, L.

Brain, L.

Horsbrugh, Bs.

Rathcavan, L.

Brocket, L.

Howard of Glossop, L.

Samuel, V.

Canterbury, L. Abp.

Iddesleigh, E.

Shepherd, L.

Chichester, L. Bp.

Jessel, L.

Somers, L.

Chorley, L.

Kilmuir, E. [Teller.]

Soulbury, V.

Dilhorne, V.

Lincoln, L. Bp.

Stamp, L.

Goschen, V.

London, L. Bp.

Strange, L.

Greenway, L.

Longford, E. (L. Privy Seal.)

Strange of Knokin, Bs.

Grenfell, L.

Monsell, V.

Strathcarron, L.

Haire of Whiteabbey, L.

Montgomery of Alamein, V. [Teller.]

Tangley, L.

Hives, L.

Hobson, L.

NOT-CONTENTS

Archibald, L.

Gaitskell, Bs.

Royle, L.

Arran, E. [Teller.]

Gardiner, L. (L. Chancellor.)

St. Davids, V.

Bedford, D.

Hertford, M.

Sandys, L.

Bowden, L.

Huntingdon, E.

Shackleton, L.

Burden, L.

Kinross, L.

Strabolgi, L.

Byers, L.

Maugham, V.

Wade, L.

Cranbrook, E.

Ponsonby of Shulbrede, L.

Wells-Pestell, L.

Dinevor, L.

Queensberry, M. [Teller.]

Wootton of Abinger, Bs.

Francis-Williams, L.

Reay, L.

Resolved in the affirmative, and Amendment agreed accordingly.
LORD SHEPHERD: I understand that the next Amendment may take some time. In view of the arrangements which have been made for supper, I wonder whether this might not be a convenient moment for this Committee stage to be adjourned until 8.20 p.m.
VISCOUNT DILHORNE: I am wondering whether we ought to discuss this proposal a little more, and consider whether we should adjourn until 8.20. There is, as I am aware—I have said it, and no one has contradicted it—not the slightest possibility of this Bill's being enacted this Session. Whatever we do about this Bill in this Session, if it is reintroduced next Session, we may have the same debates all over again. We are not going to save anything and we may not save any time by prolonging the Committee stage of this Bill. I am wondering, therefore, whether it will serve a useful purpose, interesting though it would be, if we carried on after Dinner this evening with the Committee stage discussions which, as I see it, we could not possibly finish unless we sat about as late as we did on one occasion when considering the Greater London Bill.
I am wondering whether it is worth while—it is in the hands of your Lordships—to sit after we adjourn in a few moments. I doubt myself whether it would serve any useful purpose, and it would result in noble Lords being fatigued. I do not know exactly what the noble Earl, Lord Arran, wishes. I
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threw a fly to him, asking why, having got his expression of opinion on Second Reading, he was so keen that we devote our energies to this Committee stage. The noble Earl did not respond then; perhaps he can do so now. We have had a pretty lengthy Sitting. Some noble Lords have taken an active part and the debate has been very good. I would add that these are important subjects and we cannot help but note that the Committee will get a little thinner as the hours go on.
LORD SHEPHERD: Before the noble Earl, Lord Arran, advises the Committee about what course he thinks we should take, I think it right that I should inform the Committee that the business between now and the end of July will be pretty heavy. It seems to me that we are quite unlikely to be able to provide further time for a Committee stage and then for a Report stage. If the Committee feels it would like this Bill to be put into proper order, noble Lords might consider it advisable to make a serious effort to complete the Committee stage this evening, in which case there might be a possibility of providing a Report stage on the following Monday.
I appreciate what the noble and learned Viscount, Lord Dilhorne, has said about fatigue—that is something we have to face from time to time—but I think the Committee should be aware of the congestion of business. If noble Lords feel that they can complete the Committee stage, there may be a chance for further stages of the Bill. If the Committee

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stage is extended to another day, I think it would be very difficult indeed to provide suitable and adequate time for further stages of this Bill.
LORD BOOTHBY: Before the noble Earl, Lord Arran, replies, may I say that I threw precisely the same sort of fly over him as the noble and learned Viscount, Lord Dilhorne, has referred to. His reply was rather impressive. He said that if we produced a carefully considered and moderate Bill we should have far more chance of getting it through in the next Parliament, if not in this one. I think that was a fairly formidable reply. As he knows, I have roused his discontent by exercising such influence as I have in getting modifications rather than additions to this Bill, because I think it would have a much better chance of getting through in another place in the next Parliament—I am sure that it would not go through before—if it was a moderate and reasonable Bill. I think that there is quite a lot to be said for boxing on and getting the Bill finally through to the Report stage, so that it may be ready for another Parliament, which I think will come before very long, and the Bill then will have a better chance of getting through.
VISCOUNT DILHORNE: We should be employed on the business of providing a Bill for next Session. That is, perhaps, an enjoyable occupation, but I understand, because of what the noble Lord, Lord Shepherd, has said, that unless we finish the Committee stage tonight there will be no prospect of having a Report stage—
LORD SHEPHERD: I said "little prospect".
VISCOUNT DILHORNE: There will be little prospect. I ask your Lordships to look at the Marshalled List. We have just dealt with Amendment No. 7. We shall have to sit very late indeed to complete these Amendments—that, I think, is undeniable. Therefore I would stress to my noble friend that unless he is prepared to ask the Committee to sit until a very late hour indeed, as I see it there is not the silghtest chance of finishing the whole of the Committee stage to-night. With the best will in the world—we have not been wasting time—I cannot see that that is likely to be accom
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plished. Therefore I put the question to him for serious consideration—he may think that we may have been helpful or hindering to-day—whether he really thinks that it is right to ask the Committee to go on sitting and complete only more of the Committee stage, and not finish it, after the adjournment. I can see little point in that. I hope he will bear in mind that we have had a very useful discussion, and that he may think it wise to conclude matters now.
I did not put my argument primarily on the ground of fatigue. This is an important measure, and if the noble Earl wants to adopt the course suggested by the noble Lord, Lord Boothby, and get a draft of the Bill for introduction next Session, he had much better try to get a draft through a Committee at an earlier part of the day when the Committee would be fully attended, and not try to get it through at a late hour, on a Monday evening particularly, when many of their Lordships have other engagements.
LORD BROCKET: If next Monday is free for Report stage, would it not be better, from every point of view, to continue the Committee stage then?
LORD SHEPHERD: May I answer that'? The point is that if we extend the Committee stage until next Monday, it means that the Report stage will come at the middle or latter part of July, and, as noble Lords will know, this is the moment of crunch so far as legislation is concerned. I suggest that we have had Order Papers containing as many Amendments as there are on the Order Paper this evening, and that between 8.30 and 10 o'clock we seem to make considerable progress. If we could complete the Committee stage this evening, it would be possible to take the Report stage next Monday, and then, I should think, there would be a chance, if the House so wished, of giving this Bill a Third Reading. I am giving this advice only from the business time-table point of view. I think the Committee should not be under any illusions at all.
LORD JESSEL: I hope that the noble Earl, Lord Arran, will follow the suggestion made by the noble Lord, Lord Brocket. I know that what he wants is to have a draft Bill which can come up again. He will have that if we complete the Committee stage this day

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week. If we go on tonight the Committee will get thinner and thinner, and he may lose Divisions which he would not lose normally, and, from his point of view, it would be most unsatisfactory.
LORD STONHAM: I think that the noble and learned Viscount, Lord Dilhorne, will recall that in connection with one of his Amendments he accepted the assurances of my noble friend Lord Shackleton; and of the remaining Amendments which we still have to consider the intention of quite a number seems very reasonable but the Amendments are in fact defective. In other words, there are Amendments which would need a Report stage if we are going to get a tidy Bill, which is apparently the intention. I think that should be borne in mind.
THE LORD PRIVY SEAL (THE EARL OF LONGFORD): May I say a word from, I hope, a neutral position but with some responsibility for the ultimate happiness of everybody? I realise that it is going to inconvenience some noble Lords if we go on after Dinner, but others have made arrangements to be here the whole day. I myself was to speak at a public dinner and at great inconvenience to my hosts I put it off because I assumed that we were going through with the Bill. We have here the most reverend Primate and the right reverend Prelates, who would be ready to proceed this evening. I am not saying a word of criticism of anybody who has done much of the speaking this afternoon, but it is certainly not the right reverend Prelates who have been given the opportunity of oratorical exercise, and after all the speaking that has been done by the noble and learned Viscount, to say that now we must adjourn and leave the right reverend Prelates kicking their heels this evening would be very hard on the right reverend Prelates—may I finish? It is the first time I have broken silence, which is not quite true of the noble and learned Viscount opposite. While the House will decide, there are two sides to this question. May I finally suggest that the noble Earl, Lord Arran, should give us some guidance, because it is for him to make the suggestions. It is certainly not for the Government.
VISCOUNT DILHORNE: For the noble Earl the Leader of the House to say that after all my speaking—I am afraid that I had to speak rather a lot—it is rather unfair that the most reverend Primate should be deprived of his opportunity of speaking, is a reflection which I rather resent. I have only done what I think is right on this Bill and I certainly did not suggest that the Committee stage should be adjourned on any ground of personal convenience. If the noble Earl really thinks that it can be finished at a reasonable hour, I believe he is wrong. I raised this matter because of that very ground. I do not think that, unless we sit until a very late hour indeed, we can possibly finish this Committee stage. I must say, having spent a great deal of the day and a great deal of other time working on this Bill, that I do resent this kind of observation coming even at this hour from the noble Earl who leads the House. I certainly have not sought to put forward this suggestion to your Lordships with a view to considering my personal convenience; I would not think it right. I do not know what the most reverent Primate thinks about it. It may well be that if we do not finish the Committee stage to-day, we shall not get a Report stage or Third Reading. But if we continue the Committee stage on another day, we shall have probably reached agreement on many more points, and seen better how the land lies, than we shall to-night. For instance, when the Committee considered the matter concerning the Armed Forces we managed to dispose of that fairly quickly because we found that there was a considerable amount of agreement. We are not going to serve much more of a useful purpose by carrying on to-night, as the noble Lord, Lord Jessel, has said. I do not know what the most reverent Primate feels about this, but I believe that if we come to this Bill fresh on another occasion and continue then, we shall be likely to make it much more effective.
THE LORD ARCHBISHOP OF CANTERBURY: As a number of the Amendments are in my name, I have set apart the day for this purpose and I am entirely ready to serve the Committee if it continues its sitting, but I should like the matter to be decided on what is in the interests of the total progress of the Bill.

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I hope that the noble Earl who introduced it will give us his own guidance.
THE EARL OF ARRAN: It is a terrible responsibility because, as the noble Earl the Leader of the House has said, some noble Lords have come long distances and given up their day to be here and they may feel annoyed and disappointed if we stop at this point. Others may feel that we shall not give these matters proper discussion if we go on too late at night. Some of my clever, learned and helpful friends in the House advised me to leave it alone and not to go beyond Second Reading, but I decided that we ought to have the Bill if possible go through the House, even if it were still to go into limbo, so that we could present a more or less ready-made document in the next Session. I was also influenced by the fact that I was told that not to go to Committee might seem to be withdrawing the Bill, and I had no intention of withdrawing it.
In regard to whether the House should go on or not, the noble Earl has asked for my guidance but I should much prefer your Lordships to give me guidance. Would it be a good idea to have a vote of a friendly nature on this question, so that the convenience of the majority would be served?
LORD SHEPHERD: I have already suggested that we should adjourn for one hour, but in view of the discussion I
would amend the time from 8.20 to 8.35 p.m., when we will resume the Committee stage, and I formally move to that effect.
Moved, That the Committee do now adjourn during pleasure until 8.35 p.m.—(Lord Shepherd.)
THE CHAIRMAN OF COMMITTEES: The question is: That the Committee do now adjourn during pleasure until 8.35 p.m.
VISCOUNT DILHORNE: I would move an Amendment to get the issue determined. The Motion moved by the noble Lord does not raise the issue that the noble Earl, Lord Arran, wants. His Motion is that we adjourn for an hour to have dinner. Therefore, I must move an Amendment to make it read that the Committee do now adjourn.
THE CHAIRMAN OF COMMITTEES: The noble and learned Viscount's Amendment will be "to leave out all words after adjourn".
VISCOUNT DILHORNE: I beg to move accordingly.
Amendment moved—
Leave out all words after "adjourn".—(Viscount Dilhorne.)
On Question, Whether the Amendment shall be agreed to?
Their Lordships divided: Contents, 16; Not-Contents, 47.

CONTENTS

Albemarle, E.

Goschen, V.

Kilmuir, E.

Bossom, L.

Grenfell, L.

Montgomery of Alamein, V.

Brocket, L. [Teller.]

Horsbrugh, Bs.

Somers, L.

Cranbrook, E.

Iddesleigh, E.

Soulbury, V.

Dilhorne, V.

Jessel, L. [Teller.]

Strange of Knokin, Bs.

Drumalbyn, L.

NOT-CONTENTS

Airedale, L.

Gardiner, L. (L. Chancellor.)

Queensberry, M.

Archibald, L.

Greenway, L.

Reay, L.

Arran, E.

Haire of Whiteabbey, L.

Royle, L. [Teller.]

Auckland, L.

Hertford, M.

St. Davids, V.

Bedford, D.

Hives, L.

Samuel, V.

Boothby, L.

Huntingdon, E.

Sandys, L.

Bowden, L.

Kinross, L.

Segal, L.

Bowles, L.

Lincoln, L. Bp.

Shackleton, L.

Brain, L.

London, L. Bp.

Shepherd, L.

Byers, L.

Longford, E. (L. Privy Seal.)

Stamp, L.

Canterbury, L. Abp.

Maugham, V.

Stonham, L.

Champion, L.

Merthyr, L.

Strabolgi, L.

Chichester, L. Bp.

Mitchison, L.

Tangley, L.

Dinevor, L.

Monson, L.

Terrington, L.

Francis-Williams, L.

Mottistone, L.

Wells-Pestell, L.

Gaitskell, Bs. [Teller.]

Ponsonby of Shulbrede, L.

Resolved in the negative, and Amendment disagreed to accordingly.

On Question, Motion agreed to.
[The Sitting was suspended at a quarter to eight o'clock and resumed at a quarter to nine.]
VISCOUNT DILHORNE VISCOUNT DILHORNE moved to add to the clause:
"( ) Consent to a homosexual act induced by the payment of money or a gift shall not be deemed to constitute consent for the purposes of this Act."
The noble and learned Viscount said: We resume this debate knowing that all we are doing is to help my noble friend Lord Arran to draft a complete Bill. We are only trying to assist the noble Earl, who I hone will be sufficiently appreciative of our efforts to produce a Bill which might be tolerably acceptable. He himself said that the Bill, when it was first introduced by him, could not conceivably be passed into law, and I am glad he recognised that. There are already certain defects in the Bill which we will try to eradicate perhaps at later stages.
This Amendment, which I now propose to move, is also one of the important Amendments, and I could have hoped that we had a slightly fuller attendance than we have at this moment for its consideration. The curious thing about the Wolfenden Report, which in some respects is an excellent document, is that it uses terms that it does not seek to define. We had a great debate a little time ago on what was meant by the words "in private". I think most people would know perfectly well, if you asked them, whether something was done in private or in public. The difficulty is to find the appropriate words for insertion in a Bill. When one turns to the other matter, which is dealt with at paragraph 63 of the Wolfenden Report, the question of consent, what the Wolfenden Report there state, dealing with consent, is this:
"… we should expect that the question whether or not there has been 'consent' in a particular case would be decided by the same criteria as apply to heterosexual acts between adults. We should expect, for example, that a 'consent' which had been obtained by fraud or threats of violence would be no defence to a criminal charge; and that a criminal charge would also lie where drugs had been used to render the partner incapable of giving or withholding consent, or where the partner was incapable for some reason (for example, mental defect) of giving a valid consent."
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I do not wish to criticise that passage.
Then the Committee go on to say:
"We are aware that the quality of the consent may vary; consent may amount to anything from an eager response to a grudging submission. We are aware, too, that money, gifts or hospitality are sometimes used to induce consent. But these considerations apply equally to heterosexual relationships, and we find in them no ground for differentiating, so far as the behaviour of adults is concerned, between homosexual and heterosexual relationships."
That is all that the Wolfenden Committee say about the question of consent. Whether someone has consented to these activities is a question of fact. It may sometimes be not easy of proof, but, none the less, as I see it, it is a question of fact.
The question that I seek to raise in this Amendment is, I think, the not unimportant question of whether consent induced by payment of money or by a gift should be deemed to constitute consent for the purposes of this Bill. If you are going to say that you are outside the ambit of the criminal law provided you have consent, no matter how it is obtained, then it seems to me that you are in fact opening the door to male prostitution. Female prostitution is not of itself an offence unless the prostitute behaves in a certain way; but do we really want as a matter of policy to do anything to encourage male prostitution?
We have heard to-day, I think it was from the noble Lord, Lord Soper, something about the affection which can exist, and I have no doubt does exist on occasions, between homosexuals. I should have thought there was all the difference in the world between the cases of two homosexuals who have formed a genuine but unnatural affection for each other and the male homosexual who seeks to gratify his lust by inducing, it may be much younger men, it may be those who have only just reached the age of 21, to consent to homosexual practices. A strong case has been argued—I do not agree with it myself—for saying that homosexual activities between adults who have freely consented should be allowed. That is one thing, but it is going far further than that to say that we will allow it if the homosexual can, by some means or other, by gifts or payment, by hook or by crook, obtain consent to the practices he wishes to indulge in.
If one turns to paragraph 71 of the Report of the Wolfenden Committee, one sees that the Committee say there:
"We have, however, encountered several cases in which young men have been induced by means of gifts of money or hospitality to indulge in homosexual behaviour with older men, and we have felt obliged to have regard to the large numbers of young men who leave their homes at or about the age of 18".
I have read those words because they support what I believe is the case, that while it is perhaps true that not all homosexuals seek to get recruits to their ranks, there are others who do, and others who do so by means of gifts of money or hospitality. They do a lot of proselytising, and it may well be that when that happens it leads to the younger person himself becoming more of a homosexual, if not exclusively a homosexual as opposed to a heterosexual.
The question which I am raising I believe is one of very great importance. I do not know the views of the noble Earl, Lord Arran, on this. He has been remarkably silent during the course of this Committee stage—
THE EARL OF ARRAN: May I intervene at this stage to say that the noble and learned Viscount, Lord Dilhorne, has spoken so much that I have hardly been able to get a word in edgeways.
VISCOUNT DILHORNE: I do not favour being interrupted by the noble Earl for that kind of observation, but the noble Earl is perfectly aware that, according to the procedure of this House, at Committee stage he can speak more than once; but seldom has he made an effort to make a speech. He intervened for a short time in the first debate but he has left it to others to conduct the case for this Bill. All he has said to the Committee really is, "I do not mind how long the Committee stage goes on, I do not mind who speaks, but what I want to have at the end of it is a Bill. and I hope that you will give me one". That I think is a correct summary of his approach.
THE EARL OF ARRAN: I am not asking that. I am asking that the House should give itself a Bill.
VISCOUNT DILHORNE: If the noble Earl can restrain himself for a little while, refreshed though he may be, he will have ample opportunity for making
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as long a speech as he feels inclined to. I come back to this particular point because I think it is a question of considerable importance. I feel that consent induced by such methods should not count as consent for the purpose of this measure. The noble Earl, Lord Arran—I am sorry to have to refer to him again—has an Amendment down, No. 17, to say that it would be an offence
"for a person knowingly to derive financial advantage from inducing the homosexual prostitution of another person",
and the marginal note of that is "Person living on earnings of prostitution". That really does not cover quite the same field as I am now considering. I am not dealing with the question of someone living on the earnings of prostitution. I should like to make that quite clear. What I am suggesting is that it would be right to say in this measure that consent—it may be of a young person—induced by gifts or hospitality should not, for the purposes of this Bill, count as consent so as to exclude the older person from the scope of the criminal law. I beg to move.
Amendment moved—
Page 1, line 7, at end insert the said subsection.—(Viscount Dilhorne.)
8.57 p.m.
THE LORD CHANCELLOR (LORD GARDINER): As the noble and learned Viscount has referred to me, perhaps I might give a purely personal opinion, as distinct from any opinion on behalf of the Government. There is here, I think, a difference of opinion, and of course a perfectly honest difference of opinion, on the whole of this subject. But those of us who are in favour of the Bill want to see a rational approach to this subject, and we do not see really in what way the sexes are to be differentiated. This Amendment, as it seems to me, merely introduces complication into what in principle, if one is once agreed on the principle, is fairly simple. I am very glad to observe that since dinner the noble and learned Viscount has been calling it "hommo"-sexual and not homosexual (with the long "o"), as he did throughout the afternoon, because the word has nothing to do with man.
So far as the sexes are concerned, of course where there is no consent there is an assault. And, in relation to heterosexual intercourse, consent has to be

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judged as a question of fact. The fact that money or hospitality may be involved does not prevent consent, if there is consent, from existing. As between two women an older woman may give money or hospitality to a younger woman to commit homosexual practices with her. This is no offence at all; it does not prevent consent, so there is no offence. If there were no consent, of course, even between two women there would be an offence. What I think those of us who are, broadly, in favour of this Bill feel is that there is no rational reason for distinguishing in this way between men and women. If one feels, as I feel, that to make this a criminal offence between men when it is not between women does, on the whole, more harm than good, for the reasons which were given on the Second Reading, then I cannot see, on this particular point, why once more the noble and learned Viscount wants to introduce a distinction which would be applicable only to men and not to women.
The point that has never been answered, though I implored an answer on the Second Reading debate, was the question whether those who are opposed to the whole of this Bill, as the noble and learned Viscount is, think that there ought to be a similar law for homosexual practices between women; and if they do not, how they justify what on the face of it is a cruel piece of sex discrimination. This is just another example of it. As between men and women, there is either consent or there is not. The consent may be obtained by money or hospitality. If there is no consent the act is a criminal offence; if there is consent, it is not. As between women and women, whatever gifts of money or hospitality there may be, if there is consent there is no offence; if there is no consent, it is an assault. I cannot myself feel that there is any reason, therefore, for this Amendment, which once more would draw this distinction between practices between men and similar practices between women.
Amendment No. 17, to which the noble and learned Viscount referred, seems to me to point the other way. This is a case in which the noble Earl is seeking to assimilate the law, so far as
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homosexual practices between men are concerned, with those between anybody else. It is an offence to live on the earnings of prostitution so far as women are concerned, and so it should be so far as men are concerned. Speaking purely personally, therefore, I would oppose this Amendment on those grounds.
THE LORD BISHOP OF CHICHESTER: Could the noble and learned Viscount explain to us a little more clearly how one defines "induced"? I speak with great ignorance, and there may be some legal definition. Here we are asked to put into the Bill the phrase:
"induced by the payment of money or by a gift."
I was wondering how this could be described and how it could be implemented by the law. It seems to me that it is so vague and ill-defined that the Committee might care to have the words explained in a little more detail.
VISCOUNT DILHORNE: With great respect, I should have thought that the meaning was perfectly obvious. Whether consent has been induced by a gift of any kind is a pure question of fact. The trial would be one by jury, and it would be for the jury to determine on the evidence before them. There is no need for a definition there; one applies the ordinary English meaning to the words. I do not think that there can be any difficulty about that. It is a test which the jury would have to determine on the evidence available.
I have listened with interest to what the noble and learned Lord the Lord Chancellor said. The conflict here is in regard to the process of what I might call equalisation of the sexes before the law: either treating sodomy as exactly the same as heterosexuality, as no worse and having no distinction; or, on the other hand, seeing to it that this Bill does not, in fact, operate to encourage male prostitution. I may take a different view from that of the Lord Chancellor, and probably do on many things. It is quite true that, of itself, female prostitution is not a criminal offence. But I must say that I think for us in this House to pass a Bill which does anything to encourage male persons to become prostitutes, even though it produced more equalisation or rationalisation between the sexes, is something that I should regard as wrong. That is why I have put down this Amendment.

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I know that it may make a difference in the law between the sexes. But there are differences between the sexes apart from the law, and I cannot believe that the principle of uniformity of treatment is one which should override the consequences of rejecting this Amendment. The noble and learned Lord, when he replied to me—and I am glad that he has spoken; I listened to him with great attention—did not in any way challenge the propositions which I put forward. Under the Bill as it stands, unless this Amendment is carried it opens the door wide for male prostitution, for inducing consent by the payment of money or by gifts. If there is a gift of money to a young man by an older man and the receipt of it by the young man, followed by their going off together and engaging in homosexual practices, I do not think it would be difficult for any court to come to the conclusion that it was the money which induced the consent. It is because I do not want to see the door opened as wide as that that I have tabled this Amendment.
This Amendment will not do anything to inhibit the two genuine homosexuals who have a real affection for each other and who seek to cohabit together. It will not penalise them at all, but it may penalise the man who goes round trying to seduce younger men who are over 21 by gifts and by the payment of money. If it could be shown that he has got their consent—the consent of perhaps more than one young man—to these activities, then, indeed, he would not get the protection of the Bill. I hope that I have made my point clear. I accept the point made by the Lord Chancellor that if one is trying to create strict uniformity between the treatment of women and of men my Amendment is not in accordance with that line of thinking; but I feel that one can pay far too high a price in this field for uniformity. I urge the Committee not to open the door to male prostitution, which, in my belief, is what rejection of this Amendment would mean.
THE EARL OF HUNTINGDON: I hesitate to enter into a field where legal experts are involved. I have no claim to any knowledge of the law, but one difficulty that I can see about this Amendment is in regard to gifts. It would be difficult to decide what in fact is a gift. If one gives a cigarette to some
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body, I suppose it is a gift. If two perfectly normal homosexuals are having a relationship—not a question of prostitution at all—and are in a café and one offers the other a drink and afterwards they go home together, then, according to this Amendment, that is an offence.
VISCOUNT DILHORNE: Nobody is going to suggest that a gift of a cigarette would be sufficient to induce somebody who was not willing to engage in homosexual activities to engage in them. I must ask the noble Earl to be a little realistic. The consent has to be induced by the gift. Unless that could be proved, the prosecution would fail. It would have to be a gift of such a character followed by conduct so that the jury would be satisfied that the consent was so induced.
THE EARL OF HUNTINGDON: Would the noble Viscount accept a cigar rather than a cigarette?
VISCOUNT DILHORNE: If the noble Earl is offering me a cigar, it would be greatly appreciated.
THE EARL OF HUNTINGDON: My point is that it is very difficult to draw the line if with, say, from £100 down to a cigarette, one has to decide whether or not it is a gift. It would lead to complications. I have been told—I have no great authority on this—that in Denmark a somewhat similar law was introduced at one time which led to infinite difficulties. The police had to arrest a young man and search his pockets in order to find out if he had a gift or had more money on him than he should have. It is a complicated matter, and I would support the noble and learned Lord the Lord Chancellor on this point in saying that it would be much better to stick to the heterosexual standard, rather than try to distort the law and have one law relating to the male sex and another to the female sex. It would be better to concentrate on the other Amendment which makes it an offence to live on immoral earnings, which we all agree is abominable. That would be a better way of striking at this matter than by accepting the noble Viscount's Amendment.
9.10 p.m.
LORD CONESFORD: This is the first time that I have intervened on this subject, but I do not think this question is quite as simple as is being suggested in

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the speeches from the Benches opposite. I follow and agree in part with what the noble and learned Lord, the Lord Chancellor said, and I am sure that if this Bill is to be passed by this House at all, we want it to meet the main object that commended itself to the Wolfenden Committee, but not to cause what everybody would think was a scandal.
The right reverend Prelate asked a very valid question: What do you mean by "induced"? Let me give him a very simple example of a man who publicly offers money to a man, without any doubt at all, to commit sodomy with him. That is an attempt at what has hitherto been a very serious crime. If that attempt succeeds, is that really a result which even the promoters of this Bill would be happy to see? I am sure that it is not. I think the subject with which we are now dealing is not wholly divorced from the first Amendment that was considered this afternoon and rejected by the Committee. As a result of that, what has hitherto been a serious crime will not be a crime at all if committed between consenting adults in private.
I understand the motives, the high motives, that have commended themselves to the most reverend Primate and to the right reverend Prelates that made them think that that is a merciful and wise course. I appreciate that, and see the argument for it. But are we sure that it should carry us to this further point: that we should protect a man whom we should all regard as a perfectly horrible person, who wished to corrupt others—of course, I appreciate that if he attempts to corrupt anybody under 21 he is not protected by this measure—by making an offer of money, and perhaps large sums of money, not to buy affection but to buy the commission of an act that has hitherto been a crime? I can only say that it is not at all obvious to me that that is desirable, even in the view of those who, for reasons that I well appreciate, think that on the whole this Bill is wise. I believe that the Amendment moved by my noble and learned friend, though it may not be absolutely right as it stands, is an attempt to meet a real problem, and I think it deserves serious consideration.
THE EARL OF KILMUIR: I can be very short because I agree entirely with every word that my noble friend Lord Conesford has said. I would just put this point to the noble and learned Lord the Lord Chancellor. Here we are, dealing with a complete reversal of the criminal law of many centuries; we are not starting afresh. But we are dealing with it on the basis that everyone who has spoken has said that homosexual acts—and particularly, as the most reverend Primate said this afternoon, homosexual acts either using the oral method or the form of penetration that is in the offence of sodomy—are horrible, unnatural and beastly acts. That is the basis on which every noble Lord who has spoken in this House has approached the problem, that we are legalising what we all say—and right reverend Prelates have been as categorical on this aspect of the matter as anyone else—are horrible, unnatural and beastly acts.
As we start from that basis, are we now to take the second step in the argument of the noble and learned Lord the Lord Chancellor, that, unless this Bill makes equal in the eyes of the law, as they have never been in our law, the position of men and women, then the Bill is faulty? I ask the most reverend Primate, I ask the right reverend Prelates: Why is it a good thing that men should get away—
THE LORD ARCHBISHOP OF CANTERBURY: If I may—
THE EARL OF KILMUIR: If the most reverend Primate will allow me to finish, I think he will see my point.
THE LORD ARCHBISHOP OF CANTERBURY: I must interrupt the noble and learned Earl. He is speaking on the assumption that I disagree with him. I do not disagree with him. I intend to vote for this Amendment.
THE EARL OF KILMUIR: Then may I apologise at once to the most reverend Primate and put my question, not to him, but generally, because this is the most important question? Why should it be right for people to tempt a young man? After all, we have seen this happen. My noble and learned friend Lord Dilhorne and I dealt with these cases when we were in the Army. We have seen older men tempt young soldiers with money,

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hospitality and gifts. Why are we to say that that is a right path on which to pursue our improvement of the law?
The noble and learned Lord the Lord Chancellor has said, "Well, lesbianism is not an offence, and it is not an offence to tempt a woman". But, if we are trying to improve the law, why should we leave the law in the state that there is no penalty for tempting a young man? I say we ought to protect the young man; and I am sure that, when I put it that way, what I said a moment ago in making an interrogative imputation must surely have been a fault because I am sure that the right reverend Primate would not think that to do otherwise is the proper path for the law to take. I am with the noble and learned Lord the Lord Chancellor in trying to improve the law in every way. We may disagree as to the matters that have arisen in this Bill, but I think this is something which ought to be considered before we let it go out from this House that we tolerate temptation by money, gifts and hospitality in a field where it has been unlawful before. That is not improving the law; that is degrading the law.
THE LORD CHANCELLOR: As the noble Earl referred to me, may I say that those of us who are in favour of the Bill as a whole are so because we think on the whole the law as it is at present is doing more harm than good: partly because it prevents people, or discourages them, from taking advice—it discourages them from going to doctors for they do not quite know whether a doctor may think it is his duty to tell the police—and because it is a charter for blackmailers. If we pass this Amendment we are not going to achieve our object, because all the blackmailer has to do is to say, "Unless you give me money I shall tell the police that you paid me something or that you gave me hospitality." So, one of the principal objects in passing the Bill will not have been achieved, because we all want to get rid of blackmailers if we can. If the Bill is passed without this Amendment it will achieve that object, but if we accept this Amendment, then, in relation to blackmailers, we are going to be in the same position as we are now.
Finally, I shall do a little inducing myself. I would wish to induce either
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the noble and learned Viscount, Lord Dilhorne, or the noble and learned Earl, Lord Kilmuir, to tell us frankly: Do they think—because we have in the Services, for example, cases of Lesbian conduct between women—that it ought to be the law that if an older woman provides money or hospitality for a younger Lesbian it should be a criminal offence?
THE EARL OF KILMUIR: The answer to that is that it is, of course, a complete red herring. No one knows it better than the noble Lord the Lord Chancellor. I believe that once a proposal was made, though it went no distance at all, that Lesbianism should be an offence. However, no one has reported on that, and it has not been considered, if my memory is right, for 43 years by either House. And I say it is no answer for the noble and learned Lord the Lord Chancellor to say, "Are you in favour of a new and uninvestigated criminal offence?" I say, if I may put it with the greatest respect, that it is his duty and the duty of everyone in this House to make the new law we are now dealing with in respect to men right; and I do not think it is right if we ignore this possibility. The noble and learned Lord Chancellor's point on blackmail has no foundation whatsoever. The same argument applies—and the words, as the Lord Chancellor knows, are very much the same—to false pretences, where you have to establish a false pretence and an inducement. I have never heard anyone suggest that it eased the path of the blackmailer if he could say that a false pretence had been made to him and that money had been given on that basis.
I put it to the noble and learned Lord that no one has answered the very simple point which I ventured to make on Second Reading, that one way to avoid being blackmailed is not to commit the homosexual act on which the blackmailer is relying. That is a way of avoiding what is now, as I understand it, still regarded as a sin and still regarded as something which no one would tolerate in a priest in the Church of England. To-day we are rapidly drifting into the position that the obvious way of avoiding sin, by not committing it, is too difficult for mankind. If we are slipping into that position under this leadership, then heaven help us as a country!
9.25 p.m.
LORD BOOTHBY: As I see it, the main object of this Bill is to avoid blackmail. We know that there are more cases of blackmail in connection with homosexuality than anything else in this country. I suggest to your Lordships that if this Amendment is passed, the main object of the Bill will be destroyed. We are out to avoid blackmail. I have consulted a number of eminent solicitors in the course of the last three months, some of the most eminent solicitors of all. They have said this to me and I think it is a point, "If anyone who occupies a position of public responsibility, or is in a position of public notoriety, came to us and said he was being blackmailed, rightly or wrongly, with reason or with no reason, for homosexuality, we should very much hesitate to advise him to fight the case. On balance, we should advise him to pay. But if it were Mr. John, or Mr. Smith, or Mr. Jenkins, of Wolverhampton, or Leicester, or perhaps even Edinburgh, someone who was of no importance at all, he would pay his fine of £.10, and that would be the end of the matter, and there would be no headlines in the newspapers at all".
I sincerely believe that this is absolutely wrong. Any young man in this country is in a position to blackmail a man who is in a position of responsibility, or who is a well-known figure in this country. I have been advised—I assure the noble Earl, and I am sure he would agree with me; I cannot mention names but they are the very best solicitors—that in these cases the probability is that they would say, "Pay, and finish with it, because we can give no guarantee whatever of any safety or security". That is what I want to avoid in this Bill above anything else.
LORD CHORLEY: It seems to me that the two noble and learned Lords who are supporting this Amendment so strongly are so emotionally involved in this problem that they have lost the sense of proportion that lawyers ought to bring to bear on matters of this kind. The idea that something ceases to become consent because there is a gift attached to it is completely new in the whole domain of English law. It is a most astonishing proposition. They go on to say that men of over 21 years of
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age are no longer to be free agents. They are to be curbed in this sort of way by the law. When they look back on this debate in a few weeks' time I think they will be puzzled to know how they could be led to such an emotional situation. It has never been suggested in the whole of history that men over 21 should not be free agents in respect of what they decide to do and that they should be curbed in this way. On the face of it, it is a proposition that I should have thought would not hold water for a minute.
LORD CONESFORD: I have heard more astonishing law from the last two speakers than I have heard during the rest of my legal life. It would seem that the noble Lord, Lord Chorley, is under the impression that bribery is no offence.
LORD CHORLEY: Is the noble Lord suggesting that this is a case of bribery? It is not within a mile of bribery.
LORD BOOTHBY: Blackmail.
LORD CONESFORD: The noble Lord, Lord Boothby, flits from pillar to post with such rapidity, reversing what he said in his last speech with every new speech he makes, that it is difficult to keep up with him. The noble Lord, Lord Boothby, said that an eminent solicitor, wisely nameless—
LORD BOOTHBY: More than one.
LORD CONESFORD: More than one solicitor advised a person who was being blackmailed to pay up. I can only say that the most eminent practitioner in the law at the time I first began to practise told me that from time to time he had been consulted by people who were being blackmailed. He had always given the same advice—pay nothing and tell them to be damned. He said, "I know that my advice was right, but it was seldom taken".
I am in complete sympathy with the noble and learned Lord the Lord Chancellor and, so far as I understand him, with the noble Lord, Lord Boothby, in loathing blackmail. What astonishes me in this whole controversy is the quite extraordinary view that, if we pass this Bill or something like it, the blackmailing of homosexuals will cease. Why on earth should it? The noble Lord, Lord Boothby, said, quite rightly, that to a

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public man a reputation of being homosexual could be very harmful. Therefore, the revelation that he is a homosexual—
LORD BOOTHBY: I really must protest against that. I never said that I was a homosexual—"The revelation that I was a homosexual".
LORD CONESFORD: I said nothing of the kind. The noble Lord is not always the person concerned if he is concerned at all. I shall perhaps be saying something of what the noble Lord, Lord Boothby, did earlier in this debate, about which I had intended letting him off.
LORD BOOTHBY: Be careful.
LORD CONESFORD: I will be careful. If it is damaging to a public man to be known to be a homosexual, whether it is a criminal offence or not, the blackmailer can make a threat of revealing the fact, and that threat may be so severe that it may be worth buying off with money. Therefore, it is untrue to say that the mere passing of a Bill of this kind will end the risk of blackmail in connection with homosexual offences.
I share what I am sure is the hope of the Lord Chancellor, that if there is a reform of the law, blackmail will diminish; but I do not put it higher than that. Can we not get some of the advantages of a reform of the law without opening the door to something that everybody in the House, whatever his views on this problem, would think horrible—namely, a rich man using his wealth, not to buy affection, but to buy the commission of what has hitherto been a serious criminal act? That, as it seems to me, is a real risk. It is against that that my noble and learned friend Lord Dilhorne has devised this Amendment. It may he imperfect; there may be objections to it; but I am sure it deserves more respect than it has hitherto received.
Since I promised that I would deal with the noble Lord who has so consistently interrupted everybody who has been making a speech on this subject throughout this afternoon, let me come to the noble Lord, Lord Boothby. At an earlier stage in the proceedings, on the very first Amendment to-day, the noble and learned Lord—
LORD BOOTHBY: I am not learned.
LORD CONESFORD: No; but Lord Dilhorne is. My noble and learned friend Lord Dilhorne said that in earlier proceedings Lord Boothby had misrepresented to the House the nature of this Bill and the nature of the Report of the Wolfenden Committee. This was indignantly denied by Lord Boothby.
LORD BOOTHBY: Hear, hear!
LORD CONESFORD: Very well. Then I would recommend Lord Boothby to acquire a copy of the Hansard of May 12 of this year, and to turn to column 131. He will there find that he interrupted my noble friend Lord Rowallan with these words:
"All we are talking about is the Labouchere Amendment, and that is all that the Wolfenden Committee wants to be removed."—[OFFICIAL REPORT, Vol. 266 (No. 73).]
Lord Rowallan said:
"I am afraid that I cannot accept such a statement."
Then Lord Jessel said this:
"My Lords, if the noble Lord, Lord Boothby, had been here a little earlier, he would have heard from my noble friend Lord Dundee a very full description of what happened."
Then I intervened for, until this evening, the only time I have intervened on this topic, as follows:
"My Lords, I am not taking any side in this intervention, except to say that the noble Lord, Lord Boothby, is entirely wrong in saying that all we are discussing is the Labouchere Amendment, or that that was the sole subject of the Wolfenden Report.
"LORD BOOTHBY: Of course it was.
"LORD CONESFORD: Of course it was not."
At that point the noble Earl the Leader of the House very properly intervened with the suggestion that Lord Rowallan might get on with his speech. I hope that the quotation I have made from the previous intervention of the noble Lord, Lord Boothby, will show how utterly wrong he was in suggesting that my noble and learned friend Lord Dilhorne had misrepresented him in any way in the speech that he made, and I hope that possibly what I am saying now may induce him to—
LORD BOOTHBY: Keep his trap shut.
LORD CONESFORD:—to remain in a sedentary position until he has something worth while to say.
LORD BOOTHBY: I have something worth while to say. It is not true that I have interrupted the whole of this afternoon. I want to say that Sir John Wolfenden has said to me on more than one occasion: "The guts of my Report was the repeal of the Labouchere Amendment. If I can get that, that is what I really want. That is what matters." And I quote Sir John Wolfenden as having said that. That is true. It has been said again and again, and it is what I have always said. The noble Lord has been beastly to me, and I do not see why he should, because I have been a great friend of his for over thirty years.
LORD STRABOLGI: Perhaps, with respect to the noble Lords, Lord Cones-ford and Lord Boothby, we might get back to the Amendment. I hope that the Committee will not accept it, for it seems to me quite unworkable, unprovable, in law. As the right reverend Prelate has pointed out, it is very difficult to tell what is meant by the word "induced". It is also very difficult to tell what could be meant by "a gift". Furthermore, as the noble Lord, Lord Boothby, has pointed out, it opens the way to the blackmailer. After all, why should an older man who gives a younger man a gold cigarette case with his initials on it—which is a favourite gift, I believe, between homosexuals—be running the gravest risk of blackmail through having a gift of that kind proved because it is something tangible, when, on the other hand, there may be another man embarking on a course of seduction who takes a younger man out to a series of expensive dinners, or perhaps even abroad for a holiday, and it would be very difficult to prove that the younger man had not paid his share?
Furthermore, I think there has been a tendency of this Committee to see things far too much in black and white. We have heard about people who have been homosexuals all their lives and who will never be anything else. That is not true. It is well known that many men are homosexuals at some time in their lives and not at others. Some men are homosexual and heterosexual at the same time. Other men have never been homosexual until middle age, and then suddenly change. Things are not so easy as that,
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because human nature is not as simple as that. Human nature is an infinitely complicated thing, and we are dealing with an infinitely complicated matter. Young men are not seduced always by gifts. What is a much more insidious form of seduction, if seduction it is, is when the older man seduces by his wit, by his superior education, by his greater culture, by his more sophisticated background. I shall be very interested to know how the noble and learned Viscount, Lord Dilhorne, proposes to legislate against that.
9.44 p.m.
LORD STONHAM: I should like briefly, as my noble friend Lord Strabolgi suggested, to get back to the Amendment. I want particularly to return to a point raised by my noble and learned friend the Lord Chancellor, which has not so far been answered. We have had from the noble and learned Viscount, and the noble and learned Earl, Lord Kilmuir, quite passionate speeches in which they both referred to the fact that throughout the years there has been inequality of treatment as between men and women. If I may say so with respect, no two noble Lords in this House have in recent years helped to create more inequality of treatment between men and women than the noble and learned Viscount, Lord Dilhorne, and the noble and learned Earl, Lord Kilmuir. At an earlier stage to-day the noble and learned Viscount reminded us that he had played a prominent part in the Street Offences Act.
VISCOUNT DILHORNE: Is the noble Lord going to say that the Government are going to repeal it?
LORD STONHAM: No; I was just referring to the noble Lord's part in it. It is within my recollection, and the noble Earl's, that he too played a prominent part in this House in securing the passing of the Street Offences Act. The noble Earl will recall that Section 1 of that Act says:
"It shall he an offence for a common prostitute to loiter or solicit in a street or public place for the purpose of prostitution."
The noble Earl will recall that many times I protested against the injustice to women, as I saw it, which was perpetrated in that Act but, when the women were cleared off the streets, as some of them

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have been, they then plied their trade of prostitution in houses. The position then—and the noble Earl obviously approves—is that they are not then committing any offence; nor is the man who buys their favours. Apparently it is quite all right.
I am astounded at the inconsistency which the noble and learned Viscount is displaying. In this Amendment an exactly similar act by a male is to be created an offence. The noble and learned Earl, Lord Kilmuir, used a phrase which was something like, "introducing a completely uninvestigated offence," which was precisely what was done in the Street Offences Act.
THE EARL OF KILMUIR: Would the noble Lord allow me to intervene? The Street Offences Act gave effect to the other part of the Wolfenden Report, and every noble Lord in support of this Bill has said how marvellous the Wolfenden Report is; indeed, we have been told that we ought not to deviate from it at all. We put into effect the recommendations of the Wolfenden Report. When I used the phrase "uninvestigated offence" I was referring to lesbianism, on which, so far as I know—and I have not been corrected—there has been no report, and it has only once been discussed in Parliament in the last fifty years.
LORD STONHAM: The noble Earl has virtually taken the words right out of my mouth, because I was immediately coming to the point of using the Wolfenden Report to demonstrate his fantastic inconsistency in this matter. The noble and learned Viscount, Lord Dilhorne, in his opening speech was kind enough to read us almost two paragraphs of the Wolfenden Report in support of his arguments, but in the second extract he carefully stopped short at the words:
"We are aware, too, that money, gifts or hospitality are sometimes used to induce consent."
He did not then go on to use the words of the Wolfenden Report:
"But these considerations apply equally to heterosexual relationships, and we can find in them no ground for differentiating, so far as the behaviour of adults is concerned, between homosexual and heterosexual relationships."
The noble and learned Earl, Lord Kilmuir, has just gloried in the fact that nearly six years ago the Government of
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the day accepted that section of the Wolfenden Report; but at this very moment, with regard to men, he has completely rejected this recommendation, so he can hardly claim in aid that I then objected to the other part of the Wolfenden Committee's Report with regard to women. What we really have to decide is not whether we are desirous of encouraging male prostitution, but whether we want to bring into the attitude with regard to men and women another new inconsistency, another new inequality. As my noble and learned friend the Lord Chancellor pointed out, that would be quite wrong.
There is one other point that I wish to make. The noble and learned Viscount, in replying to the right reverend Prelate, seemed to dismiss in a airy fashion the suggestion that there would be any difficulty about deciding what constituted a gift. He said the courts could easily decide it. In the course of this debate many examples have been quoted of what might be used as a gift. But what about the gift of a job? What about employment? That is one of the most difficult things to establish, but it has been done many times in this particular relationship, and I would say that in that respect alone the Amendment is defective and ought not to be accepted.
THE EARL OF HUNTINGDON: May I say one word in relation to Lord Conesford's speech, which I did not quite understand. His argument, I think, if I correctly understood it, was that as Lord Boothby suggested it would be a great handicap to be known as a homosexual in public life, therefore it would not make much difference whether it was legal or not. But surely the noble Lord will appreciate the degree of difference. It is one thing having a slur put about on a homosexual who may be inclined that way, which is unfortunate, but it is a very different thing if the threat is of going to prison and becoming a criminal and having one's whole life ruined that way. It is a much bigger weapon surely.
BARONESS WOOTTON OF ABINGER: I do not wish to enter into the morals of this matter, which have a fascination for many of your Lordships which I do not share. I merely want to say that this Amendment seems to me to be quite impracticable. How are the courts

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to decide whether a gift was made as a condition of consent to a homosexual act? Somebody asks somebody else to dinner on the Wednesday. Thursday, Friday and Saturday pass. On Sunday he makes improper suggestions. Is the dinner held to be an inducement or not? That situation, in an enormous number of variations, can be repeated over and over again. It is quite impracticable, and it is, incidentally, one of the reasons why those who wish to make prostitution a crime are not able to do so.
9.53 p.m.
THE EARL OF ARRAN: Perhaps I may intervene; I think the noble and learned Viscount, Lord Dilhorne, would like me to say something. I shall be very brief—I do not believe in long speeches. Once again I am with the noble and learned Viscount in the spirit of his Amendment, but again T must oppose it, and head-on. I do so first of all for the reason given by the Lord Chancellor. The noble and learned Viscount is seeking to discriminate between heterosexual and homosexual prostitution. I would oppose the Amendment on that ground alone. But I oppose it more strongly still because I believe, as the noble Baroness has just said, that it would be entirely unenforceable. Prostitution, the buying and selling of human bodies, is an odious thing, but no one has yet found a way of stopping it; and for that reason, if for no other, it is not illegal in this country.
Others have claimed expertise in the matter of the Street Offences Act. Your Lordships may remember that when we were discussing that Bill I went to Hyde Park and picked up a lot of prostitutes and got to know them very well. So I am not altogether unaware of the problems that beset them. Even if you want to discriminate, how on earth are you going to prove that someone has been paid for his services and nothing else? If he has £5 on him, how can you tell whether or not he had it on him when he met the other fellow, or that the other fellow gave it to him?
Even if it was given, how can you prove that it was not for an innocent purpose—it might have been in payment of a debt. And, in the last resort, even if payment is proved, how on earth can you determine whether it was the
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money which induced the man to commit the act? I think it was the noble Earl, Lord Huntingdon, who asked what would constitute a gift. It is not only money. A cigarette was regarded by the noble Viscount as not sufficient. He was more doubtful about a cigar. What about a drink in a pub? What constitutes a gift? How could any jury decide what is a gift, let alone what it is given for? I believe these proposals to be entirely unworkable, and the noble and learned Viscount must surely know it. Our purpose being largely to repeal existing laws which are unenforceable, what is the purpose of introducing new ones?
Then there is the question of blackmail. I shall have occasion to speak about blackmail on another Amendment. It has been suggested that this matter of blackmail has been overstated. The noble and learned Lord, Lord Goddard, on Second Reading, thought that the blackmailer would find equal scope for his practice if he threatened to expose a man, not to the police but to his friends and to what he called decent society. I quote the noble and learned Lord who said, "He will be ostracised". It is greatly to the credit of the noble and learned Lord if he thinks, in his innocence, that this attitude still obtains. I am glad to say that in this generation people do not believe in ostracising, let alone in persecuting, those who, through no fault of their own, are born to misfortune. We believe in justice for the under-privileged.
The blackmailer's instrument being that of fear, what is it that man fears most? I would say death, and even the bravest and most Christian of us must fear that. Next, I would say prison. A man who is threatened with exposure to his wife or to his boss or to his friends may be willing perhaps to stand up to the blackmailer. If the blackmailer carries out his threat, he may be humiliated or divorced or sacked, or avoided by the more sanctimonious. But he will live it down; he should be able to live it down. If he is a man of courage, he will live it down. But a man who is threatened with exposure to the police, that is with prison, may think to himself, even to-day, that he has only two alternatives—to pay up or to kill himself. I should like to believe, and I half believe, that it is safe for a man to go to the police and say

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that he is being blackmailed—"I am being blackmailed; help me." I like to think that the police would always give their unequivocal support on these occasions. I like to think this, but I am not certain that everybody believes it to be so.
Can we come back to the immediate Amendment? In saying that I oppose Lord Dilhorne's Amendment, may I recommend to your Lordships instead Amendment No. 17, which is in direct accord with paragraph 115 of the Wolfenden Report? It was referred to, I think, by the noble and learned Viscount in his speech. It was felt by the Wolfenden Committee that, while male and female prostitutes should be dealt with pari passe—and I think that was the point of the noble and learned Lord Chancellor—it was essential that there should be legal safeguards against third parties who may make money from the protection of male prostitutes: the pimps and the ponces in fact. We must wholeheartedly agree with this, and Amendment No. 17 is the result.
Our purpose is clear. With Wolfenden, and with others, we think it wrong to discriminate between male and female prostitution. We believe it utterly unpractical to attempt to decide whether or not the heterosexual or homosexual act has or has not been induced by money. We are determined that those who live on immoral earnings should be punished. I ask your Lordships to reject Amendment No. 8, and. when that has been done, to accept in its place Amendment No. 17.
VISCOUNT DILHORNE: The debate on this Amendment has covered an extremely wide field. Indeed, the field has been considerably expanded by the noble Earl. We have had introduced into this debate a number of considerations which are wholly irrelevant. The noble Earl, Lord Kilmuir, referred to the Lord Chancellor's reference to Lesbianism as a complete red herring. I entirely agree with him. But the Lord Chancellor also introduced another red herring in his reference to blackmail in relation to this Amendment. I believe the biggest myth about this Bill is that, if it is passed, one will get rid of blackmail for homosexuality. I do not believe that for one moment. There is not one word of support for that in Wolfenden.
May I remind your Lordships, when so much stress is laid by the noble Earl on
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blackmail, of what Wolfenden said? I will quote the last bit of paragraph 110, and paragraph 111. They give the figures and say:
"These figures represent an average of eight cases a year, and even allowing for the reluctance of the victim to approach the police, they suggest that the amount of blackmail which takes place has been considerably exaggerated in the popular mind."
Then they go on to say, in paragraph 111:
"We will certainly not go so far as some of our witnesses have done and suggest that the opportunities for blackmail inherent in the present law would he sufficient ground for changing it. We have found it hard to decide whether the blackmailer's primary weapon is the threat of disclosure to the police, with the attendant legal consequences, or the threat of disclosure to the victim's relatives, employer or friends, with the attendant social consequences. It may well be that the latter is the more effective weapon; but it may yet be true that it would lose much of its edge if the social consequences were not associated with (or, indeed, dependent upon) the present legal position."
That is their summary of the present situation.
LORD BYERS: Could the noble Viscount give way for a moment? He did not read out to the House the part of paragraph 110 where it says
"Most victims of the blackmailer are naturally hesitant about reporting their misfortunes to the police, so that figures relating to prosecutions do not afford a reliable measure of the amount of blackmail that actually goes on."
THE EARL OF ARRAN: Would the noble Viscount allow me to say this?—
VISCOUNT DILHORNE: May I answer the noble Lord on my right before answering the noble Earl on my left? I was endeavouring to be not too long. If the noble Lord will look at the last sentence, which I did quote, from paragraph 110, it says:
"These figures represent an average of eight cases a year, and even allowing for the reluctance of the victim to approach the police …."
That was recognised in the section I cited. I could read, even at this late hour, a great more of this Report.
LORD BYERS: It would give a more balanced view.
VISCOUNT DILHORNE: If the noble Lord wishes me to do so, I will certainly read the whole passage on blackmail. There are three paragraphs.
THE EARL OF LONGFORD: Is it necessary?
VISCOUNT DILHORNE: The passage reads:
"The third criticism was one that found more frequent expression among our witnesses, and we were more than once reminded that the Labouchère amendment has frequently been referred to as the Blackmailer's Charter '. This Amendment certainly provided greater opportunities for the blackmailer. Nevertheless, the fact that buggery, attempted buggery and indecent assault were already criminal offences offered ample scope for the blackmailer and would have continued to do so even if the amendment had not passed into law. Indeed, English law has recognised the special danger of blackmail, in relation to buggery and attempted buggery in Section 29 of the Larceny Act, 1916."
Then comes paragraph 110:
"We know that blackmail takes place in connection with homosexual acts."
Nobody has disputed that.
"There is no doubt also that a good many instances occur where from fear of exposure men lay themselves open to repeated small demands for money or other benefits, which their previous conduct makes it difficult for them to resist; these often do not amount to blackmail in the strict sense, but they arise out of the same situation as gives rise to blackmail itself. Most victims of the blackmailer are naturally hesitant about reporting their misfortunes to the police, so that figures relating to prosecutions do not afford a reliable measure of the amount of blackmail that actually goes on. However, of 71 cases of blackmail reported to the police in England and Wales in the years 1950 to 1953 inclusive, 32 were connected with homosexual activities."
I do not think I misrepresented the position by giving a summary of their conclusions.
"These figures represent an average of eight cases a year, and even allowing for the reluctance of the victim to approach the police, they suggest that the amount of blackmail which takes place has been considerably exaggerated in the popular mind."
LORD BOOTHBY: I know that the noble and learned Viscount—
VISCOUNT DILHORNE: Might I deal with one noble Lord at a time? It is easier that way. I quoted that, first of all, in support of my proposition that it had been exaggerated in the public mind. I think I did not do anything unfair in just reading that passage. It is a conclusion of the part that precedes it.
Secondly, it is said that Wolfenden never for one moment suggests or supports the proposition that if this Bill is
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passed we shall get rid of blackmail for homosexual offences. The Lord Chancellor did, I think, suggest that, but I believe that that is going much too far. I have had discussions with very experienced counsel in the criminal world, and one of them said to me the other day in conversation that he simply could not understand this assumption that blackmail for homosexual offences would go if this Bill was passed; and for the very reason indicated by the noble Lord, Lord Boothby, that there is always the possibility of blackmail of anyone in a position of responsibility because of the position he holds (those are the words of the noble Lord) or of anyone who is a well-known figure, because of the fear of exposure to his family, to his employer and to his associates. Blackmail so far as this Amendment is concerned is, I think, a wholly irrelevant question, for this reason. There can always be blackmail by someone who says, "After all, I did not consent, and I will say that I did not consent unless you pay me." There is always that possibility of blackmail whether or not this Amendment is passed. This Amendment is not concerned at all either with blackmail or with Lesbians. What it is concerned with is simply the question of male prostitution, and I want to bring the Committee back to that if I may.
One can go too far in seeking to secure uniformity in the treatment of men and women by the law. At the present time, as my noble and learned friend Lord Kilmuir has said, it would be illegal and criminal to attempt to procure the commission of an act of sodomy, and I dare say that there have been a number of cases where it has been proved that the attempt has been made by the giving of a gift. We are now suggesting that consent to that act should make it not a criminal offence if the persons concerned are over 21.
What I am seeking to convince the Committee is that consent obtained, induced, by gifts should not count for that purpose. The noble Baroness, Lady Wootton of Abinger, says that that is quite impracticable. It is no more impracticable from the point of view of the courts than proving that money has been obtained by false pretences. All that has to be proved here is that the gift has

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induced the consent. There may be a number of cases where you cannot prove it because the evidence does not come up to that; there will be others where you can, and it is not an argument for resisting this Amendment to say that there are some cases where the making of a gift inducing the homosexual activities will not be capable of proof to the satisfaction of the jury. I am not quite sure whether the noble Earl the Leader of the House is following the argument that I was posing.
THE EARL OF LONGFORD: I was most anxious to follow it, but I had lost track of it at a crucial point.
BARONESS WOOTTON OF ABINGER: Will the noble and learned Viscount give way for a moment? There is a considerable difference between these gifts and those which are the subject of proceedings for false pretences. In this case the gifts may be of a kind which are ordinarily exchanged in the course of ordinary social intercourse—somebody buying somebody a drink, or somebody taking somebody else out to dinner—and that is an entirely different matter from extracting money for the payment of goods when the goods are not actually to be delivered.
LORD BOOTHBY: Before the noble and learned Viscount—
VISCOUNT DILHORNE: May I deal, first of all, with the noble Lady? I will not forget the noble Lord, Lord Boothby—it is almost impossible to forget him. The noble Lady is surely wrong about that, for this reason: it is quite easy to find out what a gift is. You may be given a cigarette—that is a gift. You may be given a drink—that is a gift. It would be quite easy for the jury or court to determine whether or not there was a gift. But to satisfy a jury here, you would have to satisfy them that the gift had induced consent to that course of conduct; and I do not suppose for one moment, the burden of proof being on the prosecution to prove it beyond reasonable doubt, that a jury would be satisfied that a young man or a man under 21 had agreed to this kind of conduct for the kind of gift that has been suggested—a cigarette or a cheap cigar. I do not believe a jury would be satisfied by that.
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On the other hand, if a jury found that a man had been given £20, that he had gone off to a room immediately afterwards with the other party and that homosexual conduct had then taken place, I should have thought there would be no difficulty at all in the jury coming to the conclusion that that was a gift which had in fact induced consent. Of course, it would not depend entirely on that; but I am afraid I entirely disagree with the noble Lady when she says that this would be quite impracticable.
BARONESS WOOTTON OF ABINGER: The noble and learned Viscount will perhaps pay me the compliment of realising that I made no reference to a gift of a cigarette. I referred to gifts such as drinks and entertainment at dinner, that take place in the course of normal social intercourse. I think the noble and learned Viscount put my case better than I could have put it myself when he remarked that the jury would find it very easy in the easy cases and extremely difficult in the difficult ones.
VISCOUNT DILHORNE: So they do in many other fields. In driving cases and in many other fields they have to apply their common sense to determine it. I know the noble Lady did not refer to the cigarette or the cigar, but the noble Lord—I think she was out of the Chamber at the time—did in fact give those illustrations. But, for the reasons I have stated, I do not agree with her that it is quite impracticable and quite unenforceable.
The noble Lord, Lord Stonham, said, "What about the gift of employment, the gift of the job?" There, again, if it was established to the satisfaction of the jury that that job had been given as payment for consent to a homosexual act, then, indeed, I do not think that that consent would count for this purpose.
LORD CHORLEY: If I may—
VISCOUNT DILHORNE: If I may, I should like to take the interruptions in turn. I had promised the noble Lord, Lord Boothby, that I would give way to him.
LORD BOOTHBY: With due apologies to the noble Lord, Lord Conesford, the noble Viscount has been scrupulously fair

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in his argument to-night, but he has omitted what I think is the most pregnant sentence of all in the Wolfenden Report. May I, just for the record, read it? It is only a sentence:
"At the least it is clear that if this is no more than one among other fields of blackmailing activity, the present law does afford to the blackmailer opportunities which the law might well he expected to diminish".
THE EARL OF ARRAN: And, on this point, is it not a fact that the late Lord Jowitt, I think, said that 90 per cent. of the blackmailing cases which came his way when he was Attorney General were concerned with homosexual practices?
VISCOUNT DILHORNE: I must say this, as the noble Earl, Lord Arran, has said that—and it has been said repeatedly—that when I was Attorney we certainly did not keep statistics of blackmailing cases, and blackmailing cases very seldom came the way of Law Officers in their professional capacity. I really do not know on what period those statistics were based. But it is, I am sure, clear that blackmail does not relate only to homosexuality. It does not take place only because of fear of prosecution. The fear of exposure is a very potent thing. I have never said it might not be marginally diminished by this Bill. I have given expression to the view, which is sincerely held by others of great experience, that this will not lead to a diminution, but to an increase of it.
As I was saying, I think this question of blackmail in relation—did the noble Lord, Lord Shackleton wish to say something?
LORD SHACKLETON: I was trying to urge my noble friends to allow the noble and learned Viscount to complete his speech so that we could come to a decision on this point.
VISCOUNT DILHORNE: I am grateful to the noble Lord for his help. But, I am ready to give way, and I will give way to the noble Lord, Lord Chorley, when I have finished this sentence. Blackmail is wholly irrelevant to this issue. What we have to decide here is whether or not we wish to encourage male prostitution.
LORD CHORLEY: This is an important point in relation to a trial of this
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kind, which I shall have to hear at the quarter sessions, if the noble Viscount gets his way. He said that it is easy to prove these cases to a jury. In most of the cases the only evidence will be the evidence of the other criminal. This will be a criminal offence if the noble Viscount gets his way. The noble Viscount knows well that to prove a case against a man out of the mouth of his fellow criminal is very difficult, in that it involves the difficult problem of corroboration, and I support the view of the noble Baroness, Lady Wootton of Abinger, that this would lead to an extraordinarily difficult if not impossible state of the law.
VISCOUNT DILHORNE: I think that was not so much a question as another speech.
VISCOUNT ST. DAVIDS: I should like to suggest to the Committee that on looking round the Benches I do not believe that there is a single Member present who has not by this time made up his mind in this matter. I was wondering whether the noble and learned Viscount might not agree that this was the time when we might put this matter to the vote and get rid of this point. I do not believe there is a single Member present whose mind can be changed through further argument.
VISCOUNT DILHORNE: I gave way for an interruption, thinking that it was a question; but it was a speech, just as was that of the noble Lord, Lord Chorley. If I had not been so interrupted and asked so many questions I should have been much shorter. It is no desire of mine to take up your Lordships' time. We have a very heavy programme if we are to finish to-night. The Committee will bear in mind, however, that I have been asked a number of questions which I have sought to deal with to the best of my ability. I do not think I can be blamed for taking a long time. The noble Lord, Lord Byers encouraged me—"induced" me, if I may use the word—to read out paragraphs of the Wolfenden Report; then the noble Lord, Lord Boothby, chided me because I had left out one sentence.
I now come back to the question that I was coming to when the noble Lord, Lord Chorley, rose: it is that the real issue is a vote either in favour of or

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against male prostitution. Those in favour of allowing that now to take place, for consent to be obtained by gifts in this way will oppose this Amendment. I do not believe that is right. I therefore shall press this Amendment to a Division.
Resolved in the negative and Amendment disagreed to accordingly.
10.20 p.m.
On Question, Whether the said Amendment (No. 8) shall be agreed to?
Their Lordships divided: Contents, 18; Not-Contents, 37.

CONTENTS

Albemarle, E.

Drumalbyn, L.

Peddie, L.

Auckland, L.

Goschen, V.

Samuel, V.

Beswick, L.

Hobson, L.

Shepherd, L.

Blyton, L.

Horsbrugh, Bs.

Somers, L.

Conesford, L.

Iddesleigh, E.

Strange, L.

Dilhorne, V. [Teller.]

Kilmuir, E. [Teller.]

Tangley, L.

NOT-CONTENTS

Airedale, L.

Hertford, M.

Ponsonby of Shulbrede, L.

Archibald, L.

Hives, L.

Queensberry, M.

Arran, E. [Teller.]

Huntingdon, E.

Reay L.

Bedford, D. [Teller.]

Jessel, L.

St. Davids, V.

Boothby, L.

Kinross, L.

Sandys, L.

Byers, L.

Lincoln, L. Bp.

Segal, L.

Chorley, L.

Longford, E. (L. Privy Seal.)

Shackleton, L.

Cranbrook, E.

Maugham, V.

Stamp, L.

Dinevor, L.

Merthyr, L.

Stonham, L.

Emmet of Amberley, Bs.

Mitchison, L.

Strabolgi, L.

Gaitskell, Bs.

Monson, L.

Terrington, L.

Gardiner, L. (L. Chancellor.)

Mottistone, L.

Wootton of Abinger, Bs.

Greenway, L.

10.25 p.m.
THE LORD BISHOP OF LONDON THE LORD BISHOP OF LONDON: moved to add to Clause 1:
"( ) A person shall not be deemed to have consented to such a homosexual act as is mentioned in subsection (1) of this section if he was, at the time when the said act was committed, suffering from mental illness, psychopathic disorder, subnormality or severe subnormality as defined by section 4 of the Mental Health Act 1959.
( ) Notwithstanding the provisions of the last foregoing subsection a person who commits such an act as is mentioned in subsection 1 of this section with another person who is suffering from such mental illness, psychopathic disorder, or subnormality as is mentioned in the last foregoing subsection shall not be guilty of an offence unless he knows or has reason to suspect that that other person is so suffering."
The right reverend Prelate said: I beg to move Amendment No. 9. I hope I need not keep your Lordships for two minutes on this point. The object of this Amendment is to give protection for those who are victims of assault or of apparent consent and who are not in a position to know what it is they are doing—that group of mentally affected persons who, in our judgment, need protection. This Amendment is drafted along the lines of the protection that is given to women under Section 7 of the Sexual Offences Act, as amended by the Mental Health Act, 1959. In that case, as here, there is an exception for a man who does not know or has no reason to suspect the other person's mental state. It may well be that this principle will commend itself to your Lordships, although the precise way of securing it may require further consideration. In the belief that the principle is important and protection should be given for this group of persons, I beg to move.
Amendment moved—
Page 1, line 7, at end insert the said subsections.—(The Lord Bishop of London.)
LORD STONHAM: The right reverend Prelate has made the purpose of this Amendment very clear. As he has indicated, the principle may appeal to your Lordships, because the Amendment seeks to ensure that a person suffering from mental disorder or mental subnormality within the meaning of the Mental Health Act, 1959, cannot give consent to a homosexual act, and to give
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protection to a person who may commit an offence inadvertently by performing a homosexual act with a mentally disordered person when he has reason to believe that consent has been obtained and has no reason to believe that the other person is mentally disordered. Section 4(1) of the Mental Health Act, 1959, states:
… in this Act `mental disorder' means mental illness, arrested or incomplete development of mind, psychopathic disorder, and any other disorder or disability of mind; and ' mentally disordered ' shall be construed accordingly."
The next four following subsections define the terms of "severe subnormality", "subnormality", and "psychopathic disorder".
The Amendment, as it stands, gives the mentally disordered greater protection from homosexual acts than they have in respect of heterosexual acts. The provisions dealing with heterosexual acts set the following limits. First, under Section 7 of the Sexual Offences Act, 1956, it makes it an offence to have unlawful sexual intercourse with a defective. Section 128 of the Mental Health Act, 1959, makes it an offence, first, for a member of the staff of a mental hospital to have unlawful sexual intercourse with a patient, and secondly, for any man to have unlawful sexual intercourse with a mentally disordered patient in his guardianship, custody or care.
Under the Amendment which the right reverend Prelate has moved, any person suffering from mental illness (even if not a mental patient or in no way brought within the procedures of the Mental Health Act, 1959) would be unable to give a valid consent to a private homosexual act with any person. The Amendment makes any sexual act committed with a demented person an offence and would be much wider than the present position.
As the right reverend Prelate made clear, subsection (2) of the proposed Amendment deals with understandable ignorance of mental disorders on the part of the other party. This is one safeguard. But the Amendment then still goes wider than the existing analogous heterosexual provisions. The

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existing provisions for indecent assaults on men and indecent assaults on women are identical: Sections 14(4) and 15(3) of the Sexual Offences Act, 1956. A defective cannot in law give any consent which would prevent an act from being an indecent assault.
The position, therefore, is that if the right reverend Prelate's Amendment, as it stands, were accepted, it would go very much wider than the present position, and he may not wish that to be. It is for the right reverend Prelate to indicate whether he does wish to widen the field in this way, or whether he might feel that it would be advisable to withdraw the present Amendment with the idea that, with any necessary alteration, a new Amendment covering the same point can be submitted on the Report stage.
THE LORD BISHOP OF LONDON: I thank the noble Lord for that explanation. It was not our purpose to widen the scope as fully as the noble Lord explained might be the case. I would, therefore, beg leave to withdraw this Amendment in the hope that it can be redrafted in a more satisfactory form for the Report stage.
VISCOUNT DILHORNE: Before the right reverend Prelate takes that course, I should be very grateful to him if he would make quite clear exactly what it is he wishes to achieve. As the clause is drawn, its effect is really more curious than the noble Lord, Lord Stonham, suggested. In fact, it would mean that the mentally defective was liable to prosecution, when if he had in fact been able to give a consent he would not be able to any prosecution. What I should like to have made clear by the right reverend Prelate is this. Is what he is seeking to do to ensure that anyone who commits a homosexual practice with a mentally defective shall still be within he ambit of the criminal laws to the same extent as a man who has intercourse with a mentally defective woman? Is hat what the object is? Because tying his particular clause to the giving of consent in certain circumstances produces extremely difficult and awkward circumstances.
THE LORD BISHOP OF LONDON: The purpose was to get that sort of relationship which has been referred to, as where it is an offence for a man to have unlawful sexual intercourse with a women who is mentally defective, and to enable some protection to be given to patients, or mental defectives, whose position, because of their deficiency, could be abused by those who wish to make use of them. If we have not achieved that by the wording of this Amendment, then I shall be very glad to have it achieved by a proper course.
Amendment, by leave, withdrawn.
Clause 1, as amended, agreed to.
THE LORD ARCHBISHOP OF CANTERBURY THE LORD ARCHBISHOP OF CANTERBURY moved, after Clause 1, to insert the following new clause:
Homosexual offence with person over 16 but under 21 years of age
". A person who has attained the age of 21 years who commits a homosexual offence contrary to section 12 (Buggery), section 13 (Indecency between men) or section 32 (Solicitation by men) of the Sexual Offences Act 1956 with another person who has attained the age of 16 but has not attained the age of 21 years shall be guilty of an indictable offence and shall be liable to a maximum penalty of 5 years' imprisonment."
The most reverend Primate said: I beg to move Amendment No. 10. Its purpose is to give effect to what I believe to be an important part of the Wolfenden recommendations concerning penalties and protection of the young. The effect of this new clause, if it were accepted, would be twofold. First, it secures a maximum penalty of five years for a variety of offences between adults and boys between the ages of 16 and 21. Hitherto, in cases of gross indecency between people in this category the maximum penalty has been two years, and to make the maximum five years for gross indecency, alongside the other group of offences, would give some of that added protection to the young which I believe to be so highly desirable.
The second effect of this new clause would be to bring homosexual buggery into the same class of penalty as these other offences. The Committee has already decided that in respect of consenting adults the criminal distinction

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between sodomy and other homosexual offences is removed. With that step taken, it seems unsatisfactory that here there should be such a big disparity between a life sentence for sodomy and the present maximum sentence of two years for other homosexual offences. Therefore, the clause, by bringing homosexual buggery between these persons into the same categories as the other offences so that they are all subject to a maximum penalty of five years, I think is doing the right thing, and I believe that it would provide a workable law with sufficient penalties and more protection for the young than the existing law provides. I beg to move.
Amendment moved—
After Clause insert the said new clause.—(The Lord Archbishop of Canterbury.)
10.40 p.m.
VISCOUNT DILHORNE: I know this Amendment follows the recommendation of the Wolfenden Committee, but I would ask the most reverend Primate to think again with regard to this Amendment, as indeed he did think again, I gather, after expressing his assent to the proposition put forward by my noble and learned friend Lord Kilmuir on the earlier Amendment. I have no objection to raising the maximum sentence for gross indecency when it is committed with a youth of the age of between 16 and 21, which is one part of what this Amendment seeks to do; that is indeed a protection of the young. But I have very strong objection to the reduction of the maximum sentence of life for buggery, to five years, when the buggery is committed by an older man with a youth of between 16 and 21 years. Here we are not concerned with the question of consent at all: that does not arise; here we are concerned with the one thing that one really does want to discourage—namely, offences of this sort committed by older men with youths.
Under this proposal, if someone of forty or fifty commits this offence of sodomy with a youth of 17 he will be liable to a sentence of only five years' imprisonment, although it may be that he has had several previous convictions for precisely the same type of offence. It is not enough as a maximum, and I
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think it would be much better to leave the maximum where it is for that offence and leave it to the judgment of the judges. I am sure they can be relied upon to exercise it wisely and correctly.
I say it is not enough because I have been engaged in years gone by in some very distressing cases. I might perhaps mention one case because it happened so long ago that I think I can safely speak about it. It was a case of a middle-aged man with a number of youths. He had served a sentence of seven years, and having served that sentence he came out and it was not a long time before he had committed a whole series of these offences in the most disgusting circumstances with a whole series of youths. Of course it could be said, and truly said, that that man was not going to be reformed by a sentence of imprisonment, be it five or seven years. There I entirely agree. But that man had to be kept out of circulation if the youth in that part of the world were to have any protection at all, and five years really would not have been enough, either for the first or the second sentence.
I do not think this recommendation in the Wolfenden Committee's report is really so very positive. Your Lordships will see in paragraph 89, in the second half of the first sentence—I will not read the whole of it, if the noble Lord, Lord Byers, will forgive me—
LORD BYERS: I thought I had better just check it.
VISCOUNT DILHORNE: I will read as much as the noble Lord bikes. I will not read the first half of the sentence because it is irrelevant to this point:
"and there may even be a case for retaining the present maximum penalty of life imprisonment for really serious cases (for example, those in which repeated convictions have failed to deter a man from committing offences against young boys. or cases in which serious physical injury is caused in circumstance approximating to rape), though cases of this sort would fall into the category of indecent assault,"
They then say that the maximum penalty of ten years for indecent assault should normally suffice for even the most serious cases. What I should like to see here is a maximum which gives the courts

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power to deal properly and adequately with the most serious cases. I really do not think five years, again for uniformity, for treating sodomy the same as gross indecency—and the character of the offences must differ very widely indeed—is giving enough discretion to the courts.
If your Lordships would turn to paragraph 92 of the Wolfenden Report you will find that halfway down one finds this sentence:
"In prescribing maximum penalties, the law must necessarily have regard to the worst case that could arise ".
And then they say:
"the penalties we have suggested are intended to be maximum penalties applicable to the worst cases that could arise in each of the categories."
I do not think Wolfenden is right about that. I do not think the courts would take the view that that maximum is the maximum applicable to the worst kind of cases that come before the courts. I appreciate the desire of the Wolfenden Committee to try to get more uniformity into our maximum sentences. In fact one can pay too big a price for it. I would ask the most reverend Primate whether he would withdraw this Amendment and give further consideration to it, and perhaps himself consult some of those who are charged with the duty of trying these cases and determining what are the appropriate sentences, bearing in mind that what one wants is a maximum which will be applicable to the worst cases which will arise.
THE LORD ARCHBISHOP OF CANTERBURY: When the noble Viscount refers to the worst cases, are they not those described as indecent assault?
VISCOUNT DILHORNE: I would not say they are always. They sometimes may be. Some cases of sodomy I would say, are much worse than indecent assault. I do not think one would normally want to go over ten years, perhaps, for indecent assault. What the most reverend Primate is suggesting is that the maximum should be five years for offences committed by a man over 21—maybe 40 or 50—with another man between 16 and 21. If there was ever a case where one should be careful to see that the maximum was adequate for the worst case of that character within those
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age groups, surely it is that. I do not believe that five years gives an adequate margin. I think one ought to trust the judges more and increase the margin. I am not concerned with keening "life". I do not believe anyone would pass a life sentence for this offence in these days. But I do stress as strongly as I can that to go from life to five years is to go too far.
LORD STONHAM: On this occasion I would support almost entirely the advice given by the noble and learned Viscount to the most reverend Primate, if not entirely for the same reasons he advanced. There are more anomalies which would be created than have so far been mentioned. I think we would all agree—certainly I would agree—that it is a reasonable proposal to increase the maximum penalty for the offence of gross indecency from two years to five years. This would lessen the disparity which many of us regret between offences against the person and against property. The other alteration which the most reverend Private suggests, returning to a maximum of five years from the present maximum sentence of life imprisonment, really creates quite a number of extraordinary anomalies because the most reverend Primate will recollect that Wolfenden recommended four reductions of sentence, all of them related to buggery. Therefore, if we accepted the partial implementation of the Wolfenden recommendation, we should have some remarkably anomalous results. For example, buggery of a 20-year-old would carry five years imprisonment if the offender was over 21, but if the offender was 17 it would carry life imprisonment; and an offence of buggery in public between consenting adults of any age would also carry life imprisonment. I can confirm, much as it is hateful to me, that there are men in prison who are actually serving life imprisonment for this offence, and they are indeed extraordinary and tragic cases. Equally, there is a much larger number of men in prison who are serving comparatively minor sentences, as the noble and learned Viscount pointed out. But the Amendment also departs from Wolfenden by providing that the importuning of a youth should carry five years' imprisonment, though Wolfenden proposed that the maximum penalty for all forms

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of male importuning should remain at two years.
There is one further point, although it is a minor one: even if your Lordships did feel, with the most reverend Primate, that his Amendment as it stands should be proceeded with, I should have to ask that there should be an addition to it, because any increase in maximum penalties must be expressly said (and I hope the noble and learned Viscount will agree with this) not to apply to offences committed before the commencement of the Act. That is an established principle for increases in these penalties. So I hope that what has been said in this somewhat unusual alliance on this occasion will mean that the most reverend Primate will feel able to accept this advice.
There is just one other anomaly—it is remarkable how many there are, when one examines the matter. The noble and learned Viscount, Lord Dilhorne, mentioned buggery by assault on a 16-yearold by a 21-year-old, for which Wolfenden recommended ten years. But I am advised that it does not necessarily follow that the Archbishop's Amendment would apply to that case, to reduce the maximum to five years, since the man would probably be charged with indecent assault for which the maximum would be ten years. This is just another point which would have to be clarified in the Amendment. So I hope that the most reverend Primate will feel able to withdraw the Amendment, on the understanding that it may be possible to look at it again on Report stage and achieve at least something of his objective.
THE EARL OF CRANBROOK: I had not intended to take part in this debate, but I would ask the most reverend Primate not to withdraw this Amendment. One of the things that has struck me during the course of the debate has been the tremendous emotion which the crime of sodomy seems to arouse, emotions to which noble and learned Lords here are no more immune than are the rest of us. I cannot but feel, with that example before me and before the rest of your Lordships, that this is quite clearly a case for which Parliament itself should lay down the limit of the penalty which should be imposed, and that that limit, on
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the principles which we followed in a Division earlier this evening, should be the same as applies to an act of gross indecency. It is obvious that this Amendment will need tidying-up. I should hope we might accept it this evening, accept the principle of it, and tidy it up on Report stage.
THE LORD ARCHBISHOP OF CANTERBURY: I still adhere to the essential content of my Amendment, for what it is worth; namely, bringing to an end the great disparity in this category between a life sentence for one kind of homosexual behaviour and the very much smaller sentence for another. I think that all the contents of the Amendment are good. I accept the advice of the Home Office that there are other matters of penalty with which this clause does not deal and which ought to be dealt with; and I certainly pay great attention to the plea of the noble and learned Viscount that there is a category of the mad, repetitive offender for whom there may need to be some special provision so long as the category is not determined simply by the nature of the physical act, which, as I have tried to indicate before, is a wrong basis.
But the points made on both sides of the Committee seem to me to be supplementary to the content of my Amendment rather than arguments for its withdrawal; so I should like to persist with it, while welcoming very much the addition of some of these supplemental suggestions at the Report stage.
VISCOUNT DILHORNE: I am sorry that the most reverend Primate is to take that course. I should much prefer that he withdrew this Amendment—he has expressed his point of view—and tried to redraft it so as to meet with general approval. It will not be at all easy to change this Amendment in a way that would meet the difficulties raised by Lord Stonham, or to meet the points raised by me. What will happen, if this Amendment is carried, is that we shall have a long debate on Report stage and cut it out again; and nothing will be left to put in its place. Surely it would be better for the most reverend Primate and his friends to withdraw the Amendment now and try to devise some form that we could accept. I can assure him that

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if this new clause is carried in its present form there will certainly be efforts to have it taken out of the Bill completely on Report stage.
THE LORD ARCHBISHOP OF CANTERBURY: There may be efforts to take it out completely; but while welcoming the Amendments to the Bill with which I feel sympathetic, I hope that those efforts will be defeated.
LORD STONHAM: If the most reverend Primate will allow me to say so, I am sure he would not wish to add an Amendment to this Bill which would create more anomalies than it removes and which, in the particular instance which I mentioned to him, might do more harm than good. It is absolutely necessary, in any Amendment of this kind, to include a provision that any increase in maximum penalties must be expressly said not to apply to offences committed before the commencement of the Act. Withdrawal now, on the understanding that the intention is to endeavour to introduce on Report stage an Amendment which does what the most reverend Primate wishes to do, but at the same time avoids doing what, according to the best legal advice is wrong or unnecessary or cannot be done, seems the path of wisdom, rather than that we should pass this Amendment now and leave ourselves the almost impossible task of trying to put it right on Report.
THE LORD ARCHBISHOP OF CANTERBURY: I think the noble Lord, speaking for the Home Secretary, has now expressed sufficient identity of view with what I regard as the main content of this clause that I am content to withdraw it, in the hope that a better one will be introduced on Report stage.
Amendment, by leave, withdrawn.
11.0 p.m.
THE LORD BISHOP OF LONDON THE LORD BISHOP OF LONDON moved, after Clause 1, to insert the following new clause:
Prosecution for buggery or gross indecency
" .—(1) No prosecution in respect of buggery between men or gross indecency between men shall be commenced except by or on behalf of the Director of Public Prosecutions or with the sanction of the Attorney General against a man who was under the age of 21 years at the date of the offence charged, if the offence was committed in private.
(2) For the purposes of this section an offence shall be presumed, unless the contrary is proved, to have been committed on the date of the offence stated in the charge or indictment."
The right reverend Prelate said: I am not the Lord Archbishop of Canterbury, but I beg leave to move this Amendment on his behalf. Its effect is to give support to Recommendation No. (iv) of the Wolfenden Committee. The first clause of this Bill leaves as an offence any indecent homosexual act committed by a male person under 21. Under what circumstances should criminal proceedings be taken? The Wolfenden Committee themselves suggested that where the offender violates public decency or otherwise causes a public nuisance—for example, by persistent importuning—proceedings should continue as they are now; and where his behaviour is such as to constitute an indecent assault—that is to say, where a homosexual act is carried out against the consent of a partner, or where the partner was incapable by reason of age or mental defect of giving consent—clearly the law should continue to deal with it. In addition to those suggestions of the Wolfenden Committee, it might well be that proceedings should be taken where conduct seems to have been criminal or vicious or where there has been an element of prostitution or blackmail.
But there will be other cases where the need is for remedial treatment rather than for a prison sentence. Prosecution may not provide a solution in every case. The Amendment therefore seeks to secure an element of discretion in that no prosecution should be commenced except by, or on behalf of, the Director of Public Prosecutions, or with the sanction of the Attorney General. This would have the additional value of providing uniformity of practice with that which happens in Scotland, where homosexual offences are prosecuted usually in the sheriff's court by the procurator-fiscal. This Amendment would make proceedings in this matter in England and Wales similar to those in Scotland. I beg to move.
Amendment moved—
After Clause 1, insert the said new clause.—(The Lord Bishop of London.)
VISCOUNT DILHORNE: I hope, again, that the right reverend Prelate will withdraw this clause after consideration,

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because this raises issues which he has not touched upon. What he is wanting to secure, as I see it, is some uniformity of practice in the institution of prosecutions, but this is limited to requiring the consent of the Director or the Attorney-General where the accused was under the age of 21 years.
I say, first of all, that I do not think it is right to make the consent of the Director or of the Attorney General a condition precedent to the institution of a prosecution of this kind. What the right reverend Prelate requires, I think, can be satisfactorily met by an amendment of the Prosecution of Offences Regulations, 1947, under the Prosecution of Offences Acts, 1879 to 1908. Under these Regulations it is the duty of the Director of Public Prosecutions to institute, undertake or carry on criminal proceedings in, among other things, any case which appears to him to be of importance or difficulty or which for any other reason requires his attention. Regulation 6 makes provision for the reporting to the Director of Public Prosecutions of various numbers of offences among which are those under the Punishment of Incest Act, 1908, and offences of sedition and so forth.
So what one can achieve if the Government undertake to amend this Regulation (and this is where I go wider than the right reverend Prelate) is that every single case—and I think I would say every single case of prosecution for buggery, whether the person is under 21 or not—should be reported to the Director of Public Prosecutions, who will then have power, under these Regulations, if he thinks it is right to do so, to institute a prosecution. It is therefore unnecessary to go this further step, which is sometimes taken, of requiring the consent of the Director or the Attorney. In fact, that form of clause is nearly always objected to. I doubt very much whether Wolfenden was aware of the other system which has been in operation, but this form is always objected to. It is quite unnecessary, too, to have them both in the clause, as the Director works under the supervision of the Attorney.
Then there is the further difficulty on subsection (2), which says that the date
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of the offence shall be presumed to be the date stated in the charge or indictment. It is a perfectly proper charge in an indictment to say that the offence was committed on a day between January 1 and June 1. That would make the calculation of the date extremely difficult from the point of view of this clause. If the right reverend Prelate would withdraw this Amendment and join with me in pressing Her Majesty's Government to include these offences, and not limit them to offences in relation to a man under 21, and would join in pressing an amendment of these regulations, I think that would meet his point and the substance of the point raised in Wolfenden.
LORD STONHAM: I cannot give any undertaking such as has been suggested by the noble and learned Viscount, Lord Dilhorne. At the same time, I would give the same advice that he gave, that the Amendment should be withdrawn, but for different reasons. I think that a much simpler Amendment could be presented next time—because, in the view of the Government, there is no objection to the principle of this Amendment. But I have to point out that the accepted modern wording for this kind of provision—and I am quoting—is:
"… except by or with the consent of the Director of Public Prosecutions",
with no reference to the Attorney General, as I think the noble and learned Viscount, Lord Dilhorne, said.
Provisions which I have just quoted—those exact words—would allow for cases to be prosecuted by local police forces, subject to the consent of the Director of Public Prosecutions being obtained, but it would be inconvenient to have a provision that prosecutions should not be brought by anyone other than the Director; and, since the Director works under the general direction of the Attorney General, it is not considered appropriate to mention both of them. Therefore it is really quite a simple Amendment that is required.
There is one other point which I must add, and that is that I am advised that this particular Amendment would impinge to some extent on the Forces, because it would not be practicable to obtain the necessary consent or sanction for prosecutions by court-martial to be

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held at sea or in overseas commands. The right reverend Prelate might therefore feel disposed, in order to cover that point, to make provision in his revised Amendment at Report stage for an additional subsection in these words:
"This section does not apply to prosecutions under the Army Act, 1955, the Air Force Act. 1955, or the Naval Discipline Act, 1957".
I would submit that those are quite simple changes, which would, I am advised, bring the Amendment quite in order, so far as the Government are concerned, and would wholly meet the point which the right reverend Prelate has in mind. I hope that he will feel able to follow that course.
VISCOUNT DILHORNE: Would the noble Lord look at the alternative way of doing it, under the Regulations? Because in English law there is the well-established right, in theory, that anyone can institute a prosecution, even though it be for murder. What one wants is machinery on top of that whereby cases of this kind come within the purview of the Director of Public Prosecutions, where he can undertake it, if he wishes, and take full control, or leave it to the local police to operate. If he takes control, he can stop the case. He has power to do that. I think that would make it simpler. I hope the noble Lord will say that he will look at that rather than do something which, on the face of it, restricts the right to institute prosecutions because you have to get consent to the prosecution being instituted. I think, in practice, that would meet the right reverend Prelate, and I only press the noble Lord to look at this as a possible alternative.
LORD STONHAM: I shall be glad to look at that. What I said was that I was unable to give the undertaking that the noble and learned Viscount asked for. The position is that on the advice I have been given the Government's position would be fully met. But I will certainly do as the noble and learned Viscount suggests. I had in mind the feeling of what time is available in order to get a decision on this point and advise the right reverend Prelate. But I will certainly look at it and do what I possibly can in the matter.
THE LORD BISHOP OF LONDON: As the principle at issue has been so fully recognised, I should certainly not wish to
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press the Amendment in its present form. It obviously needs improvement, especially as to the last point to which the noble Lord, Lord Stonham, referred, about the Armed Forces. Therefore, in the hope that we can secure what is desired, whether it be by an amendment of the Regulations or, as Lord Stonham suggested, by his suggested Amendment—we shall have to look at it—I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
11.12 p.m.
THE LORD ARCHBISHOP OF CANTERBURY THE LORD ARCHBISHOP OF CANTERBURY moved, after Clause 1, to insert the following new clause:
Medical evidence in respect of convictions under sections 12, 13 and 32 of Sexual Offences Act 1956.
" .—(1) Where a man is convicted of an offence to which this section applies and the man was, or appears to the court to have been, below the age of 21 years at the date of the offence of which he is convicted, the court by or before which he is convicted shall, before dealing with the case, consider the written or oral evidence of a medical practitioner in respect of that man.
(2) For the purposes of the foregoing subsection the medical practitioner whose evidence is to be taken into account shall be a practitioner approved for the purposes of section 28 (General provisions as to medical recommendations) of the Mental Health Act 1959 by a local health authority as having special experience in the diagnosis or treatment of mental disorders and the provisions of subsections (2), (3) and (4) of section 62 of that Act (which provides for the reception of medical evidence) shall apply.
(3) This section applies to any offence under section 12 (Buggery), section 13 (Indecency between men) and section 32 (Solicitation by men) of the Sexual Offences Act 1956."
The most reverend Primate said: The purpose of this new clause is to secure that when youths are charged and convicted for homosexual offences, before they are sentenced the court should receive a medical report. Clause 2 defines the nature of that report and the status of the doctor who gives it. There is not the slightest intention in this new clause of trying to substitute medicine for criminal justice. These acts are crimes on which there is a conviction and sentence and punishment. But the fact is that there has been a very big disparity throughout the country in the penalties given to youths for these offences, and it is hard to think that the penalties are always related to the condition of the youth.
The conditions of youths convicted of these offences may vary considerably. The youth may have some deep abnormality that needs treatment and correction. He may have some very superficial aberrations. He may be a generally vicious youth with a grudge against society, his viciousness taking this particular form. The youth's moral condition and need may vary enormously. In order to assist the court to form a right judgment as to how the youth should be treated and punished, the clause makes this provision for the report required. I beg to move.
Amendment moved—
After Clause 1, insert the said new clause.—(The Lord Archbishop of Canterbury.)
LORD STONHAM: On this occasion we feel that this Amendment tries to do something which is already being done, and therefore it is not really necessary. It can, of course, be accepted that in a number of cases where a homosexual offender is under 21 the court will certainly need a medical report, although perhaps not a purely psychiatric report, before passing sentence. But in view of the factors which I will now mention, your Lordships will wish to consider whether a statutory requirement is necessary or desirable.
The first point that I would mention is that, since the Wolfenden Committee reported, the Streatfeild Committee has made recommendations about the information needed by courts before sentencing offenders. The general principles they enunciated have been brought to the attention of all courts, and it would be fair to say that there is an increased awareness about the need for psychiatric and other reports on offenders, and all courts have ample powers to remand offenders for the purpose of reports.
Secondly, the Streatfeild Committee also recommended improved arrangements for the actual preparation and submission of reports on offenders committed for trial, as all persons charged with buggery and gross indecency must be at present. Under these arrangements, which have been generally adopted by courts of assize and quarter sessions, a social inquiry is prepared on every accused person under 21 who consents to the necessary inquiries being made
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before the trial. Where an accused person is committed in custody, probation officers have been asked to draw the attention of the prison medical officer at the earliest possible stage of their inquiries to any case in which the inquiries suggest the need for a medical report. Where an accused person is committed on bail without a condition that he should undergo medical examination, mention is made in the social inquiry report of any cases which suggest that a medical report may be needed. And none of these arrangements derogates from the power of the court to decide itself that sentence must be adjourned so that further reports can be obtained.
Thirdly, if the court is considering imprisonment on an offender to which the Amendment applies, it is obliged, under Section 17 of the Criminal Justice Act, 1948, to
"obtain and consider information about the circumstances"
and to
"take into account any information before the court which is relevant to his character and his physical and mental condition."
The court could not impose imprisonment unless it was of opinion that no other method of dealing with the offender was appropriate.
Fourthly, the Wolfenden Committee recognised that it would be odd to have a statutory requirement for reports on homosexual offenders only. It was not clear to them that homosexual offenders should be singled out from all other offenders for this special procedure. If a report of the kind proposed was to be compulsorily required, there seemed to them to be no reason why the requirement should not be extended at least to other sexual offenders; indeed, outside the range of sexual offences altogether, there were other crimes which seemed to the Committee to need medical investigation no less. Also, the Committee did not think that much would be gained by making obligatory what was at present within the discretion of the court, because if a court was not disposed to use its discretionary power to call for a report, it seemed doubtful whether it would be greatly influenced by a report which it was compulsorily required to obtain. Finally—and I think this is a point of importance—in some cases, particularly

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the minor cases of indecency where small fines are so often imposed, medical reports might be quite unnecessary, and the offender might even suffer considerable hardship by being remanded for such a report, particularly if he was remanded in custody when, without this Amendment, he would merely be fined and that would be the end of it.
The other point which I raised on the previous Amendment, with regard to the Forces, also applies here, because it is not practicable for a court martial in a Forces command to obtain the report of a practitioner approved for the purpose of Section 28 of the Mental Health Act, 1959, by a local health authority, as is mentioned in the Amendment.
Therefore, in any case, whatever the decision of your Lordships on the Amendment as it stands, we should have to ask for subsection (3) to be added to the Amendment to cover the position of the Forces. But the most reverend Primate may feel, in view of the rather substantial evidence which I have put forward, that what he wishes to do is in fact being done, except in those cases where it would be unnecessary or harmful and serve no useful purpose. He may feel that the Amendment may be withdrawn without damaging the present position.
THE LORD ARCHBISHOP OF CANTERBURY: I find a little lack of clarity in the Minister's statement. On the one hand, he urges that this clause is unnecessary because what it asks for is almost invariably done; on the other hand, he speaks of courts in which it is not done because the courts would not be in sympathy if they were told to do it. Thus he leaves the impression with me that there are courts which could profitably follow this procedure and do not.
LORD STONHAM: I am sorry if I did not make myself quite clear. The changes brought about since the Wolfenden Committee reported, by the implementation of the recommendations of the Streatfeild Committee, have to a large extent transformed the position. The point about magistrates not taking much notice of a report which they were compulsorily required to obtain, when in their own judgment they felt the report was not necessary, seems to me quite a reasonable one; and I am bound to say that I myself would be very sorry to see a compulsory
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provision, which would mean that in many of these cases where a fine would be imposed and that would be the end of the matter, a person would have to be remanded for a compulsory medical report when the circumstances might not justify it.
Some 34,000 or 35,000 people are remanded to prison every year; 8,000 of them are remanded for medical reports and only 1,000 odd are subject to orders under the Mental Health Act. I should hesitate long before incurring a risk that those numbers might be substantially and unnecessarily augmented.
THE LORD CHANCELLOR: If I may express a personal viewpoint, I cannot think it right that a young man under 21 should be sent to prison for an offence of this kind without there being a medical report, and with the greatest respect to my noble friend Lord Stonham I have known of a case quite recently where, in respect of Section 17, a young man under 21 was sent to prison for such an offence without any medical report at all being called for. Under that section the court is told to obtain a considered opinion about the circumstances—but that is not a medical report—and to take into account all information before the court which is relevant to his character and his physical and mental condition; but neither the prosecution nor the defence produced a medical report, and so they had not any medical report and they sent him to prison. I would respectfully suggest to the most reverend Primate that he should stick to his guns.
VISCOUNT DILHORNE: I hesitate to intervene in this battle on the Front Bench opposite. It is enjoyable to watch and I hope I shall not tilt the scales if I come in; I hope also that it will not be an unnatural alliance, although perhaps I ought not to use that term, if I rather associate myself with the noble Lord, Lord Stonham. I feel that the courts now, since Streatfeild, have ample powers for getting reports where, in the opinion of the courts, they would be of the slightest use to them in determining what is the right course to take. Sometimes one seems to imply that the people who have to decide this difficult duty are stupid and inhumane or do not bother, but of course the truth is that they want to take the right course and they want all

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the help they can get to enable them to do so. I do not believe that at the present time the courts have any hesitation in asking for that information and seeing that they get it where they think it will be useful. In the case the Lord Chancellor mentioned, I do not know what the facts were; it may be one of those cases where anyone with experience of that type of matter would think a medical report would be of no use at all.
I am certainly with the most reverend Primate in saying that I think it is very important that medical reports should be available where they can be the slightest assistance, but I share the view of the noble Lord, Lord Stonham, that it might be very tiresome to make the furnishing of such reports essential and compulsory in every single case. Take indecency between men; that may be extremely grave or it may be absolutely trivial. The sort of case comes up of such a trivial character that all the court thinks it necessary to do is to read the youth under 21 a very severe lecture and give him a very good warning; that may be all that is necessary in the light of his family background and so on. To say in that sort of case that it must be compulsory to have a medical report must mean that the youth will have to be remanded, perhaps in custody, for 14 or 17 days to get that medical report. I think there is a real problem here, but time is getting on and I should have hoped that this was one of the problems to which we could return on another occasion and have a much more full discussion. I should like to hear very fully from the noble Lord exactly the powers of the courts for obtaining information in cases such as this.
LORD CHORLEY: Speaking as a chairman of quarter sessions, I would say that Streatfeild, of course, is admirable, but it is extraordinarily difficult to carry out in practice, especially at quarter sessions which adjourn for weeks at a time. And one is faced with the alternative of keeping the man six or eight weeks while one gets a medical report about him, or, if it is not a serious case, dealing with him there and then. If some method could be devised by which the probation officer or somebody else could judge whether a medical report was necessary, so that it came before the bench
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which had to minister the sentence, it would be an enormous improvement. It is very difficult, in the circumstances of the work of the courts, to carry out the Streatfeild recommendation in the way one would like to see.
LORD BRAIN: I support the Amendment. I think it is very desirable that a medical report should be available in these cases. There are many complexities of human nature, and some of these young men may be suffering from high degrees of mental subnormality or other mental disorders not at all clear to the layman. It may be that the court will think it has no need of the medical report and would not benefit from it; but the court may be wrong; and if it is it can correct its view when it receives the report. It seems to me that to leave the situation optional is not to deal with the problem in the most effective way. It is not a question of whether the court has power to obtain the information, but whether in all suitable cases it avails itself of the power. I think the Amendment would provide information which would not be available to the courts otherwise and which would be of value.
11.30 p.m.
THE LORD ARCHBISHOP OF CANTERBURY: I am impressed by the point made by the Minister, that if this clause became law it might in some cases create an unnecessary delay and remand for an inquiry in matters so trivial that it was not really necessary. On the other hand, I am impressed, and shocked, by the news given by the Lord Chancellor, of the case of a youth imprisoned without a medical report. If that indeed does happen, it means that the position is not as cheerful as that suggested by the noble Lord, Lord Stonham. But, as the hour is late, I will withdraw the Amendment, allowing myself to make one concluding observation: that if only Her Majesty's Government would introduce a Bill, and the Home Office would give us a Bill, in which all these things were gone into, the proceedings would be more orderly, more coherent and far more progressive.
Amendment, by leave, withdrawn.
THE EARL OF ARRAN: We discussed this Amendment (No. 13), relating to the Armed Forces, when we were discussing

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Section 66 of the Army Act generally, and I think it was agreed that we should have talks about this and try to introduce something which will meet all the views concerned. Subject to the approval of the other movers of this Amendment I shall not move the Amendment.
THE CHAIRMAN OF COMMITTEES: I understand that the noble Baroness, Lady Wootton of Abinger, is not here and that Lord Chorley is moving the next Amendment. But the noble Earl, Lord Arran, has his name down to the Amendment. I do not know who will move it.
11.32 p.m.
LORD CHORLEY LORD CHORLEY moved, after Clause 1, to insert the following new clause:
Limitation of prosecutions. 1960 c. 33.
". No Court shall try any indictment or information alleging a homosexual offence other than an indecent assault or an offence against the Indecency with Children Act 1960, unless the prosecution was commenced within 12 months from the date of the earliest offence alleged in such indictment or information."
The noble Lord said: On behalf of my noble friend Lady Wootton of Abinger, I beg to move the Amendment standing in her name. I can explain this shortly. During the earlier discussion, both in the general preliminary debate and also on Second Reading, various cases were mentioned in which, as a result of blackmail episodes, information was obtained by the police about earlier homosexual offences going back in some cases for several years, and as a result of this information being obtained prosecutions were launched. A general feeling was expressed by a number of your Lordships that this was quite unjust and unfair, and we therefore felt that it would be useful to have in the Bill itself a provision limiting the period within which prosecutions could be brought, and that is provided in this Amendment.
Your Lordships will see that it excludes cases of indecent assault and offences under the Indecency with Children Act, 1960, but in the generality of the cases imposes a limitation period of twelve months. The general rule in England, under the Common Law, is that there is no limitation period in regard to criminal charges. But in a substantial number of cases limitation periods have been introduced by Act of Parliament; so that this will not be anything out of the way. I
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have here a list of some twelve different Statutes with different limitation clauses, varying from blasphemy through to marriage offences, Revenue offences—even to treason. The nearest one to this is offences against girls under the Sexual Offences Act, 1956, where, in cases of unlawful sexual intercourse, or an attempt at this offence, with girls between 13 and 16 years of age, the limitation period is fixed at twelve months from the time of the commission of the offence.
This Amendment would be very similar to that and it is a not dissimilar type of offence. In all the circumstances I am sure the Committee will agree that this is a very proper provision to insert in this Bill. I beg to move.
Amendment moved—
After Clause 1, insert the said new clause—
Limitation of prosecutions 1960 c. 33.
" . No Court shall try any indictment or information alleging a homosexual offence other than an indecent assault or an offence against the Indecency with Children Act 1960, unless the prosecution was commenced within 12 months from the date of the earliest offence alleged in such indictment or information."—(Lord Chorley.)
LORD BOOTHBY: Before the noble Lord, Lord Stonham, speaks, I should like to quote the case of Scotland, which I think in this respect is extremely important. As noble Lords probably know, no cases of this kind can be brought except by the procurators fiscal, who are themselves agents of the Lord Advocate. What they call "stale offences"
VISCOUNT DILHORNE: May I follow the example of the noble Lord and interrupt him? The question of consent by the Attorney General was the subject of Amendment No. 11. We are now on Amendment 14.
LORD BOOTHBY: So I am not in order at all? I may be on the wrong Amendment, but I think it is quite important. I do not think I am very much out of order so I am still going to say a few words. Under the law of Scotland what are called "stale offences"—that is, offences over six months old—are not allowed to be brought except with the approval of the Crown Office, which is with the approval of the Lord Advocate himself. I think that worked

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very well in the past and I hope the English will learn once again from the Scots.
LORD STONHAM: The present practice in relation to homosexual offences is that the Director of Public Prosecutions advises against the prosecution of stale offences except in cases where there are also current offences, when a count may be added in respect of old matter so that the court may be aware on conviction that the particular homosexual practice charged has continued over a period. The point which the Committee are now asked to consider is whether, despite this, a complete ban on stale prosecutions should now be imposed or whether there is a case for continuing the present arrangements, perhaps strengthened by a statutory requirement that such offences should be prosecuted only by or with the consent of the Director of Public Prosecutions.
The Committee may decide in favour of the principle of the proposed new clause. I am not opposing the principle of it, but I would mention that in the view of the Home Office the drafting may need revision. To give one example: the Amendment uses the words "other than an indecent assault". In law, it is doubtful whether this would include buggary by assault. Obviously my noble friends would not wish to grant immunity to those who commit such offences. But, subject to the possibility of redrafting, I wish to raise no objection.
LORD BOOTHBY: May I ask the noble Lord one question? Has the Director of Public Prosecutions in England powers comparable with those of the Lord Advocate in Scotland? The power of the Lord Advocate is complete.
LORD STONHAM: I am not fully conversant with the powers of the Lord Advocate in Scotland; but on the description of the noble Lord I think the powers of the Director of Public Prosecutions at the moment, without statutory provision, fall short of them.
LORD CHORLEY: It was clear during the earlier discussions that he had no actual power. He could just advise. There have been some cases where prosecutions had been brought by the chief constable against the advice of the Direc
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tor of Public Prosecutions. But the Home Office is prepared to accept this in principle, and if the noble Lord, Lord Stonham, would agree to help us with the drafting we should be happy to put the Amendment down against on the next stage.
11.40 p.m.
VISCOUNT DILHORNE: The Home Office expresses that view, but of course this is one of the occasions when the noble Earl, Lord Arran, expresses no view at all, although it is his Bill. There is a remarkable silence. I hope the Home Office will not be too forthcoming on this matter. If we are going to take the step of making these offences reportable in all cases to the Director of Public Prosecutions, then I do not think it is necessary to add to that a statutory time limit. Indeed, I can see disadvantages to it.
The noble Lord, Lord Boothby, asked whether the Director of Public Prosecutions' powers were comparable to those of the Lord Advocate. I do not think I am going to enter into that argument at this late hour of the night, but this I can say. The Director has power under the regulations to take over the conduct of any case, and it has happened in the past. I remember a case where there was a private prosecution for murder, and in theory in our country, as distinct from Scotland, anyone normally can institute a prosecution. In this case prosecution for murder was started but it was taken over under the exercise of those powers by the Director of Public Prosecutions, and he offered no evidence, and that was the end of that. So he has power to stop a prosecution.
I can see cases—there may be very few, but exceptional cases—where the public interest would think it desirable that there should be a prosecution, even though a period of twelve months had elapsed. But where the case comes before the Director, as the noble Lord has confirmed, there is a great bias against instituting anything in the nature of a stale prosecution. I hope that we should at least give a trial to the procedure which was considered under Amendment No. 11 and which was not accepted, but in which there was a discussion as to what might be done, rather than insert into the Statute a statutory time limit which will

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again be another exception to the general rule that in England we do not have such limits.
LORD AIREDALE: I had rather expected that the noble and learned Viscount would raise again the point which he raised on an earlier Amendment, that indictments quite often allege offences as having been committed on a certain date between two particular dates which may be several months apart. In that case I do not know whether the twelve months in this Amendment would begin to run from the earliest possible date or the latest possible date. I should have thought that was a matter which needed looking into.
LORD CHORLEY: It is covered by the words of the Amendment.
THE EARL OF ARRAN: This Amendment is, of course, in Wolfenden: it is recommendation No. (xiii). At first sight, the noble Lord was very inclined to say, as I was inclined to say: why should this particular crime be treated differently from any other? Of course, as has been pointed out by the noble Lord, Lord Chorley, it is not the only offence which is dealt with in this way. I think he mentioned eleven others, and there may be more. The one most immediately relevant is the one which he mentioned—offences against young girls.
After consideration, I think there are good solid reasons for this recommendation of Wolfenden, both in theory and in practice. If there is no limit to the period during which prosecutions may be initiated, it will surely lead to the most absurd and wrong situations. It will be possible for two men, happily married for many years, suddenly to be prosecuted for indecency committed when they were teenagers. Nor am I being fanciful. There was a case a few years ago in which a man was being blackmailed for an affectionate letter which he had written to another man in 1916, and he was frightened of going to the police about it. In this one case, of many, there should be a statutory limitation, and I hope that the Amendment will be accepted. I am mindful, of course, of what the noble Lord, Lord Stonham, has said, and if it is the wish of the Home Office that we should redraft it, so as
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to cover the points that he wishes to cover, it may be that the noble Lord. Lord Chorley, will be willing to look at it again and put down a further Amendment on Report stage.
LORD BOOTHBY: May I ask the noble and learned Viscount one question? I am sorry to interrupt so much, but I shall not ask any more. Is it not a fact that, under the law of Scotland, procurators-fiscal are instructed by the Crown Office never to bring any prosecution unless they deem it to be in the public interest and that if any doubt arises they must refer it to the Crown Office and. therefore, to the Lord Advocate?
VISCOUNT DILHORNE: I am afraid that I am in no position to advise the noble Lord as to the function of the procurator-fiscal. But it is always a consideration that has to be taken into account in this country, when cases are considered for prosecution, whether the public interest requires the institution of those particular proceedings. I remember that a statement was made in the House of Commons some time ago by the noble Lord, Lord Shawcross, when he was Attorney General, as to the kind of considerations taken into account in this country in deciding whether or not to institute a prosecution. I will not take up time now by repeating from memory what those factors were, but they were a very wide range of factors, all tending to the question of whether the public interest required it.
LORD CHORLEY: On the assumption that the noble Lord, Lord Stonham, will assist us in our drafting of this clause, so that we can put it down again at Report stage, I will ask leave to withdraw the Amendment.
LORD STONHAM: I think I should at this stage make the position clear. The position of the Government is that we wished to know the views of your Lordships on the principles of Amendments, and at the conclusion of the Committee stage (which I hope will be tonight) I shall consider the position of the Bill as a whole. Then, if the noble Lord cares to approach me, I shall be pleased to inform him of the result of the Government's consideration. But this particular Amendment, I understand, is rather difficult because of the defects in its drafting,

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and I hesitate to give any guarantee that we can solve the noble Lord's problem, or help to solve his problem, in view of the very short amount of time that there is between Committee stage and Report stage next Monday. But I will certainly do what I can.
LORD CHORLEY: It obviously should result in some improvement, at any rate, and, therefore, on the whole, I beg leave to withdraw the Amendment.
VISCOUNT DILHORNE: I understood that it is not the pleasure of the noble Earl, Lord Arran, that the Amendment should be withdrawn, in which case I assume that we should vote on it. He is in charge of the Bill, and he has said that he hopes the Committee will accept it.
THE EARL OF ARRAN: I said that I hoped the Committee would accept it, but I also said that I hoped it would be in a form which would be more suitable and would meet the views of everybody concerned, particularly the Home Department. I am quite willing if the Committee wishes it withdrawn.
Amendment, by leave, withdrawn.
11.48 p.m.
LORD JESSEL LORD JESSEL moved, after Clause 1, to insert the following new clause:
Amendment of Larceny Act 1916
" .(1) No prosecution shall be instituted in respect of any homosexual offence the commission of which is revealed or alleged during the investigation of any allegation that an offence has been committed under sections 29 (Demanding money, &c., with menaces), 30 (Demanding with menaces with intent to steal) or 31 (Threatening to publish, with intent to extort) of the Larceny Act 1916 except when certified by the Attorney General as being in the public interest.
(2) Section 29 of the Larceny Act 1916 shall have effect as though to subsection (3) thereof were added the words: ' or any homosexual act which is an offence under the Sexual Offences Act 1956 as amended by the Sexual Offences Act 1965.' ".
The noble Lord said: I will be brief in the hope that at least the principle of this Amendment will command general acceptance. The object of the Amendment is to provide that, except when certified by the Attorney General to be in the public interest, no proceedings shall be brought in respect of a homosexual offence revealed in the course of inquiries into an allegation of blackmail.
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Subsection (2) of the Amendment extends the protection of the Larceny Act, 1916, to cover all homosexual offences, and not only buggery, as is the case at present.
In recent debates we have several times heard about the Labouchere Amendment, and it was referred to as "the blackmailer's charter". The elimination of blackmail has been a continuous theme running through our debates, and has been used as one of the strongest arguments in favour of this Bill. Subsection (1), in fact, follows the Wolfenden recommendation (ix), which says:
"That except for some grave reason, proceedings be not instituted in respect of homosexual offences incidentally revealed in the course of investigating allegations of blackmail."
We are told that this is what already happens in practice; but there is no statutory restraint, and at present these cases are within the discretion of chief constables or the Director of Public Prosecutions. This Amendment seeks to bring these cases under the Attorney General's fiat and to require that he should certify that the prosecution of a person blackmailed for homosexual offences is in the public interest. That is the same procedure as exists in Scotland, as my noble friend Lord Boothby has already said.
Subsection (2) implements the Wolfenden recommendation (x) and, as I have already said, extends the protection provided by the Larceny Act to all homosexual offences and not only buggery. I submit that we find this change of the law most necessary if we examine the effect of an age of consent of 21, combined with increased penalties of five years, at least for any homosexual acts committed with a person under that age. I am sure there will be increased temptation and opportunities for blackmail by young men under 21 who pose as being older and then threaten to expose their partners. It is for this reason that I say it is necessary and logical to extend the protection of the Larceny Act to all forms of homosexual offences. I beg to move.
Amendment moved—
After Clause 1, insert the said new clause.—(Lord Jessel.)
THE MARQUESS OF HERTFORD: I would suggest that this is an extraordinarily important Amendment if we

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are to carry through the spirit which permeates this Bill. Blackmail is, to my mind, a far worse offence than buggery. We are, I think, all agreed that all forms of homosexuality are extremely unattractive, and buggery probably more so than the others. But, to my mind, none of them is anything like as destructive of human happiness and life as blackmail. The number of cases of suicide that are directly caused by blackmail is impossible to estimate, but it is substantial. Even if there was only one case in every year, that one life is a life that we now are in a position to save. I would seriously suggest that in passing this one Amendment we are now in a position to save several lives this year. It is quite a serious thought. There may well be men who are now being blackmailed and who are contemplating suicide. I strongly urge your Lordships to pass this Amendment, if only for that reason.
LORD BOOTHBY: Two sentences and two sentences only. What the noble Lord, Lord Jessel, is seeking to do is to put the law on the same footing as the law in Scotland, and there the problem of homosexuality and blackmail is negligible by comparison with what it is in England, because the Lord Advocate is in ultimate control and blackmail is simply not allowed. Therefore, I fully support the Amendment which has been moved by the noble Lord.
LORD STONHAM: I am sorry that I cannot give the noble Lord, Lord Jessel, any encouragement in regard to this Amendment, which seeks to make statutory what was merely a Wolfenden recommendation which they did not think necessary to be put in the Statute Book. The Wolfenden recommendation, in so far as is practicable, has already been put into operation, because the Director of Public Prosecutions, as I have said before, has asked his officers of police to consult him before prosecuting for blackmail offences which come to light.
LORD BOOTHBY: But, if the noble Lord will excuse me, the Director of Public Prosecutions has no authority, and if chief constables do not choose to consult him he has no authority to impose his view upon them as the Lord Advocate has in Scotland.
LORD STONHAM: I do not alter my words at all. I said, and the noble Lord, Lord Boothby, must have heard me, that the Director of Public Prosecutions has asked chief constables of police to consult him before prosecuting. I know it has been alleged that the chief constables do not consult, but it has been remarkable how difficult it is to get any details of these cases where there has been no consultation. The Director's practice is to advise a prosecution in only grave or exceptional cases, or where the complaint of blackmail is not bona fide. That seems to me to be quite responsible. But even if the allegation of blackmail is not bona fide, it will still render the homosexual offender immune from prosecution if this Amendment is accepted. If the blackmailer took part in the offence he, too, would be immune from prosecution. Everybody has said that he hates the blackmailer most of all. Do you support an Amendment which would make the blackmailer immune from prosecution?
Any restriction on the right to prosecute ought to be in the clearest possible terms so that it is apparent on the face of the charge whether the restriction applies. But the proposed Amendment depends on what may have been revealed or alleged during confidential police investigations, and is far too uncertain a criterion on which to found a power to prosecute. An accused person to whom it was not thought the restriction applied could bring confusion to proceedings at his trial by claiming that he had previously alleged blackmail to the police, and this claim would be difficult to disprove.
Finally, "in the public interest" is not a suitable criterion for covering the sort of exceptional case which nearly everyone, following Wolfenden, agrees might have to be prosecuted. We have consulted the Attorney-General, and he does not think it would be appropriate that he should have the responsibility for certifying when the public interest required a prosecution. All these objections which I have listed stem, in my view, from what appears to be a somewhat misguided attempt to put the Wolfenden recommendation on a statutory basis. Since Wolfenden did not propose a statutory provision it seems right that the Government should make it clear

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that the Amendment is, in their view, open to very serious objections.
Subsection (2) of the proposed Amendment seeks to implement the Wolfenden recommendation in paragraph 113 about subsection (3) of Section 29 of the Larceny Act, 1916. I do not wish, on behalf of the Government, to object to this subsection, but I would mention to the noble Lord, Lord Jessel, as he is probably aware, that the Criminal Law Revision Committee are considering the point in their current review of the law of larceny, which is nearly completed, and it would be much better to deal with the matter in any comprehensive legislation which emerges from that review. If the Committee decided to accept the Amendment despite what I have said, I must mention again that there are a number of details of drafting which would need examination. Some are quite obvious. For example, subsection (2) of the proposed new clause says that certain words should be added to subsection (3) of Section 29 of the Larceny Act, but does not say where they should be added. They could be added, of course, at a point which might produce an unfortunate result. So the Amendment is defective and, in my submission, should not he supported. I hope it will be withdrawn.
LORD BOOTHBY: May I ask the noble Lord why the Attorney-General should be afraid to do what the Lord Advocate of Scotland has done for the last 300 years?
LORD STONHAM: I did not say that the Attorney-General was afraid to do it. I said that he had considered the matter, and did not feel himself called upon to accept the suggestion.
12 midnight.
LORD JESSEL: I am in some difficulty here because in a way I accept the assurances given by the Minister in regard to the first part of my Amendment, but I cannot see any argument for not extending the provisions of the Larceny Act as I requested. Here I am in a difficulty because I think that is quite essential. It seems to me quite illogical that there is protection for one kind of offence and not for another.
LORD STONHAM: Perhaps I may suggest a way of helping the noble Lord. I made very clear the difference in our
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attitude to the first part and to the second part of his proposed new clause.
LORD JESSEL: You certainly did.
LORD STONHAM: My only reason for suggesting he might not wish to proceed with it was my reference to the Criminal Law Revision Committee and the work they are doing on the Larceny Act. But it so happens that the fault in drafting, which I mentioned, comes in the second subsection. He may therefore feel that the wise course would be to withdraw the whole of the proposed new clause and reintroduce the second part of it on Report stage with revision of the words that I mentioned.
LORD JESSEL: I will follow the Minister's advice. I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
THE EARL OF ARRAN: It is very late. We have gone a long way to-day, and we have only a short way to go. Your Lordships may think it best if we see the whole business through now; but I am not sure that is quite the right thing to do. There are very few of us present in the Chamber at this moment. I think we have grasped the most important of the Amendments and the issues. I remember that the ill-famed Labouchere Amendment was passed at, I think, one or two o'clock in the morning.
I should like permission to move that the House do adjourn, in the light of certain undertakings, or semi-undertakings. I should like to feel that the noble Lord, Lord Shepherd, could tell us that we could finish on Monday next, and also I should like to feel that there might be some reasonable hope that we should have the Report Stage at some later date, probably on a Friday. If those things are indeed possible, or even probable, it might be as well if we were to adjourn.
LORD SHEPHERD: I am quite sure the noble Lord is right to propose that the Committee stage should be adjourned. We have been at it for some considerable time and there must also be the thought that a number of our staff will be on duty early to-morrow morning in view of the Anniversary proceedings in Westminster Hall.

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In regard to the second part of the Committee stage, I can tell the noble Earl that we shall be able to continue next Monday. I think it would be wrong for us to try to do it this week, because it would not be possible for all Members of the House to be aware that it was being brought on at an earlier date. As the noble Earl knows, the House is in charge of its own Business. If your Lordships wish to sit on a Friday to take the Report stage and Third Reading, I should not expect there to be any difficulty. However, I think we must try to find out whether there is support within the House for this, because, as I said earlier, I could not hold out any hope of Government time for this Bill during July. But if the noble Earl thinks he can muster sufficient support from his friends who have so far supported him on this Bill,
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I am quite sure that it would be possible to fix a Friday.
VISCOUNT GOSCHEN: I think the course which has been suggested by the noble Earl, Lord Arran, and the Government Chief Whip is the right one, and so far as we concerned on the Opposition Front Bench, we would agree with that situation.
House resumed.

MANCHESTER CORPORATION BILL
Brought from the Commons; read 1a, and referred to the Examiners.
House adjourned at five minutes past twelve o'clock, midnight.