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Finance Bill

Volume 65: debated on Tuesday 21 July 1914

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As amended, considered.

[Mr. SPEAKER in the Chair.]

New Clause—(Reduction Of Full Amount O Duty Where The Margin Above The Limit Of Value Is Small)

(1) The amount of Estate Duty payable on an estate at the rate applicable thereto under the scale of rates of duty shall, where necessary, be reduced so as not to exceed the highest amount of duty which would be payable at the next lower rate with the addition of the amount by which the value of the estate, exceeds the value on which the highest amount of duty would be so payable at the lower rate.

(2) Where the net value of the property real and personal in respect of which Estate Duty is payable on the death of the deceased, exclusive of property settled otherwise than by the will of the deceased, exceeds one thousand pounds, the amount of Legacy and Succession Duty payable in respect of the property shall not exceed the amount by which the net value of the property as estimated for the purpose of Estate Duty exceeds one thousand pounds.—[ The Chancellor of the Exchequer.]

Clause brought up, and read the first time.

Motion made and Question, "That the Clause be read a second time" put, and agreed to.

Clause added to the Bill.

New Clause—(Charities)

The exemption from Income Tax granted by the Income Tax Acts to rents and profits of lands, tenements, hereditaments, or heritages belonging to any hospital, public school, or almshouse, or vested in trustees for charitable purposes, so far as the same are applied to charitable purposes, shall be extended to apply to any lands or property in the occupation of any charity.

Clause brought up, and read the first time.

I beg to move the Second Reading of the first New Clause which stands in my name. I hope it will meet with sympathy, not only from the Government but from hon. Members in all parts of the House. The Clause is meant to cover charities that have been set up for the relief of poverty and have been established for other purposes of public good and public benefit. Under the Income Tax Act of 1842 certain exemptions of taxation are allowed in respect of rent and profits of land applied to charitable purposes. But the Section of the Act of 1842 dealing with this has been construed to mean that while property owned by a charity and let to a tenant, the rent being used for charitable purposes, is exempt from the tax, property in the occupation of the charity is not so exempt, unless those charities happen to be colleges, halls in universities, almshouses, literary institutions, and hospitals. Therefore in the case of a charity owning two properties, one in their occupation and the other let to a tenant, the one let to a tenant is exempt from the tax while the property in the actual occupation of the charity is not exempt. I do not see any sense in the distinction made between the two. If charities ought to be exempt in respect of property let, surely they ought equally to be exempt in respect of property which they actually own and occupy, and more so. I have got here, for instance, particulars of a hall in London carried on under a trust deed for the purposes of the very poor. It is admitted to be a charity under the Act. The hall in which entertainments are held is, of course, in the occupation of the charity—that is to say, of the trustees, and no revenue is derived from it. Next door to it is a coffee tavern owned by the same charity and let to a firm of public caterers whose customers belong to a very poor class of people. The rent received is devoted to charitable purposes. The tax on the hall is £8 10s. The tax on the coffee tavern is a little over £19, but because the coffee tavern happens to be let by the charity the tax is recovered, whereas the hall, being in the occupation of the trustees, the tax cannot be recovered at all.

I have one more case: it is a case of a denominational school and a denominational college, held by trustees under separate charitable trustees. Both are admitted by the Board of Inland Revenue to be charitable objects. The tax paid on the school is a little over £29; the tax paid on the college is a little over £19, together an amount exceeding £48 a year. But as the properties are in the occupation of trustees and do not happen to be let, the taxes cannot be recovered at all. On the other hand, both these trusts have incomes accruing from invested funds, from which the tax is deducted. Because it happens to be income from invested funds and not property in the occupation of the charity, the tax is repaid by the Board of Inland Revenue. It really seems to me—and I hope and believe hon. Members in all parts of the House will agree—that it is really a ridiculous position to make this distinction, and, in addition, there s no justification for making a distinction in the case of literary institutions, colleges, halls in universities, almshouses, and hospitals, and not applying the same principle to every charitable object which may do just as large an amount of public good. Take, for instance, the case of a charity the object of which is to befriend young men of the poorer class to look after them, to hold classes for their general advancement and to try and get them good situations. If a charity of this kind owns its own premises, it is taxed on the annual value of the property owned and occupied. But, on the other hand, take the case of a home founded for the relief of ladies in reduced circumstances, whose income is not more than a certain amount per year. If this charity owned the property as dwelling-houses, it would be exempted, on the ground that they happened to be almshouses, under Section 61 of the Act of 1842. Again, take the case of a certain school founded with the object of benefiting certain poor classes, the fees being made up out of voluntary contributions. That, being a charitable school, would not be exempt under the 1842 Act, as would a charity which owned property which does happen to be a public school. In the case of a public school, under the Act of 1842, if it owns and occupies the property, it is exempt from the tax. I might go through other instances, but the same principle holds good all through. I may mention that among other institutions the Courts have held that the following are charitable purposes, namely, a society for the protection of children from cruelty, a fund to establish lectures against cruelty to animals, and an institution for saving the lives of shipwrecked mariners. In each of these cases, under the existing law, although the objects are charitable, they would not be exempt from the tax, and they would have to pay it supposing they occupied the property in the shape of offices or for any other purpose. Finally, it seems to me that the position of these charities is all the more anomalous when one looks at the way charities are treated under the Chancellor of the Exchequer's own Finance Act, 1909–10, in respect of Land Value Duties. Perhaps the House will allow me to quote four or five lines of that Act to show the way in which charities are treated in respect of the Land Value Duties. Section 37 provides that—

"No Reversion Duty or Undeveloped Land Duty. … shall be charged in respect of land, or any interest in land, held by or on behalf of any governing body constituted for charitable purposes while the land is occupied and used by such a body for the purposes of that body."

The Section goes on to define the term "governing body":—

"The expression governing body constituted for charitable purposes' includes any person or body of persons who have the right of holding, or any power of government of, or management over, any property appropriated for charitable purposes."

The Section goes on further to define "governing bodies." In view of that the House will see that this exemption applies to land in the case of the Land Duties whether it is occupied or whether it is let by the charity, and the exemption not only applies to literary institutions, universities and almshouses, but to any person or body of persons who have any government of any property appropriated for charitable objects. As this was the Chancellor of the Exchequer's own provision in the Finance Act, 1909–10, it is quite clear that he agrees with the principle with regard to property occupied for charitable purposes. The new Clause merely asks that the treatment meted out to charities in respect of the Land Value Duties under the Finance Act, 1909–10, should also be meted out in equal measure to charities in respect of the Income Tax. I have given various instances to make the position clear as possible. The new Clause does not extend the term "charity" in any sort of way, but merely brings all objects of a charitable nature into the same line.

I desire to second the new Clause, not only because I agree with the arguments of my hon. Friend on general grounds, but because I particularly wish to bring before the Chancellor of the Exchequer and the Law Officers of the Crown the case of residential halls and hostels belonging to our modern universities. My hon. Friend in moving the Clause has pointed out that there are special exemptions with regard to colleges and universities, but he has left me to point out that the exemption, so far as resident halls and hostels are concerned, is limited to the public buildings and offices belonging to the colleges and halls not occupied by any individual member thereof or by any person paying rent for the same. What is the result of that exemption? That while the universities and colleges are, so far as their endowments are concerned, exempt from Income Tax they are liable to the tax under Schedule A on the halls and hostels occupied by them. The Solicitor-General, no doubt, knows that in the case of Bangor University and Essex Hall that was the result of the judgment of the Court. They were held to come within the definition of charities under this exemption which my hon. Friend proposes to extend, but they are only exempt so far as concerns the rents and profits of their lands and hereditaments which are not occupied by them. That is an absolutely illogical position.

4.0 P.M.

I should like to put before the House a case which will make it quite clear, which arises in the case of the University of Reading, of which I have an intimate knowledge. It is the case of Wantage Hall. That hall was built by the munificent generosity of Lady Wantage, and she also set aside a sum of money for its endowment. Out of the money it was proposed to spend upon building the hall there was a slight balance over, which she added to the purposes of the endowment. What is the result of the state of the law? The endowment fund of Wantage Hall is exempt from Income Tax, but Wantage Hall is assessed for its full value under Schedule A because it is occupied by the trustees of the charity, the Council of Reading University College. Supposing the Council of the College were to let the Hall and farm it out to any individual—a thing which to my mind would be disastrous to the discipline of the students there—no Income Tax would be paid upon it, because it would not be occupied by them themselves; yet because they are occupying it, and doing so in order that the best results may be obtained, Wantage Hall is at present liable to Income Tax. I only give the case of Wantage Hall as an example. It is symptomatic of others. In Reading University College we have three other halls. We are assessed for over £2,000 a year for all our halls. Anyone who knows anything about university management will understand that we have great difficulty in making two ends meet in regard to these halls. Taking them altogether, we run them at a loss, while we are liable to Income Tax upon all these halls. I only mention Reading, because it is a place I know personally, but there are other great universities which suffer in the same way—London, Leeds, Manchester, Sheffield, and the University of Wales at Aberystwyth. I wish the Chancellor of the Exchequer was in his place, so that I might appeal to him on the ground of the University of Wales. It is rather a curious position with regard to the University of Wales. They have two residential halls, one to hold 180 and the other to hold 30. They were assessed at £500 and £70 a year, and they have had to raise, in order to pay for these two halls, a loan of £20,000, and the interest on that is £800, and therefore that is set against the amount of £500 on which they are assessed. But supposing the time comes, as no doubt it may soon, when some generous donor in Wales gives a large sum towards paying off this debt on the University of Wales to enable this hall to be free, the result will be that as soon as that debt is paid off that hall would at once become liable to Income Tax under Schedule A, and that again shows how illogical the present position is.

It is not difficult to guess what is the reason how this position has grown up. It has grown up because in 1842 when the Income Tax Act was passed and when these exemptions were made there were only practically two Universities—Oxford and Cambridge, and it was then thought, possibly rightly, that it would be right to exempt only those public buildings which were not occupied by residents or by any of the members of the university. The others were, I suppose, to some extent a source of income. But that is all altered now these modern universities have grown up. You have them growing up in many of these towns, and during the last few years the residential system of these universities has been very largely developed, and though I should be out of order if I were to say anything to show how valuable that residential system is, I think I am entitled to recall to the mind of the House that that residential system has always met with approval from everyone who has considered at all the question of the true results which ought to be obtained from education at these universities. It is most essential that if students in these universities which are growing up all over the place now are to get good from the time they spend there, this residential system ought to be encouraged, and it is unfair that there should be any handicap whatever placed upon the setting up of these residential halls and hostels. I do not think the Chancellor of the Exchequer can make the excuse or give the reason which he is often able to give when appeals are made to him to accept new Clauses, that this new Clause at any rate is going to cost him a good deal of money. There are not a very large number of universities at present. They are growing in number, but there are not in them a large number of halls and hostels, though they are perhaps growing in number, too, but if they grow considerably more in number than they are at present I do not think there is any likelihood of their imposing a heavy charge upon the finances of this country or making a great claim upon the Chancellor of the Exchequer. It is because I think that this Clause, if it is added to the Bill, will relieve the difficulty under which universities are suffering that I beg to second it.

Everyone who has heard the speeches of the Mover and Seconder will agree that they have displayed great knowledge of this difficult subject, and have called attention to some undoubted anomalies in the present position of the law. I do not dispute that at all. The Income Tax law, as it exists at present, neither wholly exempts nor wholly taxes charities, and it is quite true that the line that is drawn is a line which is open to the criticism that it is not drawn in any very logical, or it may even be said in any very intelligible way. The matter stands, as it appears to me, very much as they have put it in the more general part of their speeches. There is no general exemption from the Income Tax law which attaches to properties belonging to charities, but there are certain cases where the exemption does operate. There may be said to be three classes of cases where the exemption occurs. There is the case where you are dealing with income from property that is held on trust for charitable purposes, so far as that income is used for charitable purposes, and that is the case which the hon. Member (Mr. G. Locker-Lampson) dealt with. There is, secondly, the case of certain specific kinds of charity—hospitals, public schools, almshouses, and so on—so far as the public buildings belonging to them are concerned, under certain conditions. There is a third case which is always, in practice, recognised, though I am not aware that you can find it very clearly laid down in the Income Tax law, and that is the case of property which is used wholly or mainly for religious purposes, of course religious purposes being a good deal narrower in what it covers than charitable purposes.

Then, say these hon. Members, if you go as far as that why do you not go further, and the more so, if you have to admit, as I do admit, that the present position involves anomalies. I have to say that I am not at all certain that the exemptions which the present law gives, in the case of what are broadly called charities, may not be quite wide enough, and conceivably even too wide. I am not at all certain that if this general subject came under review it would be thought necessarily right to say, Here are certain exemptions existing under the present law. If we are going to be consistent and logical, we must carry these exemptions out the whole way, and exempt all charities of every sort and kind. It is a very attractive thing to say so, and those who have these good causes particularly at heart are naturally anxious to urge it. But, after all, you have to face the fact that the more you create exceptions and exemptions for a particular class of case the more heavily has this tax got to fall upon the rest of the community, and the word "charity," though it is a word, I hope, which not only covers a multitude of sins, but easily inflames humane feeling in the heart of everyone, is an exceedingly wide word, and includes a number of things which certainly a considerable portion of the community does not necessarily approve of at all. It really is a large question whether, on the whole, it would be right to apply the doctrine of charity, as it is understood in the Chancery Court, and say that any undertaking or any fund which can bring itself within that conception is to find itself exempted from the Income Tax law. I am not prepared to say so, and therefore, while the two hon. Members who have spoken have undoubtedly made a very good case when they urge that there are anomalies, some of them rather remarkable, as between the case that is taken and the case that is left, I am not at all convinced that the proper way in which to deal with that would be, by one fell swoop, to include every single charity of every sort or kind within the four corners of the exemption.

Under the Act of 1910, dealing with the Land Duties, the Commissioners said what is a charity and what is not.

I am sure the hon. Member does not really mean that he proposes to confer upon the Executive in this country the power at their free-will and pleasure to pick and choose as to what institution is to be favoured with exemption and which is not.

Does the hon. Member really suggest that that should be done here? I have often heard of attacks delivered from the other side of the House, and have always felt some sympathy with them so long as they had some foundation, against the danger of a Department or the Executive letting one man off and hitting another. But here the hon. Member now explains that after all this exemption will not be very serious because it will always be open to the Commissioners to say, "We have had enough of this and this particular charity we do not propose to exempt." If that is the proposal I am more opposed to it than ever. I thought the proposal, at any rate, had this advantage, that it was logical, that it proceeded on principle, and that the principle was that wherever I find an institution which the law regards as a charity—it may be educational, or religious, or humane—the Income Tax ought not to touch that institution at all. If the hon. Member says that, he has the full advantage of a man who has put forward a consistent proposal and he has this further advantage, chat the present law is not very consistent and contains undoubted anomalies; but I have to answer him by saying that we are not convinced that if the thing came to be investigated, as it would have to be, in a great deal of detail and from many points of view, all good judges will agree that charities should be universally exempt, and in these circumstances I feel that I have the more reason to resist the Amendment. The hon. Member (Mr. Mount) hoped he was not going to be told that this was going to cost a lot of money. If this was not going to cost money to someone, would anyone agitate for a new Clause to be passed? It is just because it is going to relieve someone from payment, and consequently to throw that burden on someone else, that it is worth while moving such a Clause. I do not know how much it would involve in loss of revenue, and am quite willing to believe that the amount is not anything like as large as the sort of figure which has been mentioned in connection with some other proposals for exemption.

It is perfectly obvious that no one would propose the Clause if it was not, because there were certain persons who wish to escape a tax which at present they have to pay, and just in proportion as they escape such a tax there is either a loss to the revenue or an increased burden thrown on other members of the community. I do not want, in dealing with a whole series of Clauses, to say every time that that would be a very proper matter to be discussed before the inquiry as to the Income Tax law which the Prime Minister has referred to. I quite understand that hon. Members who move new Clauses are not likely to be content with that answer, especially if it is repeated again and again. But if there ever was an example of a department of Income Tax law which would have to be examined in that sort of way in order that we may really see what cases would be covered by the change and how the change ought to be framed, surely it is a proposal of this sort, which turns on the whole law of Income Tax in relation to charities. Therefore, I am sorry that we cannot accept this proposal. I desire, as far as I may, to keep my mind open to the merits of the proposal that there should be an extension. I do not say there should not be, but I am quite satisfied that any change which takes place cannot take place simply as the result of moving that what now applies to some charities shall apply to all without knowing what it means, but will have to be dealt with as the result of a far more detailed investigation than that, and I should have thought it was a very suitable subject for the investigation into the Income Tax law which we are promised. For these reasons, though we all very greatly admire the skill and knowledge which the hon. Member has shown, I do not find it possible to agree to accept the Clause.

I congratulate the right hon. Gentleman upon the extraordinary skill he has shown in avoiding the point of the Amendment. He has the reputation of being a very clever advocate, and I suppose he finds it successful to glide over the real difficulty and to make a very admirable general statement upon a principle on which I think people on both sides of the House will agree, but which is not the proposal of the Amendment. All that this Amendment proposes is to do as to Income Tax exactly what the Government themselves carried out as to other taxes under the Act of 1910. My hon. Friend, in moving the Amendment, understated his case. All that the Amendment does is to say that property which belongs to a charity, and which is let, shall be exempt from Income Tax, and that the same exemption shall apply in the case of property which the charity itself occupies. The Attorney-General treats the proposal as though it were a wide general exemption of all charities in every case.

Will the hon. and gallant Gentleman give an example of a charity which, under this Clause, will not be exempted?

If that is so, and if this covers all the ground, then I think the Attorney-General is ever so much more wrong than I thought he was in dealing with the question as one of great magnitude. The Attorney-General treats it as a question of great magnitude, but it is simply a question of extending to property occupied by a charity the same law which applies to property owned and let by a charity. That is the whole point, and I think the Attorney-General is not justified in dealing with it on general grounds. He never referred once to the point which was raised except by paying a eulogy to the general line of the argument of my hon. Friends and praising the style of their speeches. He dealt in general terms with large exemptions which would have to be given to other forms of charity. I should have thought more of his speech if the same point had not been dealt with in relation to the Land Duties which were imposed under the Budget of 1909. What was the course taken by the Government? It was the exact opposite to what is taken under the Income Tax Acts I do not know whether the Attorney-General has Clause 37 of the Act of 1910 in his mind, but if not, and if he looks at the Clause, he will see that it exempts from the Land Value Duties—Reversion Duty and Undeveloped Land Duty—all property owned by charities, and which is occupied by them, but it does not exempt property which is let. Evidently the principle in their minds is that property which is owned and occupied by a charity is more deserving of relief than property which is owned and let. All that my hon. Friend asks is that property which is occupied shall not be given differential treatment as compared with property which is let, but that it shall have exactly the same exemption. The Attorney-General has not dealt with that point at all. He has passed the whole thing over on general grounds and given a general answer. We can only come to one conclusion. We think we have grave cause of complaint that the Chancellor of the Exchequer is not present to-day. The Chancellor of the Exchequer has restricted the time available for discussion.

We are not responsible for the Finance Bill. If the Attorney-General cannot answer the arguments of one man, what is the use of more Members being here? The Chancellor of the Exchequer is not only responsible for the Finance Bill, but he is responsible for the Closure under which we are discussing it. He has restricted the time available for debate to a very few hours, and in these few hours we should have some opportunity of making a case for changes in the law. He alone has the power to hear the arguments and to give a reply. The Attorney-General has no authority—

To concede any of these Amendments? It is a large order for the Chancellor of the Exchequer to pass his authority over to another Member of the Government to concede Amendments on finance of the highest importance before he has even heard the arguments upon them. The way this House is treated, and the way one Minister shuffles responsibility from one to another has become very extraordinary. We do not know where we are. One thing we know is that we can never pin the Government to anything. We might as well be dealing with eels of a very slippery kind. I think it would be more proper and respectful to the House if the Chancellor of the Exchequer were present, and I see no reason why he should not be here. Even with all our respect for the Attorney-General, who is very competent to deal with public business, I say that the Chancellor of the Exchequer has no right to transfer such a grave responsibility in regard to Amendments on the Finance Bill, to absent himself from the House, and to leave the right hon. and learned Gentleman to exercise his discretion. If it were not that we are working under the gag Closure, which makes it ever so much worse, we should be entitled under the ordinary rules to move the adjournment of the Debate in order that the Chancellor of the. Exchequer might be present, and I should certainly take that course if it were possible to do so. We are prevented from doing that by this Closure, and therefore that imposes, to my mind, the duty upon the Chancellor of the Exchequer of being here. The House is unable to defend itself in the ordinary way owing to the manner in which the Government are tampering with the procedure of this House for their own benefit. They are taking advantage of that tampering with the rules of the House in order, for their own present convenience, to absent themselves from the Debate. It is a perfect scandal. It is perfectly useless to attempt to debate this question. First of all, time is taken from us, and then in the little time that is given to us the whole thing is treated with contempt, and the Government think that it is not worth while for them to answer arguments advanced on this side of the House on these financial matters. It is a perfect farce that we should be here wasting our time discussing these matters, and I hardly know what course to advise my hon. Friend to take.

I think Members of the Government are not present on the Front Bench so often as they ought to be, and yesterday I gave expression to my views on that subject. To-day I am sure the hon. and gallant Gentleman (Mr. Prety-man) has no case whatever. His first complaint was that the Attorney-General is too clever, and that his arguments are so piercing and powerful as to convince the House. A few minutes later he complains that the arguments advanced on the other side are treated with contempt.

Both statements cannot be correct. I, myself, would like to see a, better attendance on both Front Benches. I submit in all seriousness that the Attorney-General, who is a Cabinet Minister, is of sufficient rank to meet the hon. and gallant Gentleman himself on any question. Those complaints are very much resented on this side of the House. [Laughter.] Certainly, hon. Members opposite think they may indulge in gibes as to the absence of the Chancellor of the Exchequer, but the hon. and gallant Gentleman knows very well that at the present time there are matters of vital concern engaging the attention of the right hon. Gentleman. What is the complaint in regard to this Amendment? He complains that it is treated with contempt. Nothing of the kind! If there had not been a serious answer given by the Attorney-General, there would have been no need for a speaker on the Front Bench to reply. It is because the Attorney-General answered the arguments advanced by the Mover and Seconder of the Amendment that the hon. and gallant Gentleman rose. The Mover admitted in the course of his speech that there was a power vested in certain Commissioners to exempt certain charities from taxation. The point was a very proper one to take, but I think the hon. and learned Gentleman met that argument. If you are going to exempt these charities simply out of sympathy with the objects of the charities, are you going to exempt a Mormon charity—a charity in favour of the Latter Day Saints? If you pick and choose, we shall be in confusion about all kinds of religious charities. Suppose the case of a charity which is left for illegitimate children of a certain type—

I do not want any corrections until a little later on. I am in the middle of my point and I wish to be allowed to state it.

You are going to extend the exemption to any charity now exempted only in respect of the property it occupies.

I am dealing, not with what is intended, but with what the Clause will do. Hon. Members opposite are appealing to the House for sympathy for charities. I want the House to see that there are many things called charities in the legal sense which may be something very different. There was a charity left for the benefit of illegitimate children; that is a very good object, but it did not occur to the founder of the charity that it might lead to many couples hesitating about getting married, so that the children born might get the advantage of the charity. As the result of their experience, the trustees of the charity had to come to Parliament to get an alteration made. I remember that Booth the elder and Booth the younger left property for charitable purposes, having in mind a small area in the borough of Salford. That property became very valuable, and the consequence was that large funds were available for the poor within the area. The poor of Salford drifted into that particular area, and instead of blessing the area in which they were born, those who were born there cursed it. The representatives of that charity had to come here in order to get power to divert the charity to another purpose. The hon. Gentleman opposite proposes to introduce a dangerous doctrine, namely, that State officials should be able to pick and choose the charities which are and the charities which are not to be exempt. I am not in favour of giving these increased powers to State officials. I am grieved to see a Conservative Member getting up and proposing that. What would be the result of a large increase of their powers to exempt people from taxation? I do not say that is the dominating point of the Amendment, but a principle in the new Clause is that State officials should be able to pick and choose the charities they would exempt. Some officials may have leanings one way and others may have leanings in other directions, and I think a sufficient case has been made out for rejecting the Clause.

The hon. Member seems to think that it is a sufficient argument against the proposal in the new Clause to assert that there may be charities which are not worth considering, and that the ultimate effect of the proposal might not be altogether of advantage, and that for that reason the whole exemption of charities should be struck out. If that was not his argument, I do not know what it was. He cited a certain case in which the charity was given to nourish illegitimate children, in which it was found that the effect was to some extent not what was desired. But would he have allowed these children meanwhile to starve? Does he think that the charity was altogether "wrong in procuring for these poor creatures the advantages of education, and so on? The Attorney-General's speech had all the appearance of presenting a skilful argument, which he, as a lawyer, knows very well how to do, but he really brought forward not one single valid argument in the course of his speech. He first said, "We cannot do this, because if you exempt charities you must put this upon somebody else." If that be so, then we must not discuss any change in the incidence of taxation at all. Was there ever a more misleading and unsubstantial argument against an Amendment proposed with such solid reasons? Another argument which he used is, "Charity is not well defined. We, as lawyers, have attempted to do the best we can, but it is not properly defined, and therefore we cannot give this exemption." He forgets that the same argument applied to his own Chancellor of the Exchequer, whose full power of discretion he tells us he now wields. It applies to Section 37 of the Finance Act of 1910, which the Chancellor of the Exchequer adopted himself. If there was no possibility of defining what charity was, why did he put in Section 37? And why did he give expression to the definition of charity if it is so vague and so impossible of definition that, as we are told by his leading lawyer, it would be useless to try to define it? My hon. Friend suggested means by which charity might be defined, and pointed out that the local Income Tax Commissioners had that power given to them. The right hon. and learned Gentleman says that it is a very dangerous thing to suggest. But they have it now. When that was pointed out he simply evaded the point, but he did not give an answer.

The fact is that you cannot take these quibbles as to the difficulty of defining charity, or the still vaguer argument that if you take taxation off charity you must put it on the shoulders of somebody else. You must look on this on broad public grounds, and this is what the Amendment moved by my hon. Friend does. If you take away what a man gives for public purposes, you are simply discouraging the extension of these charities. Can there be anything more absurd than to say that when a man leaves his money for the public benefaction of a locality, then because he saves the State a certain amount by means of his charity, either in the form of poor rate or otherwise, therefore: you are to take vengeance on him and punish him by taking some of that which he has left for charitable purposes? Already the general principle is conceded that charities should be exempt. We are now making only this very clear, and I would have thought self-evident demand, that if you exempt that income which a charity draws from lands or tenements which it does not occupy itself, it should still more be exempt if it is under the necessity of using these tenements for the immediate purposes of the charity. I have known many cases in my own experience where this differentiation does exist, and where, if you are obliged to occupy certain premises instead of using the income for the purposes of the charity, you immediately find yourself under a heavy burden of taxation. I may take the case of Westminster School, of the governing body of which I am a member. We hold a number of houses round about the neighbourhood. So long as we have these houses we can draw the income, and they are exempt, though they are part of the endowment. But if we are obliged to use one of these houses for the immediate purposes of the school, we are then brought under heavy taxation, and obliged to diminish the value of the charity. That is a sound argument, and requires some answer more than the mere statement by the right hon. Gentleman that other people will suffer if you take this off, and that charity is very difficult to define, and that if we open the door too widely we do not know where it will end. That is an argument which would make any rectification of injustice in the incidence of taxation absolutely hopeless. We put forward what we say as a sound argument in the public interest, and we ask the right hon. Gentleman, or some of his colleagues at least, to give us an answer to those arguments before setting aside our demand.

I should like to have heard some financial argument, which the House has not heard, upon this Amendment of my hon. Friend. Suppose that the arguments of my hon. Friends are right, and that the Clause is passed, what effect would that have upon the revenue? That is very important, because I believe that we are supposed to be discussing finance, and the representatives of finance on the Government Bench are two extremely able lawyers. When we want a legal question decided, they are always away in other places, and when we want a financial authority we cannot get him. I now see the Secretary to the Treasury, but he was absent when I began speaking.

I do think, at any rate, especially when we are debating under a Guillotine Resolution, that we should have the presence of the Chancellor of the Exchequer. It is all very well to say that he is engaged in other things. My hon. Friend is engaged in other things, but he is able to be present, and I do not see why the Chancellor of the Exchequer cannot be here too. There is no obligation to put this business down for this particular day. We cannot get more than two days, and it might easily be put down for a day on which the Chancellor of the Exchequer can attend. If we were not working under the guillotine I should certainly move the adjournment of the Debate. The hon. Member opposite for the last two or three days has taken a very sound view of these questions. I do not know whether the sound view which he took yesterday led him into collision with a certain officer in the Lobby. But it is merely sound common sense to say that when we have a financial question like this to deal with we should be able to hear the Chancellor of the Exchequer, and not be put into the hands of two lawyers.

There seems to have been a great deal of laborious trifling over this subject. The Amendment is a very reasonable one from the point of view which has been explained in the reference which was made to Westminster School. But the whole case is very clearly put that certain charities are not exempt because they are occupied for the purposes of the charity. Some Gentlemen who support that view have done so simply by abusing the absent Chancellor of the Exchequer for not being here. That is hardly relevant. I listened with a great deal of interest to what the Attorney-General had to say, but he did not seem to come to grips with it, and the reason seems to me to be because he is bound to continue the exemption of charities from Income Tax. That is part of the scheme of our finance, and he is obliged to find some other reason for this than the real reason. A very admirable summary of all the discussions which took place on this subject were contained in a letter written to the "Times" about twenty years ago, in which were pointed out the efforts which the late Mr. Gladstone made in this House to get this exemption of charities from Income Tax repealed. In Mr. Gladstone's time it was a very small matter. The income of the charities was not very large. But now they have grown so greatly that the question has come to be a very important one. The only effect of this particular Amendment would be to extend the mischief which already exists. In Mr. Gladstone's time the income of the charities amounted to £2,000,000 per year. Now the income amounts to £11,000,000 or £12,000,000 per year, which is exempt altogether from Income Tax.

It is a most unreasonable distribution of the national burden that all that public property should not pay Income Tax in the ordinary course. There is no kind of argument in it, except that sentimentalism which says that the income of these charities should be allowed to do some good to the community at the expense of the national revenue. The largest charities would be the most benefited by the exemption. Take the case of the Westminster School. Why should it be exempt from Income Tax on its foundation income? It should not be exempt. The property itself should pay. And the same principle should apply to the whole £11,000,000 income of charity property. I could give a vast number of instances to show that these exemptions from Income Tax are pure folly and have no financial reason in them whatever. In regard to the Income Tax, every parcel of income in the country ought to pay its regular share towards the general expenses of the State. If you want to benefit these charities in any way, it would be for Parliament to do something in their behalf, though I should say that it is an unwarrantable proposition for this House to make any Grants. Another reason why exemption should be done away with is that the State has to pay the expenses of the Charity Commissioners for keeping these properties in order. We spend £40,000 a year, or more, for looking after those charities, which are exempt from Income Tax.

I have already stated my reasons for opposing this Amendment, and I shall not pursue the subject further.

My hon. Friend and the hon. Gentleman who has just sat down have both addressed their remarks—or, at any rate, some of their remarks—rather pointedly to me. I wish to be absolved from the obligation of advising what course should be taken as regards this Bill; I am not in charge of the Bill; I am not responsible for the finance of the country, and it does not fall to me to take note of the observations and suggestions which hon. Members offer—nor, indeed, unless I should feel inclined to make observations on their points of view, is it part of my duty to give guidance to the Committee. I do venture to join in the protest which has already been made by hon. Friends of mine against the growing practice of the Chancellor of the Exchequer to absent himself from the House during discussions on the Budget. Putting myself out of the question, I venture to say that of all the predecessors of the Chancellor of the Exchequer whom I have known, none spent so small a proportion as he of the time occupied by the Budget on that Bench listening to the discussion. The House will recall the fact that in speaking of the growing impotence of this House, of its lessened power to exert authority, or to make its will effective, my right hon. Friend the senior Member for the City of London (Mr. Balfour) adduced, as one of the reasons, the practice of Ministers—I am now speaking of Ministers specially responsible for Bills—not themselves to be present during the discussion. I do not wish to say anything discourteous of the right hon. and learned Gentleman opposite or of the Financial Secretary to the Treasury. I held the latter position myself under Sir Michael Hicks-Beach. I know what I did. I sat beside Sir Michael Hicks-Beach during the whole discussion except at such times as he had to withdraw to receive deputations, or confer with his officers, or during the short interval in which he was necessarily absent for his dinner. Except for those brief intervals, it was the uniform practice of previous Chancellors always to be present to listen to the Debate, and always to be ready to give the House the benefit of their counsel and knowledge. The question which is raised by this particular Amendment is one of great complexity and great difficulty. I do not think it can be laid down off-hand, as the last speaker attempted to do, that all charity funds should be brought within the ambit of the Income Tax. I, for my part, should not like to commit myself finally and definitely to the extension of the exemptions, or to financial results I do not foresee. I confess that this is one of the points on which the Income Tax law is in an unsatisfactory position—whatever the solution of the difficulty ought to be—because it is illogical in itself. I do not think it is possible to defend at one and the same time the exemptions which are now accorded or the refusal of exemptions which is now made. There is no common principle underlying these two things. I am not quite certain that the House knows, or that even the learned Attorney-General or anyone knows, exactly what the law is on this subject. Reference has been made by my hon. Friend to the case of Westminster School. I also am interested as governor in another great public school, and we have had the case of the Westminster School brought to our attention, and, unless I am under a misapprehension, the authorities of Westminster School are appealing against the assessment of particular properties with which they are concerned, and it may be that the Courts will decide that they are not liable to assessment on those properties.

I thought it was the Income Tax. The learned Attorney-General has been good enough to correct me, and to tell me that the case I have in mind does not deal with the point that has been raised.

I accept that at once; my memory or my information was at fault. I did not intend to take part in this discussion. I confess my inability to give the House any clear guidance as to what is the best course to pursue in this matter at the present time. I would submit again, however, that it is not to me that the House has a right to look for guidance on this matter, and it is a subject for legitimate complaint by Members in all quarters of the House that on a Bill of this importance they cannot address their arguments directly to the Chancellor of the Exchequer, and have his attention given personally to them.

I do not think the right hon. Gentleman was in the House when my right hon. Friend the Attorney-General addressed it.

If he had been, he would have heard that, having been appealed to by hon. Friends behind him, my right hon. Friend the Attorney-General used almost exactly the same arguments as the right hon. Gentleman himself has put before the House. My right hon. and learned Friend acknowledged that there are certain anomalies under the existing law, and he pointed out that this was one of the points particularly appropriate for inquiry with a view to making the Income Tax more logical and more workable. He did not go so far as the hon. Member below the Gangway in condemning the practice of exempting charities, and he would certainly not go so far as to extend the number of exemptions, in view of the fact that we are promised an inquiry into the Income Tax which is going to be set up immediately. It was for that reason he suggested that it would not be wise, when he himself could not foresee exactly the extent of the expenditure, nor could the right hon. Gentleman, that would be caused by extending the exemptions.

I could not foresee, but the Chancellor of the Exchequer ought to be in a position to foresee.

The right hon. Gentleman knows it is very difficult to make exact estimates on these matters. My right hon. Friend said that he agreed with those who moved this Clause that it would not be a very expensive matter. The law at the present moment exempts certain charities from taxation on the lands they occupy; but the Clause now before us seeks to exempt all charities from taxation on the lands they occupy. My right hon. and learned Friend suggested that that was a very proper matter to leave to the Committee of Inquiry, because it might turn out to be wise, rather than to extend the exemption, to withdraw them altogether. I do not think the right hon. Gentleman was justified in the attack he made on the Chancellor of the Exchequer, who, I think he will find, has been present throughout the discussions on the Budget in all its stages until this afternoon, when it is not difficult to understand the reason for his not being here.

I should like to refer to the case the Attorney-General made in reply to the hon. Member for Salisbury. To me he did not seem to reply to the point, and he drew the attention of the House away from the Amendment—to all charities. The Amendment, as I read it, is confined to those charities where there is property invested in the trustees, but the right hon. Gentleman attempted to make the House think that it was going to include all charitable institutions of whatever kind.

Because the exemption is to extend to a great number of charities in the country with lands or property vested in trustees.

The words of the Amendment are quite clear, but I am afraid they are regarded from the financial point of view. We are representatives of the people in this House, and numbers of Members must know from their own personal experience as governors the great difficulty there is in obtaining the necessary finances to carry on these charitable institutions, and with this extra burden, as the hon. Member for Salisbury showed, charitable activity is decreased. That is a point which surely the Chancellor of the Exchequer ought to take into account. We who represent the people of the country, we who are governors and trustees of charitable institutions, ought to see, if we are to represent the feeling of the country, that these exemptions are made. Surely it is for us to enforce our views on the Chancellor of the Exchequer, and to point out that this would not affect the revenues of the country so adversely that he could not afford to meet the wishes and feelings of an enormous number of people, whatever their political views, by remedying this anomaly in the Income Tax. I would point out to the Attorney-General that he should take into consideration the fact there is a feeling on his own side of the House that this anomaly should be put right. We have been told that there is to be an inquiry, but that answer might be given over and over again to later Amendments, and the House is not satisfied to be told simply that their Amendments shall be referred to some Committee.

Division No. 190.]


[5.1 p.m.

Agg-Gardner, James TynteDickson, Rt. Hon. C. ScottHunter, Sir C. R.
Astor, WaldorfDuncannon, ViscountIngleby, Holcombe
Baird, J. L.Du Pre, W. BaringJessel, Captain H. M.
Baker, Sir R. L. (Dorset, N.)Eyres-Monsell, Bolton M.Kerry, Earl of
Baldwin, StanleyFaber, George Denison (Clapham)Kinloch-Cooke, Sir Clement
Banbury, Sir Frederick GeorgeFaber, Capt. W. V. (Hants, W.)Lane-Fox, G. R.
Banner, Sir John S. Harmwood-Falle, B. G.Lloyd, George Butler (Shrewsbury)
Baring, Maj. Hon. Guy V. (Winchester)Fell, ArthurLocker-Lampson, G. (Salisbury)
Barnston, HarryFisher, Rt. Hon. W. HayesLockwood, Rt. Hon. Lt.-Col. A. R.
Barrie, H. T.Fitzroy, Hon. Edward A.Lowe, Sir F. W. (Birm., Edgbaston)
Bathurst, C. (Wilts, Wilton)Fletcher, John SamuelLyttelton, Hon. J. C.
Beach, Hon. Michael Hugh HicksGanzoni, Francis John C.MacCaw, Wm. J. MacGeagh
Beckett, Hon. GervaseGardner, ErnestMackinder, Halford J.
Benn, Arthur Shirley (Plymouth)Gastrell, Major W. HoughtonMacmaster, Donald
Beresford, Lord C.Gibbs, G. A.M'Calmont, Major Robert C. A.
Bigland, AlfredGilmour, Captain JohnM'Neill, Ronald (Kent, St. Augustine's)
Bird, A.Glazebreek, Captain Philip K.Magnus, Sir Philip
Blair, ReginaldGrant, J. A.Mildmay, Francis Bingham
Boscawen, Sir Arthur S. T. Gritfith-Gretton, JohnMills, Hon. Charles Thomas
Bridgeman, W. CliveGuinness, Hon. Rupert (Essex, S. E.)Moore, William
Bull, Sir William JamesGuinness, Hon. W. E. (BurySI. Edmunds)Morrison-Bell, Capt. E. F. (Ashburton)
Burdett-Coutts, W.Gwynne, R. S. (Sussex, Eastbourne)Morrison-Bell, Major A. C. (Honiton)
Burn, Colonel C. R.Haddock, George BahrNewman, John R. P.
Butcher, John GeorgeHall, Frederick (Dulwich)Nicholson, William G. (Petersfield)
Campbell, Captain Duncan F. (Ayr, N.)Hall, Marshall (L'pool, E. Toxteth)O'Neill, Hon. A. E. B. (Antrim, Mid)
Campion, W. R.Hamilton, C. G. C. (Ches., Altrincham)Orde-Powlett, Hon. W. G. A.
Carlile, Sir Edward HildredHardy, Rt. Hon. LaurenceOrmsby-Gore, Hon. William
Cassel, FelixHelmsley, ViscountPaget, Almeric Hugh
Castlereagh, ViscountHenderson, Major H. (Berks., Abingdon)Pease, Herbert Pike (Darlington)
Cecil, Evelyn (Aston Manor)Henderson, Sir A. (St. Geo., Han. Sq.)Peel, Lieut.-Colonel R. F.
Cecil, Lord Hugh (Oxford University)Herbert, Hon. A. (Somerset, S.)Perkins, Walter F.
Cecil, Lord R. (Herts, Hitchin)Hewins, William Albert SamuelPeto, Basil Edward
Chamberlain, Rt. Hon. J. A.Hibbert, Sir Henry F.Pole-Carew, Sir R.
Chaplin, Rt. Hon. HenryHickman, Colonel Thomas E.Pollock, Ernest Murray
Clive, Captain Percy ArcherHills, John WallerPretyman, Ernest George
Clyde, J. AvonHill-Wood, SamuelPryce-Jones, Colonel E.
Cooper, Sir Richard AshmoleHoare, S. J. G.Quilter, Sir William Eley C.
Craig, Norman (Kent, Thanet)Hohler, G. F.Randles, Sir John S.
Crichton-Stuart, Lord NinianHope, Harry (Bute)Rees, Sir J. D.
Croft, H. P.Hope, James Fitzalan (Sheffield)Remnant, James Farquharson
Currie, George W.Hope, Major J. A. (Midlothian)Ronaldshay, Earl of
Dalrymple, ViscountHorne, E.Rutherford, Watson (L'pool, W. Derby)
Dalziel, Davison (Brixton)Horner, Andrew LongSamuel, Sir Harry (Norwood)
Denison-Pender, J. C.Hume-Williams, William EllisSanders, Robert Arthur
Denniss, E. R. B.Hunt, RowlandSharman-Crawford, Colonel R. G.

May I ask the Attorney-General whether the exemption proposed in this Clause would be referred to the Committee of Inquiry?

I should like to ask, further, whether the Committee will take into consideration the primary question that there should be no exemption of charities?

I am inclined to think that one of the principal reasons for an inquiry is to see that the Income Tax laws are made more consistent as a whole. I cannot imagine a more obvious example of the need for such an inquiry than the present state of the law which exempts some charities and docs not exempt others.

Question put, "That the Clause be read a second time."

The House divided: Ayes, 168; Noes, 283.

Spear, Sir John WardThomas-Stanford, CharlesWilloughby, Major Hon. Claud
Stanier, BevilleThompson, Robert (Belfast, North)Wilson, A. Stanley (Yorks, E. R.)
Stanley, Hon. Arthur (Ormskirk)Thomson, W. Mitchell- (Down, North)Wilson, Captain Leslie O. (Reading)
Stanley, Hon. G. F. (Preston)Tobin, Alfred AspinallWood, Hon. E. F. L. (Yorks, Ripon)
Starkey, John RalphTryon, Captain George ClementWood, John (Stalybridge)
Staveley-Hill, HenryTullibardine, Marquess ofWorthington Evans, L.
Steel-Maitland, A. D.Valentia, ViscountWortley, Rt. Hon. C. B. Stuart-
Stewart, GershomWalrond, Hon. LionelYate, Colonel C. E.
Sykes, Alan John (Ches., Knutstord)Watson, Hon. W.Younger, Sir George
Sykes, Sir Mark (Hull, Central)Weston, Colonel J. W.
Talbot, Lord E.Wheler, Granville C. H.


Terrell, George (Wilts, N. W.)White, Major G. D. (Lancs., Southport)Mount and Sir H. Craik


Abraham, William (Dublin, Harbour)Duncan, C. (Barrow-in-Furness)Lambert, Richard (Wilts, Cricklade)
Addison, Dr. ChristopherDuncan, Sir J. Hastings (Yorks, Otley)Lardner, James C. R.
Adkins, Sir W. Ryland D.Edwards, John Hugh (Glamorgan, Mid)Law, Hugh A. (Donegal, West)
Agar-Robartes, Hon. T. C. R.Elverston, Sir HaroldLevy, Sir Maurice
Agnew, Sir George WilliamEsmonde, Dr. John (Tipperary, N.)Lewis, Rt. Hon. John Herbert
Ainsworth, John StirlingEsmonde, Sir Thomas (Wexford, N.)Lough, Rt. Hon. Thomas
Alden, PercyFalconer, JamesLundon, T.
Allen, Arthur A. (Dumbartonshire)Farrell, James PatrickLyell, Charles Henry
Allen, Rt. Hon. Charles P. (Stroud)Fenwick, Rt. Hon. CharlesLynch, A. A.
Arnold, SydneyFfrench, PeterMacdonald, J. Ramsay (Leicester)
Baker, Harold T. (Accrington)Field, WilliamMacdonald, J. M. (Falkirk Burghs)
Baker, Joseph Allen (Finsbury, E.)Fiennes, Hon. Eustace EdwardMcGhee, Richard
Balfour, Sir Robert (Lanark)Fitzgibbon, JohnMacNeill, J. G. Swift (Donegal, S.)
Baring, Sir Godfrey (Barnstaple)Flavin, Michael JosephMacVeagh, Jeremiah
Barlow, Sir John Emmott (Somerset)Furness, Sir Stephen WilsonM'Callum, Sir John M.
Barnes, George N.Gelder, Sir William AlfredMcKenna, Rt. Hon. Reginald
Barran, Sir John N. (Hawick Burghs)George, Rt. Hon. D. LloydM'Laren, Hon. F. W. S. (Lincs., Spalding)
Barran, Rowland Hurst (Leeds, N.)Ginnell, L.M'Micking, Major Gilbert
Beale, Sir William PhipsonGladstone, W. G. C.Manfield, Harry
Beauchamp, Sir EdwardGlanville, H. J.Markham, Sir Arthur Basil
Beck, Arthur CecilGoddard, Sir Daniel FordMarshall, Arthur Harold
Benn, W. W. (T. Hamlets, St. George)Goldstone, FrankMason, David M. (Coventry)
Bentham, George JacksonGreig, Colonel J. W.Meagher, Michael
Birrell, Rt. Hon. AugustineGriffith, Rt. Hon. Ellis JonesMeehan, Francis E. (Leitrim, N.)
Black, Arthur W.Guest, Hon. Frederick E. (Dorset, E.)Meehan, Patrick J. (Queen's Co., Leix)
Boland, John PlusGulland, John WilliamMillar, James Duncan
Booth, Frederick HandelGwynn, Stephen Lucius (Galway)Molloy, Michael
Bowden, G. R. HarlandHackett, J.Molteno, Percy Alport
Bowerman, C. W.Hancock, John GeorgeMontagu, Hon. E. S.
Boyle, Daniel (Mayo, North)Harcourt, Rt. Hon. Lewis (Rossendale)Mooney, John J.
Brady, J. P.Harcourt, Robert V. (Montrose)Morgan, George Hay
Brockiehurst, William B.Hardie, J. KeirMorrell, Philip
Brunner, John F. L.Harmsworth, Cecil (Luton, Beds)Morison, Hector
Bryce, J. AnnanHarmsworth, R. L. (Caithness-shire)Morton, Alpheus Cleophas
Buckmaster, Sir Stanley O.Harvey, A. G. C. (Rochdale)Munro, Rt. Hon. Robert
Burns, Rt. Hon. JohnHarvey, T. E. (Leeds, W.)Murphy, Martin J.
Burt, Rt. Hon. ThomasHaslam, Lewis (Monmouth)Murray, Captain Hon. Arthur C.
Buxton, Noel (Norfolk, North)Havelock-Allan, Sir HenryNeilson, Francis
Byles, Sir William PollardHayden, John PatrickNicholson, Sir Charles N. (Doncaster)
Carr-Gomm, H. W.Hayward, EvanNolan, Joseph
Cawley, Sir Frederick (Prestwich)Helme, Sir Norval WatsonNorman, Sir Henry
Cawley, H. T. (Lancs., Heywood)Hemmerde, Edward GeorgeNorton, Captain Cecil W.
Chapple, Dr. William AllenHenderson, Arthur (Durham)Nugent, Sir Walter Richard
Churchill, Rt. Hon. Winston S.Henry, Sir CharlesNuttall, Harry
Clancy, John JosephHigham, John SharpO'Brien, Patrick (Kilkenny)
Clough, WilliamHinds, JohnO'Connor, T. P. (Liverpool)
Clynes, John R.Hodge, JohnO'Doherty, Philip
Collins, Godfrey P. (Greenock)Hogge, James MylesO'Donnell, Thomas
Collins, Sir Stephen (Lambeth)Holmes, Daniel TurnerO'Dowd, John
Compton-Rickett, Rt. Hon. Sir J.Holt, Richard DurningO'Malley, William
Cornwall, Sir Edwin A.Hope, John Deans (Haddington)O'Neill, Dr. Charles (Armagh, S.)
Craig, Herbert J. (Tynemouth)Howard, Hon. GeoffreyO'Shaughnessy, P. J.
Crooks, WilliamHudson, WalterO'Sullivan, Timothy
Crumley, PatrickHughes, Spencer LeighOuthwaite, R. L.
Cullinan, JohnIllingworth, Percy H.Palmer, Godfrey Mark
Dalziel, Rt. Hon. Sir J. H. (Kirkcaldy)John, Edward ThomasParker, James (Halifax)
Davies, Ellis William (Eifion)Jones, Edgar (Merthyr Tydvil)Parry, Thomas H.
Davies, Timothy (Lincs., Louth)Jones, H. Haydn (Merioneth)Pearce, Robert (Staffs, Leek)
Davies, Sir W. Howell (Bristol, S.)Jones, J. Towyn (Carmarthen, East)Pearce, William (Limehouse)
Dawes, J. A.Jones, William S. Glyn- (Stepney)Pease, Rt. Hon. Joseph A. (Rotherham)
De Forest, BaronJowett, Frederick WilliamPhilipps, Colonel Ivor (Southampton)
Delany, WilliamJoyce, MichaelPhillips, John (Longford, S.)
Denman, Hon. R. D.Kellaway, Frederick GeorgePirle, Duncan V.
Devlin, JosephKelly, EdwardPonsonby, Arthur A. W. H.
Dewar, Sir J. A.Kennedy, Vincent PaulPratt, J. W.
Dillon, JohnKenyon, BarnetPrice, C. E. (Edinburgh, Central)
Donelan, Captain A.Kilbride, DenisPrice, Sir R. J. (Norfolk, E.)
Doris, WilliamKing, J.Priestley, Sir Arthur (Grantham)
Duffy, William J.Lambert, Rt. Hon. G. (Devon, S. Molton)Priestley, Sir W. E. (Bradford)

Primrose, Hon. Neil JamesSamuel, J. (Stockton-on-Tees)Waring, Walter
Pringle, William M. R.Scanlan, ThomasWarner, Sir Thomas Courtenay T.
Radford, G. H.Scott, A. MacCallum (Glas., Bridgeton)Wason, Rt. Hon. E. (Clackmannan)
Raffan, Peter WilsonSeely, Rt. Hon. Colonel J. E. B.Wason, John Cathcart (Orkney)
Rea, Rt. Hon. Russell (South Shields)Sheeny, DavidWatt, Henry Anderson
Rea, Walter Russell (Scarborough)Sherwell, Arthur JamesWedgwood, Josiah C.
Reddy, M.Shortt, EdwardWhite, J. Dundas (Glas., Tradeston)
Redmond, John (Waterford)Simon, Rt. Hon. Sir John AllsebrookWhite, Sir Luke (Yorks, E. R.)
Redmond, William (Clare, E.)Smith, H. B. L. (Northampton)White, Patrick (Meath, North)
Redmond, William Archer (Tyrone, E.)Smyth, Thomas F. (Leitrim, S.)Whitehouse, John Howard
Rendall, AthelstanSoames, Arthur WellesleyWhittaker, Rt. Hon. Sir Thomas P.
Richardson, Thomas (Whitehaven)Spicer, Rt. Hon. Sir AlbertWhyte, A. F. (Perth)
Roberts, Charles H. (Lincoln)Strauss, Edward A. (Southwark, West)Wiles, Thomas
Roberts, G. H. (Norwich)Sutherland, J. E.Wilkie, Alexander
Roberts, Sir J. H. (Denbighs)Sutton, John E.Williams, Aneurin (Durham, N. W.)
Robertson, Sir G. Scott (Bradford)Taylor, John W. (Durham)Wilson, Hon. G. G. (Hull, W.)
Robertson, J. M. (Tyneside)Taylor, Theodore C. (Radcliffe)Wilson, W. T. (Westhoughton)
Robinson, SidneyTaylor, Thomas (Bolton)Winfrey, Sir Richard
Roch, Walter F. (Pembroke)Tennant, Rt. Hon. Harold JohnWing, Thomas Edward
Roche, Augustine (Louth)Thorne, G. R. (Wolverhampton)Wood, Rt. Hon. T. McKinnon (Glas.)
Roe, Sir ThomasThorne, William (West Ham)Yeo, Alfred Wililam
Rowlands, JamesToulmin, Sir GeorgeYoung, W. (Perth, E.)
Rowntree, ArnoldTrevelyan, Charles PhilipsYoxall, Sir James Henry
Runciman, Rt. Hon. WalterVerney, Sir Harry
Russell, Rt. Hon. Thomas W.Walsh, Stephen (Lancs., Ince)


Samuel, Rt. Hon. H. L. (Cleveland)Ward, W. Dudley (Southampton)William Jones and Mr. Webb.

New Clause—(Residents Abroad Owning Securities Of Foreign State Or British Possession)

The time limit imposed by Sub-section (2) of Section seventy-one of the Finance (1909–10) Act, 1910, which grants relief to persons not resident in the United Kingdom in respect of Income Tax on the interest or dividends of any securities of a foreign State or British Possession, shall be extended from six months to three years.

Clause brought up, and read the first time.

I bog to move, "That the Clause be read a second time."

At present only six months is allowed after the end of the year in which Income Tax is charged within which a claim may be made in respect of deduction of Income Tax on the income arising from securities in a foreign State or British Possession in the case of the person owning them being resident outside of the United Kingdom. The dividends are paid over here. The issue is probably through a British bank and paid through that bank for the sake of convenience. Under the Income Tax law the paying bank is compelled to deduct the tax before the money is paid, whether the person is actually liable or not and quite irrespective of where the person resides. My point is that the limit of six months is often very unreasonable as the limit within which a claim for abatement may be made. In practice a large number of people lose the tax which has been deducted, and which in reality they are not liable to pay. For instance, take the case of a person resident in Australia or New Zealand with stocks of the description I have mentioned, the Income Tax being collected here by the bank. The dividend may be placed in the man's account towards the end of March and the bankers may advise him that the tax has been deducted. The man cannot possibly receive that information until well into May. I am very glad I have the privilege of putting my case before the Chancellor of the Exchequer. The man may be away from home at the time. He has to write to Somerset House for a form of claim, and that takes another six weeks. Probably there is a delay of a week at Somerset House, and another six weeks elapses before the man in Australia or New Zealand receives the form. He has to complete it and go before a justice of the peace or magistrate and swear as to the form which is returned to Somerset House. That makes altogether twenty-four weeks out of the twenty-six, even if everything is dealt with by return of post.

Perhaps it may save the time of the House if I state I am going to accept this new Clause in the form in which it is moved.

I am prepared to accept this new Clause. The matter is very simple. Suppose interest or dividend on securities of a foreign State or British Possession are paid in London, as I am glad to think many of them are, and supposing that they are payable to persons who are not resident in the United Kingdom, though the Income Tax is deducted at the source the person entitled to the income or dividend, since he is not resident, is entitled to have it back. Under the existing law he has to claim it within six months, and I am quite prepared to agree that he ought to be given a longer term.

Question put, and agreed to.

Clause read a second time, and added to the Bill.

New Clause—(Application Of Section 24 (2) Of Finance Act, 1907, To Income From Stocks, Etc, Arising Outside The United Kingdom)

All the provisions of Section twenty-four, Sub-section (2), of the Finance Act, 1907, which relates to a profession, trade, or vocation, which has been set up or commenced within the period of three years preceding the year of assessment, shall apply to income from stocks, shares, rents, or other sources arising in any place out of the United Kingdom, and assessed under case five in Section one hundred of the Income Tax Act, 1842, and the provisions of this Section.

Clause brought up and read the first time.

I beg to move, "That the Clause be read a second time."

The object of the Clause is to remove what I believe to be a very substantial grievance. Foreign income is assessed under two rules. Income received from Government securities in foreign States, or from loans of foreign States or municipal authorities is assessed on the amount received in the year of assessment; but income received from what are termed "possessions" abroad—that is to say, shares in trading concerns, rents of land, or rents of houses—is assessed like income accruing to a person from trade, business, or profits of employment received in this country. Income from securities in foreign countries is assessed only on the amount which has accrued in the year, while income from possessions in foreign countries is assessed on the average system. This procedure frequently leads to great injustice in the first three years of liability. Possessions in foreign countries are assessed like trading profits. Under the Finance Act, 1907, Section 24 (2) in the case of income in this country accruing from a trade, profession or vocation which has been set up within the three years during which the average is taken under the Income Tax law, the taxpayer has the right to ask the Commissioners to adjust the liability to the actual amount received in the year of assessment. But this advantage does not apply to income from possessions in foreign countries. Say a man's income from possessions in other countries during the first three years was £5,000, £3,000 and £2,000—that is to say, £10,000 in all. He can be taxed on £5,000, £5,000, and £1,000, or £14,000 in all—that is, £4,000 above his actual income from his possessions. If he had actually the same income from trade or business over here, he would be taxed on £5,000, £3,000, and £2,000, or £10,000 in all—that is to say, he would be taxed on the actual income that he had received. It cannot be considered that there is any justice in this distinction between income from possessions abroad and income from ordinary trading profits arising in this country. Unless something is done a very real grievance will arise in the case of assessments under Clause 5 of the Finance Bill, which presumably will be based on the income of the three preceding years, in the case of income from foreign Government securities.

In many cases where people have retired from India or the Colonies they send a considerable portion of their capital to this country, and the income arising from shares or rents abroad may, therefore, be considerably diminished by the time the actual year of assessment comes round—that is, the fourth year. Owing to remittances of capital here, the income from shares or rents accruing abroad may be, say, £1,000, whereas the actual income accruing abroad for the current year may be only £450. Supposing the capital which has been sent over here brings in in this country in the current year an income of £550. The tax of the current year will be paid not on the £450 accruing abroad and the £550 at home, but on the average of £1,000 of the three preceding years, and also the £550 accruing on the capital sent over to this country—that is to say, on £1,550 in all. The result is that although the capital has been invested here and produces an income subject to the deduction of tax over here in the current year, the tax is also based on the income which that capital produced before it was sent over here at all. I do not know whether I have made myself quite clear. The income to the extent of the £550 which accrues from the capital sent over here has practically been taxed twice over—once here, and then again on taking the average of the three preceding years before it was sent over. If this provision of Section 24 (2) of the Finance Act, 1907, is extended, it will absolutely meet this particular grievance. I hope, therefore, the Government will accept my proposal.

The hon. Gentleman has moved his Clause with words at the end which I do not quite understand. I cannot help thinking that it has been transplanted bodily from something put down as an Amendment at an earlier stage. The words at the end, "and the provisions of this Section," do not convey any meaning to my mind at all. Perhaps the hon. Gentleman will explain that?

As a matter of fact, these words are unnecessary. The proposal was put down as an Amendment to a Clause in the Bill, and was then made into a new Clause.

I understand that the new Clause is intended to stop after the words "Income Tax Act, 1842."

It follows, therefore, that the hon. Gentleman does not propose to apply the principles contained in the new Clause to Clause 5 of the present Finance Bill at all.

I should have to add the words "and the provisions of Section 5 of this Act."

Then I understand that the. Clause is not to stop at the words "Income Tax Act, 1842," but is to run on with the words "and the provisions of Section 5 of this Act." That is what I expected the hon. Gentleman would say, but, of course. I wanted to know. Let me assure the hon. Gentleman that I under-stand what he proposes, but I think there are good reasons against accepting the Clause. As things stand at present, you have the calculation on the average of three years applied in various cases under the Income Tax Acts. One of the best known to most of us is the case where you have the three years' average applied for the purpose of charging Income Tax in respect of profession, trade, or vocation. But that is by no means the only case where the average is applied. There is one case where a five years' average is taken, and another where a seven years' average is taken. There are many cases in which you do not take the actual year of charge, but some other year. As the law stands, in one case, and in one case only, out of all the cases where averages are taken, the taxpayer is allowed to say, "It is true that the law applies an average of, say three years to my case, but I have not been carrying on my profession, trade, or vocation for three years. This is only the second or perhaps the first year, and I wish to substitute the actual experience of the year of charge for the normal application of the average." That is permitted by Section 24 (2) of the Finance Act, 1907. I do not understand whether the hon. Gentleman proposes to limit this substitution of a given year for an average to cases in which the source of income has begun within the period over which the average is calculated. Does the hon. Gentleman propose to do that?

I think it is quite plain from the Section in the Act. I want that Section to apply in its completeness to this particular case.

I hope the hon. Gentleman does not think that I am merely making points for the purpose of quarrelling with him. The subject is a complicated one, and I must know exactly what he means.

The Section provides, in the case of an ordinary individual paying Income Tax on the three years' average, that he shall be entitled to say, so far as the figures for the particular profession, trade, or vocation are concerned, "Please, take a given year, and not the average of the three years." That has no application to the case of a man who has been carrying on his profession for four or five years. It applies only at the beginning, and the reason it applies at the beginning is that it may happen that a man in his first year does exceptionally well. His friends give him a considerable amount of support. A friendly solicitor, for instance, gives a young barrister some briefs. But the hon. Gentleman is really proposing a very much bigger thing than would appear from his speech. He is proposing that wherever an average is required by the present Income Tax law, and the taking of an individual year would be preferable to the taxpayer, that substitution shall be available—for instance, under Rule 5 of Section 100, or under Clause 5 of the present Bill—and thereby he would greatly extend what is at present a most exceptional provision. There is very good reason why it should not be so extended. It is comparatively safe to say, in the case of a man with a profession or vocation during the first three years, "I will take your actual figures for the present year, instead of taking an average." At any rate, his profession is definite; you know what you are dealing with. But the hon. Gentleman says, "I want to substitute the receipts of the current year of charge for the average in, for instance, case five of Section 100"—which is the foreign possessions case. Does not the hon. Member see that if you do that you put it in the power of the taxpayer to manipulate—I am not using the word in an offensive way—to vary from time to time the way in which he chooses to employ his capital, with the result that the revenue may lose taxes to which it is entitled, because he has so varied his investments, or varied the form in which he receives his money as to get the advantage of this new Clause? For example, supposing you say to the taxpayer you have got foreign possessions at present and pay income Tax on profits on those foreign possessions remitted to this country on an average of three years. That is the provision to which the hon. Member referred. If you say to the taxpayer, "You can substitute in any given year at your will and pleasure if you like, not what the revenue likes, the actual receipts for the given year"; if the taxpayer in that case wants to reduce his liability to pay to a minimum, there is a very obvious way in which he may do it. He may in that year refrain from having his income remitted to this country so that it is kept under old case five. Even supposing he is none the less hit under our new Clause 5—which has nothing to do with remittance—he none the less may vary his form and may still invest instead in the securities in the home market, with the result that it is at his own will and pleasure to vary the amount which in a given year will come under that particular case. That is the reason why this was not extended at all. It was quite deliberate in 1907, even though it was not under this Government—

The right hon. Gentleman is quite right, but whoever was responsible, it was done in this way. It was not because the Government or the House of Commons—I hope—or the revenue imagine that the only case where you have an average was the case where you taxed a profession, trade, or vocation. There were a lot of other cases, but so long as you confined the concession to this it was all right, because a man cannot go on shifting his work about merely in order to save himself a little money in a given year. If you say you may substitute the amount received from foreign possessions in a given year for an average of three years, that will enable the person, by variations in the form of his investments, to present you a figure for a given year which is really not a fair figure.

Will the right hon. Gentleman point out how you can do that under the new Clause 5?

Assume the taxpayer takes his interest by cashing coupons, in which case the income would be taxed at its source. In that case it would not come under our new Clause 5; it would be taxed at the source. It might, on the other hand, be remitted home, in which case it would come under our Clause 5. In the second case you can vary the way in which you are paid, so that at your will and pleasure you may tax the income at the source or later.

Will the right hon. Gentleman make it quite clear? A man has the same source of income and investments, which may be foreign or may be home. The same kind of investment in foreign securities, which is a coupon investment, would be treated as a foreign investment. An investment of the same character payable in London would be a home investment. If it is a foreign investment is it assessed on an average of three years? Is that the position or not?

No, it is not. If the hon. and gallant Gentleman will look at either the Income Tax Acts or the book of Mr. Dowell, he will see it is not so really, because the case that applies is that known as Case 4 under the Statute, not Case 5. The hon. Member who moved—quite accurately, if I may say so—confined himself to Case 5, which relates to foreign possessions, and not to the case of industrial securities. What I am pointing out is that if you take our new Clause, and if you say that a man is at liberty to substitute the amount he receives either for one year or an average of three years—in cases where the average applies—you are, as a matter of fact, presenting him with a choice of two alternatives, and, of course, he will always choose the one that suits him best. That does not apply in the one case under the Act of 1907, where concession is made, and for the practical reason that a man cannot say to himself, "I will be a barrister to-day, an architect tomorrow, and something else the next day." merely at his own will and pleasure, to avoid the average and to take a single year. That is the practical reason why the concession is made in that case. The hon. Member gave as an illustration the case of a man receiving £5,000 from foreign possessions in the first year, £3,000 the second year, and £2,000 the next year—the case of a dropping income—

Which is transferred here under the old law. The hon. Member said that it was hard to tax a man in the third year on the average of the three years. We took him, I may say, on the second year on the average of two years. Of course it is quite true there may be such cases, but the answer to that is that it is really a criticism of the whole principle of averages, wherever applied. If your income is a dropping income, your average tends to keep up the figure longer than you like. If your income is a rising income, the average tends to keep the figure down after the time when some people think it ought to be higher. That, really, is not a peculiar hardship of the Income Tax law: it is due to the law of averages, and the result is the same whether you apply it to this or to cricket or to any other averages. The hon. Member, if he follows me, will see that we cannot really apply this system of the substitution of a single year for the average of three years in cases except the one case where it is substituted now. I know the subject is a very difficult and complicated one, but I think I understand what the hon. Member proposes, and I hope he sees that I understand it, and sees my reasons against the Amendment.

I do not think the right hon. Gentleman does quite understand. He tries to make out that my Amendment wants to give the benefit of being assessed on income received in the year of assessment. I am merely trying to give the benefit of the one case which relates to a profession, trade, or vocation to other persons to whom the Section in the Act of 1907 might be made applicable.

If we were going to adopt the Clause at all it would need to be very carefully considered from that point of view. The hon. Member has explained what he has in his mind, and I am not going to squabble about words. Whatever you do, I do not believe you will find if you look into it closely—that it is possible to say to a man, even in the first three years, that you are going to give him an alternative of taking a year, the last year, and taxing him on that instead of applying the general principle of the three years' average. For one thing, I think you will find it more difficult than usual to discover that he has really began this form of income within the last three years—not an easy thing in regard to foreign investments—and in the second place, if you look at the thing broadly you will see that it does not work out unfairly. I agree that in every system of averages there is this, that some people will be required to pay more than they think they should pay, and some less. The matter is not one easy to explain, but I think the House will find that that really is the way this House arrived at it At any rate, when the revenue made that concession in 1907 it was not a concession that there was any difficulty with; they chose a case in which it could be safely done, and I suggest to hon. Members that it really is not a practicable or a wise thing to alter the machinery so that we should apply it to other cases.

There are three distinct questions which arise out of the discussion which my hon. Friend behind me has initiated. We have had a reply from the right hon. and learned Gentleman upon it. I would like to deal with the questions in their order separately. As regards my hon. Friend's Amendment, the wording of it appears to me to carry out the option which is allowed to the investor at home in certain peculiar circumstances—not merely to some people if they are deriving their income from abroad—but to others. Therefore, if my hon. Friend's Amendment were carried in this form, people resident abroad would have an option in more cases than people resident at home. That is the first point. I agree with my hon. Friend that that would be the effect. When the words of Section 24 are confined to persons chargeable in respect of any profession, trade or vocation, my hon. Friend's Amendment applies it to income from stocks, shares, rents, or other sources arising in any place out of the United Kingdom. That does not confine it to home, but does confine it again in respect of any profession, trade or vocation. My first observation—if I am right in my interpretation—as to which Heaven forbid that I should speak dogmatically— I am not a lawyer and it is a very difficult matter—if I am right in my interpretation I think my hon. Friend's Amendment in that respect goes too far. The second question that is raised is: should not exemption, such as it is, which is now given to persons under these special circumstances—that is in the first three years of a profession, trade or vocation abroad, be extended having regard to the new Section spoken of, to people who derive similar incomes and under similar conditions from abroad? I think the learned Attorney-General made no answer to that point.

Forgive me, our new Clause 5 does not tax anybody in respect of a profession, trade or vocation; it taxes stocks, shares, rent. It does not tax professional people qua professional people, or trading people qua trading people at all. There is nothing corresponding to that.

Suppose a man starts a manufacturing business in this country he will be entitled for the first three years to have an option given him under Section 24, Sub-section (2) of the Finance Act of 1907. Supposing the same person elected his factory, not in Lancashire, but in India, will he be entitled to the same concession? Will he be taxed on any profits that he brings home? Supposing he brings the whole of his profits of the manufactory home, or suppose he accumulates them in India, under Section 5 you tax him on those profits if he is resident here. Is that so?

The answer is, on stocks, shares, rents, yes, whether he brings them home or not; bat nothing on other income.

That is very important. I think that is certainly not understood by the people concerned, as I could illustrate from the correspondence I have. I think I am taking a perfectly clear case. I take the illustration of a man who is making cotton goods for the Indian market, and who has the option of establishing a new mill in Lancashire or in India. If he establishes his new mill in Lancashire he gets the benefit of the option under the Act of 1907. Does the hon. and learned Gentleman tell me that if he establishes the mill in India the profits of that mill in India will not be assessed and are not assessable to Income Tax in India under Section 5? He says "unless received." In your new Section 5 there is the phrase "whether they are received or not." Then, in the case of a business establishment, if he does not bring his profits home, they are assessable?

I am very glad to get that assurance, because my correspondence has brought me many letters from people very much concerned about a particular case, and they were under the impression, as I was, that profits of a trade were included under the new Subsection. But I now understand from the Government Bench, and I am very much obliged for the explanation, that if a private resident in this country derives his trade profits from an enterprise abroad, and does not bring them home, he is not assessable to taxation under the new law.

I agree this is very important, and it is extremely important that I should not mislead anyone—accidentally, of course—as to what the position is. The right hon. Gentleman is referring to an individual. He is not speaking about a limited company, or any of the complicated questions that arise as to where a limited company is resident. Our Section 5 does not in the least bring in the profits of business carried on abroad. It is strictly limited to what you may broadly call investments, namely, securities, stocks, shares, or rents, and deliberately so. Of course, incorporated companies raise several difficulties of their own, which I do not understand the right hon. Gentleman to be referring to. His case is that of an individual.

That is satisfactory. I certainly did not mean to invite the Attorney-General into the technicalities of where a company is domiciled, or anything of that kind. I wanted to take a clear case of an individual who has, say, a mill in India or somewhere else abroad, and to see the effect of this legislation upon that. That disposes, and disposes satisfactorily, of the second point I wish to bring before the House. The third point arises rather from an answer of the right hon. and learned Gentleman, and I want to ask him for information upon the subject to see whether I have correctly under stood what he said in reply to my hon. and learned Friend. Supposing that some body resident in this country has his money invested, partly in this country and partly abroad, and suppose that for perfectly legitimate reasons he lessens the proportion of his capital invested abroad and in creases the proportion of his capital in vested at home, in the kind of securities of different sorts which are embraced in the purview of the Amendment and of the Sub-section to which it refers. Do I understand the right hon. and learned Gentleman to say, in the first place, that it is the law, and, in the second place, that it ought to be the law; that, although he has transferred capital, he is to be assessed upon the average of the profits which were actually received—that is to say, suppose that at the commencement of the three years he had £10,000 abroad, and that at the end of the year he sold £5,000 of the foreign investments and invested it at home, does the right hon. and learned Gentleman mean to say when you come to assess him for Income Tax in the second year in the securities dealt with here—

I am following, I think, the case put by the Attorney-General himself. What we understood him to say was that in cases of such a transfer of investment where you were dealing, not with income fluctuating by the chances of the fortunes of the year, but with income diminishing owing to the transfer of part of the capital to another investment, you would still assess that holder upon the average of three years, and that if his income from £10,000 was £500 in the first year, but owing to the transfer of the capital it was £250 in the second, you would call upon him to make an average of £750. That surely cannot be what the Attorney-General meant to say, because, of course, capital so transferred to this country is going to pay Income Tax here upon the profits it makes, and you would then be charging the same capital twice over. I think my hon. Friend said it was the law, and I thought the Attorney-General confirmed the view of my hon. Friend and said it was not only the law, but that it should be the law.

I will put it as plainly as I can There are three things that must be distinguished. There is first the provision of the old law by which you tax an income from foreign securities, so far as they are remitted to this country. They are not taxed upon the average under the old law, but upon the amount you receive in the year. In the second place, also under the old law, there is the case of remitting to this country the proceeds of what are called foreign possessions—not the same thing as securities. For instance, the best known case in regard to foreign possessions, the one argued in the Courts a great deal, is the case of a wool business in Australia. There, of course, you may remit to this country in specie or in money. Under the old law you tax upon the average that is remitted to this country. Under the old law and under the present law you tax upon the average, the reason being that it might happen a person did not send here the whole of the product in any given twelve months, and therefore it was thought right to take the average The third thing is under our new Clause, and that, of course, has nothing to do with whether income is remitted to this country or not, though on the other hand I think it is quite clear it is limited to the case of securities, stocks, shares, and rents, and does not include profits on an ordinary business abroad. There again there is no question of average. You tax year by year on the interest of your investment abroad just as you are taxed year by year on the interest of your investments at home. At home you would be taxed at the source, whereas abroad you are not; but that is merely a matter of machinery. Out of the three cases—two under the old law, and one under the new—there is only one in which the average can apply. This new Clause cannot possibly have any reference to the first case of the remittance to this country of foreign securities, nor to the last case I have mentioned, namely, that under Clause 5. The only case to which it can possibly have reference would be the case of the remittance to this country of the proceeds of foreign possessions, and there what I say is, that it is right to stick to the average, and that it would be wrong to give the taxpayer an option, because, of course, that would obviously mean that the taxpayer, either by choosing the time when he remitted or by limiting in some other form the amount, in any one year it might be a very small thing, whereas, as a matter of fact, the average would not correspond to the small figure which was produced in one year by manipulation. I do not know whether I make it clear, but two out of the three cases could not possibly be affected.

I think I understand the right hon. and learned Gentleman, and I am much obliged for his explanation. If I do not understand it, it is not for want of courtesy or want of knowledge on his part. But I take that case of foreign possessions, and I want to put a specific instance in that connection. I think the right hon. Gentleman said that the standard case was the case of a wool business in Australia. Take a man who is resident in London and making £5,000 a year by a wool business in Australia. He would be resident in London and he would have the whole of that £5,000 whether he brought it home or not. I understand in that case he will be assessed on the average of three years.

The new Section will have nothing to do with that. It only deals with securities, stocks, shares, and rents. It has nothing to do with that.

The right hon. and learned Gentleman gave three cases. Is there not a fourth case in which this new Clause applies, namely, the case that, if a business is set up, at the end of three years, instead of being assessed on the average, it is assessed at the end of the year? That is what I want to apply to foreign possessions.

May I ask the right hon. and learned Gentleman whether it is not the case that you have a distinction between separate cases—the case of an individual, the case of a partnership, and the case of a company? My right hon. Friend put the case of an individual who has a business in Australian wool and who is resident in this country. I would ask the right hon. and learned Gentleman whether it is not the case that under the existing law that individual, however his business is managed, as an individual would be liable for the whole of the profits?

No, under the existing law. The case of an individual who owns the whole business is deemed to control the whole business, however much it passes into the hands of agents, for he can always dismiss his agents. Under the existing law a single individual—I am distinguishing the care of an individual—is liable on the whole profits of that business carried on abroad, whether remitted to this country or not. Whatever arrangement he makes in regard to agents he has the control of that business. Then you come to the case of a partnership and a company, where I think you are raising up most illogical provisions by your two new Sections. What you provide is this: Take the case of a partner in that wool business living in this country, and that partnership is controlled abroad; if I own half the shares in that partnership, you provide by Clause 10 that I am to be liable in respect to profits I do not bring back to this country.

I treated the new Clause as meaning what it says. The hon. and learned Gentleman is talking of a partnership. What on earth has this Clause to do with any question of partnership?

We are not dealing here with Clause 5 or Clause 10. We must keep to the subject raised by the proposed new Clause.

6.0 P.M.

The only reason I rose was in consequence of the case which my right hon. Friend put, and with reference to which it is essential to understand the position in order to realise the difference between the case of an individual and the partnership and a company. The individual under the existing law is liable. In the case of a partnership under the new Section 10 he is not liable in respect of that which he does not bring back. If that same partnership is transformed into a limited company in which he has a half share, he is liable on the dividends on that company although he does not bring them back. The result of these two Sections is to leave the matter in a hopelessly illogical position, and the right hon. Gentleman had better refer this matter to a Royal Commission.

I think the Attorney-General is perfectly right in the statement of the law which he made, but it does not meet this Amendment. My hon. Friend's Amendment is very simple, but it is impossible to understand it without going back a little. My hon. Friend asks for an extension of the exemption granted under Section 24, Sub-section (2), of the Act of 1907. I am going behind that to remind the House what that Section was passed for. The Attorney-General, who is familiar with the Report of the Income Tax Act, 1905, will recollect that Clauses 81 to 111 deal specifically with this question of the three years' average. What was the position before the Act of 1907? There was Section 133 of the old Income Tax Act, which provided for an adjustment of the assessment at the end of the year by dispensing with all estimates which were based on the preceding year, or the average, and substituting the actual profits of the year by assessment as soon as ascertained. For good reasons, which are pointed out, it was held that the old form of adjustment was insufficient and ineffective, and was not fair to the Crown and the Income Tax Commissioners proposed that Section 133 should be repealed and a new mode of adjustment introduced. In consequence of their recommendation a new Clause was put in, and Section 24, Sub-section (2), and Section 133 of the old Act was repealed, and so now we have got the adjustments which can be made in respect of the three years' system brought up to a more modern system by means of Section 24, Sub-section (2), of the old system, and the old Section 133 of the Act of 1842 no longer stands good.

What is the effect of that? It is that by means of this adjustment it is possible now for a man to say to the Commissioners that by reason of the three years' system he has paid more by taking this Act than he would have paid if he had taken the real sum he had received. That is the adjustment given in Section 2 and Sub-section (3). Now, my hon. Friend the Member for Salisbury comes forward with a very simple Amendment, and he gave a very good illustration of what it was sought to do. He said, "Let us take the three years' average. A man has to return his whole income. Suppose he has returned it for a given year, say, 1914–15, and in that there is a certain amount comes to him from abroad. He has to return that because it is a part of the income from other sources which is to be found in the Income Tax returns we have to make. Having made his average based upon the sum of money he has received from foreign sources, he has returned his average. Having done that, he finds also that he is taxed particularly by another side wind or imposition in respect of this portion of the money which comes from abroad," and so my hon. Friend says that during a period of three years there ought to be an opportunity for exemption in respect of duty which has already been taken into account, and which is only being taxed by means of a direct imposition, and being foreign income there ought, therefore, to be an exemption from the three years' system. I think I have correctly explained the purpose of my hon. Friend's Amendment.

The illustration which he gave to meet the point made it perfectly plain that this is all he desires to do. The Attorney-General several times over gave a clear exposition of the law, but I am sure he would not resist what I have said, because it is a pure act of justice. I agree that this Clause might have to be framed again or have introduced into it other words in order to make it accord with the Income Tax Act, but that is no reason why we should not read this Clause a second time. At the present moment no adjustment can be made in respect of this income coming from abroad. My hon. Friend suggests an adjustment, particularly in the last line or two. He says there are certain cases in which the hardship will be emphasised by reason of the passage of Clause 5 of this Bill. That Clause provides that whether the money comes over here or does not, it has equally got to be returned and there can be an assessment in respect of money which does not come over here. My hon. Friend proposes to give the exemption in respect both of money which is remitted from abroad and which is taxed, as I say, by a side wind, and which has already found its place in the three years' average and also in respect to the Income Tax which could be imposed by virtue of Clause 5 of the Finance Act of this year. This Amendment is to give that exemption during the same period, and no longer than Clause 24, Sub-section (2) gives it at the present time in respect of an average year's income. It is merely ingrafting upon Section 24 a system which is required for the purpose of meeting an injustice by reason of income which is remitted and sent from abroad, and which, although not remitted, is taxed by means of Clause 5. All the other problems and conundrums which have been put have nothing whatever to do with that simple proposition.

The Attorney-General says that foreign securities are taxed at the year of assessment, and that is the difficulty which makes my hon. Friend's Clause necessary. If they were not taxed on the year of assessment the difficulty might not arise, but inasmuch as they are so taxed, and you have to adopt a three years' average, and although they have been taxed in the year of assessment, they have to find a place in the average system. That system works unfairly, because you get an average of a certain amount of income which has been taxed, and will be taxed, although you are, by means of the average system, submitting them to taxation. I do not think that the Attorney-General was very clear in his answers as to why that

Division No. 191.]


[6.11 p.m.

Agg-Gardner, James TynteCooper, Sir Richard AshmoleHohler, Gerald Fitzroy
Aitken, Sir William MaxCraig, Captain James (Down, E.)Hope, Harry (Bute)
Amery, L. C. M. S.Craig, Norman (Kent, Thanet)Hope, James Fitzalan (Sheffield)
Astor, WaldorfCraik, Sir HenryHope, Major J. A. (Midlothian)
Baird, J. L.Crichton-Stuart, Lord NinianHorne, Edgar
Baker, Sir Randolf L. (Dorset, N.)Croft, H. P.Horner, Andrew Long
Baldwin, StanleyCurrie, George W.Hume-Williams, William Ellis
Banbury, Sir Frederick GeorgeDalrymple, ViscountHunt, Rowland
Banner, Sir John S. Harmood-Dalziel, Davison (Brixton)Ingleby, Holcombe
Baring, Major Hon. Guy V. (Winchester)Denison-Ponder, J. C.Jessel, Captain H. M.
Barnston, HarryDennis, E. R. B.Joynson-Hicks, William
Barrie, H. T.Dickson, Rt. Hon. C. ScottKerry, Earl of
Bathurst, Charles (Wilts, Wilton)Duke, Henry EdwardKeswick, Henry
Beach, Hon. Michael Hugh HicksDuncannon, Viscount.Kinloch-Cooke, Sir Clement
Beckett, Hon. GervaseDu Pre, W. BaringLane-Fox, G. R.
Bennett-Goldney, FrancisEyres-Monsell, Bolton M.Lloyd, George Butler (Shrewsbury)
Bentinck, Lord H. Cavendish-Faber, George Denison (Clapham)Locker-Lampson, O. (Ramsey)
Beresford, Lord CharlesFaber, Captain W. V. (Hants, W.)Lockwood, Rt. Hon. Lieut.-Colonel A. R.
Bigland, AlfredFalle, Bertram GodfrayLowe, Sir F. W. (Birm., Edgbaston)
Bird, AlfredFell, ArthurLyttelton, Hon. J. C.
Blair, ReginaldFletcher, John SamuelMacCaw, Wm. J. MacGeagh
Bowden, G. R. HarlandGanzoni, Francis John C.Mackinder, Halford J.
Boyton, JamesGardner, ErnestM'Calmont, Major
Brassey, H. Leonard CampbellGibbs, G. A.M'Neill, Ronald (Kent, St. Augustine's)
Bridgeman, William CliveGilmour, Captain JohnMalcolm, Ian
Bull, Sir William JamesGlazebreek, Captain Philip K.Mildmay, Francis Bingham
Burdett-Coutts, W.Grant, J. A.Mills, Hon. Charles Thomas
Burgoyne, A. H.Greene, W. R.Morrison-Bell, Capt. E. F. (Ashburton)
Burn, Colonel C. R.Guinness, Hon. Rupert (Essex, S. E.)Mount, William Arthur
Butcher, John GeorgeGwynne, R. S. (Sussex, Eastbourne)Newman, John R. P.
Campbell, Captain Duncan F. (Ayr, N.)Haddock, George BahrNewton, Harry Kottingham
Campion, W. R.Hall, D. B. (Isle of Wight)Nicholson, William G. (Petersfield)
Carlile, Sir Edward HildredHall, Marshall (L'pool, East Toxteth)Nield, Herbert
Cassel, FelixHamilton, C. G. C. (Ches., Altrincham)O'Neill, Hon. A. E. B. (Antrim, Mid)
Castlereagh, ViscountHardy, Rt. Hon. LaurenceOrde-Powlett, Hon. W. G. A.
Cave, GeorgeHelmsley, ViscountOrmsby-Gore, Hon. William
Cecil, Evelyn (Aston Manor)Henderson, Major H. (Berks, Abingdon)Paget, Almeric Hugh
Cecil, Lord Hugh (Oxford University)Henderson, Sir A. (St. Geo., Han. Sq.)Pease, Herbert Pike (Darlington)
Cecil, Lord R. (Herts, Hitchin)Hibbert, Sir Henry F.Peel, Lieut.-Colonel R. F.
Chamberlain, Rt. Hon. J. A.Hickman, Colonel Thomas E.Perkins, Walter F.
Clay, Captain H. H. SpenderHills, John WallerPeto, Basil Edward
Clive, Captain Percy ArcherHill-Wood, SamuelPole-Carew, Sir R.
Clyde, James AvonHoare, S. J. G.Pollock, Ernest Murray

exemption should not be given, and it seems to me that he wandered into a good many by-paths and a good many subjects instead of considering the very small alteration of the law which would be made by this Clause. If the Chancellor of the Exchequer thinks fit to make any answer, I hope he will say that it is not merely sought to put this Clause in a cupboard ready for the Income Tax Commissioners for their Report when it is made, but that he will see that Section 5 has brought into prominence an injustice which ought to have been remedied before, and will feel the weight of my hon. Friend's argument that Clause 24, Sub-section (2) ought to be extended in the way which is proposed by this very narrow exemption during that particular period of three years. On these grounds I support the Amendment of my hon. Friend.

Question put, "That the Clause be read a second time."

The House divided: Ayes, 182; Noes, 283.

Pretyman, Ernest GeorgeStanier, BevilleWard, A. S. (Herts, Watford)
Pryce-Jones, Colonel E.Stanley, Hon. G. F. (Preston)Watson, Hon. W.
Quilter, Sir William E. C.Starkey, John RalphWeston, Colonel J. W.
Randles, Sir John S.Staveley-Hill, HenryWheler, Granville C. H.
Rees, Sir J. D.Steel-Maitland, A. D.White, Major G. D. (Lancs., Southport)
Rolleston, Sir JohnStewart, GershomWilliams, Colonel R. (Dorset, W.)
Ronaldshay, Earl ofStrauss, Arthur (Paddington, North)Willoughby, Major Hon. Claud
Rothschild, Lionel deSykes, Alan John (Ches., Knutsford)Wilson, A. Stanley (Yorks, E. R.)
Rutherford, John (Lancs., Darwen)Sykes, Sir Mark (Hull, Central)Wilson, Captain Leslie O. (Reading)
Samuel, Sir Harry (Norwood)Talbot, Lord EdmundWilson, Maj. Sir M. (Bethnal Green, S. W.)
Samuel, Samuel (Wandsworth)Terrell, George (Wilts, N. W.)Wood, Hon. E. F. L. (Yorks, Ripon)
Sanders, Robert ArthurThomas-Stanford, CharlesWood, John (Stalybridge)
Sanderson, LancelotThomson, W. Mitchell- (Down, North)Wortley, Rt. Hon. C. B. Stuart.
Sandys, G. J.Thynne, Lord AlexanderYate, Colonel C. E.
Scott, Sir S. (Marylebone, W.)Tobin, Alfred AspinallYounger, Sir George
Sharman-Crawford, Colonel R. G.Touche, George Alexander
Smith, Rt. Hon. F. E. (L'pool, Walton)Tryon, Captain George Clement


Smith, Harold (Warrington)Tullibardine, Marquess ofG. Locker Lampson and Mr. H. Terrell.
Spear, Sir John WardValentia, Viscount


Abraham, William (Dublin, Harbour)Denman, Hon. Richard DouglasHughes, Spencer Leigh
Addison, Dr. ChristopherDevlin, JosephIllingworth, Percy H.
Adkins, Sir W. Ryland D.Dewar, Sir J. A.John, Edward Thomas
Agar-Robartes, Hon. T. C. R.Dickinson, Rt. Hon. Willoughby H.Jones, Edgar (Merthyr Tydvil)
Agnew, Sir George WilliamDonelan, Captain A.Jones, H. Haydn (Merioneth)
Ainsworth, John StirlingDoris, WilliamJones, J. Towyn (Carmarthen, East)
Alden, PercyDuffy, William J.Jones, Leif (Notts, Rushcliffe)
Allen, Arthur A. (Dumbartonshire)Duncan, C. (Barrow-in-Furness)Jones, William S. Glyn-(Stepney)
Allen, Rt. Hon. Charles P. (Stroud)Duncan, Sir J. Hastings (Yorks, Otley)Jowett, Frederick William
Arnold, SydneyEdwards, John Hugh (Glamorgan, Mid)Joyce, Michael
Baker, Harold T. (Accrington)Elverston, Sir HaroldKellaway, Frederick George
Baker, Joseph Allen (Finsbury, E.)Esmonde, Dr. John (Tipperary, N.)Kelly, Edward
Balfour, Sir Robert (Lanark)Esmonde, Sir Thomas (Wexford, N.)Kennedy, Vincent Paul
Baring, Sir Godfrey (Barnstaple)Falconer, JamesKenyon, Barnet
Barlow, Sir John Emmott (Somerset)Farrell, James PatrickKilbride, Denis
Barnes, George N.Fenwick, Rt. Hon. CharlesKing, Joseph
Barran, Sir John N. (Hawick Burghs)Ffrench, PeterLambert, Rt. Hon. G. (Devon, S. Molton)
Barran, Rowland Hurst (Leeds, N.)Field, WilliamLambert, Richard (Wilts, Cricklade)
Beale, Sir William PhipsonFiennes, Hon. Eustace EdwardLardner, James C. R.
Beauchamp, Sir EdwardFitzgibbon, JohnLaw, Hugh A. (Donegal, West)
Beck, Arthur CecilFlavin, Michael JosephLawson, Sir W. (Cumb'rld, Cockerm'th)
Benn, W. W. (T. Hamlets, St. George)Furness, Sir Stephen WilsonLevy, Sir Maurice
Bentham, George JacksonGelder, Sir William AlfredLewis, Rt. Hon. John Herbert
Bethell, Sir John HenryGeorge, Rt. Hon. D. LloydLough, Rt. Hon. Thomas
Birrell, Rt. Hon. AugustineGinnell, L.Lyell, Charles Henry
Black, Arthur W.Gladstone, W. G. C.Lynch, Arthur Alfred
Boland, John PlusGlanville, Harold JamesMacdonald, J. Ramsay (Leicester)
Booth, Frederick HandelGoddard, Sir Daniel FordMacdonald, J. M. (Falkirk Burghs)
Bowerman, Charles W.Goldstone, FrankMcGhee, Richard
Boyle, Daniel (Mayo, North)Greenwood, Hamar (Sunderland)Maclean, Donald
Brady, Patrick JosephGreig, Colonel J. W.MacNeill, J. G. Swift (Donegal, South)
Brockiehurst, William B.Griffith, Rt. Hon. Ellis JonesMacVeagh, Jeremiah
Brunner, John F. L.Guest, Hon. Frederick E. (Dorset, E.)M'Callum, Sir John M.
Bryce, J. AnnanGulland, John WilliamMcKenna, Rt. Hon. Reginald
Buckmaster, Sir Stanley O.Gwynn, Stephen Lucius (Galway)M'Laren, Hon. F. W. S. (Lincs., Spalding)
Burns, Rt. Hon. JohnHackett, JohnM'Micking, Major Gilbert
Burt, Rt. Hon. ThomasHancock, John GeorgeManfield, Harry
Buxton, Noel (Norfolk, North)Harcourt, Rt. Hon. Lewis (Rossendale)Markham, Sir Arthur Basil
Byles, Sir William PollardHarcourt, Robert V. (Montrose)Marks, Sir George Croydon
Carr-Gomm, H. W.Harmsworth, Cecil B. (Luton, Beds)Marshall, Arthur Harold
Cawley, Sir Frederick (Prestwich)Harvey, A. G. C. (Rochdale)Mason, David M. (Coventry)
Cawley, Harold T. (Lancs., Heywood)Harvey, T. E. (Leeds, West)Meagher, Michael
Chapple, Dr. William AllenHaslam, Lewis (Monmouth)Meehan, Francis E. (Leitrim, N.)
Clancy, John JosephHavelock-Allan, Sir HenryMeehan, Patrick J. (Queen's Co., Leix)
Clough, WilliamHayden, John PatrickMillar, James Duncan
Clynes, John R.Hayward, EvanMolloy, Michael
Collins, Godfrey P. (Greenock)Helme, Sir Norval WatsonMolteno, Percy Alport
Collins, Sir Stephen (Lambeth)Hemmerde, Edward GeorgeMond, Rt. Hon. Sir Alfred
Compton-Rickett, Rt. Hon. Sir J.Henderson, Arthur (Durham)Montagu, Hon. E. S.
Cornwall, Sir Edwin A.Henry, Sir CharlesMooney, John J.
Craig, Herbert J. (Tynemouth)Hewart, GordonMorgan, George Hay
Crooks, WilliamHigham, John SharpMorrell, Philip
Crumley, PatrickHinds, JohnMorison, Hector
Cullinan, JohnHobhouse, Rt. Hon. Charles E. H.Morton, Alpheus Cleophas
Dalziel, Rt. Hon. Sir J. H. (Kirkcaldy)Hedge, JohnMunro, Rt. Hon. Robert
Davies, Ellis William (Eifion)Hogge, James MylesMurphy, Martin J.
Davies, Timothy (Lincs., Louth)Holmes, Daniel TurnerMurray, Captain Hon. Arthur C.
Davies, Sir W. Howell (Bristol, S.)Holt, Richard DurningNicholson, Sir Charles N. (Doncaster)
Dawes, James ArthurHope, John Deans (Haddington)Noian, Joseph
De Forest, BaronHoward, Hon. GeoffreyNorman, Sir Henry
Delany, WilliamHudson, WalterNorton, Captain Cecil William

Nugent, Sir Walter RichardRendall, AthelstanTaylor, Thomas (Bolton)
Nuttall, HarryRichardson, Thomas (Whitehaven)Tennant, Rt. Hon. Harold John
O'Brien, Patrick (Kilkenny)Roberts, Charles H. (Lincoln)Thorne, G. R. (Wolverhampton)
O'Connor, T. P. (Liverpool)Roberts, George H. (Norwich)Thorne, William (West Ham)
O'Doherty, PhilipRoberts, Sir J. H. (Denbighs)Toulmin, Sir George
O'Donnell, ThomasRobertson, Sir G. Scott (Bradford)Walsh, Stephen (Lancs., Ince)
O'Dowd, JohnRobertson, John M. (Tyneside)Walters, Sir John Tudor
O'Malley, WilliamRobinson, SidneyWardle, George J
O'Neill, Dr. Charles (Armagh, S.)Roch, Walter F. (Pembroke)Waring, Walter
O'Shaughnessy, P. J.Roche, M. Augustine (Louth)Warner, Sir Thomas Courtenay T.
O'Sullivan, TimothyRoe, Sir ThomasWason, Rt. Hon. E. (Clackmannan)
Outhwaite, R. L.Rowlands, JamesWason, John Cathcart (Orkney)
Palmer, Godfrey MarkRowntree, ArnoldWatt, Henry Anderson
Parker, James (Halifax)Runciman, Rt. Hon. WalterWedgwood, Josiah C.
Pearce, Robert (Staffs, Leek)Russell, Rt. Hon. Thomas W.White, J. Dundas (Glasgow, Tradeston)
Pearce, William (Limehouse)Samuel, Rt. Hon. H. L. (Cleveland)White, Sir Luke (Yorks, E. R.)
Pease, Rt. Hon. Joseph A. (Rotherham)Samuel, J. (Stockton-on-Tees)White, Patrick (Meath, North)
Phillips, John (Longford, S.)Scanlan, ThomasWhitehouse, John Howard
Pirie, Duncan V.Scott, A. MacCallum (Glas., Gridgeton)Whittaker, Rt. Hon. Sir Thomas P.
Ponsonby, Arthur A. W. H.Seely, Rt. Hon. Colonel J. E. B.Whyte, Alexander F. (Perth)
Pratt, J. W.Sheehy, DavidWiles, Thomas
Price, C. E. (Edinburgh, Central)Sherwell, Arthur JamesWilkie, Alexander
Price, Sir Robert J. (Norfolk, E.)Shortt, EdwardWilliams, Aneurin (Durham, N. W.)
Priestley, Sir W. E. B. (Bradford, E.)Simon, Rt. Hon. Sir John AllsebrookWilliamson, Sir Archibald
Primrose, Hon. Neil JamesSmith, Albert (Lancs., Clitheroe)Wilson, Hon. G. G. (Hull, W.)
Pringle, William M. R.Smith, H. B. Lees (Northampton)Wilson, W. T. (Westhoughton)
Radford, George HeynesSmyth, Thomas F. (Leitrim, S.)Winfrey, Sir Richard
Raffan, Peter WilsonSoames, Arthur WellesleyWing, Thomas Edward
Rea, Rt. Hon. Russell (South Shields)Spicer, Rt. Hon. Sir AlbertWood, Rt. Hon. T. McKinnon (Glasgow)
Rea, Walter Russell (Scarborough)Strauss, Edward A. (Southwark, West)Yeo, Alfred William
Reddy, MichaelSutherland, John E.Young, William (Perthshire, E.)
Redmond, John E. (Waterford)Sutton, John E.
Redmond, William (Clare, E.)Taylor, John W. (Durham)


Redmond, William Archer (Tyrone, E.)Taylor, Theodore C. (Radcliffe)W. Jones and Mr. Webb.

New Clause—(Surrender Of Interest By Tenant For Life Or Person Having Interest In Succession)

Where under any settlement by will or otherwise any tenant for life before the first day of April, nineteen hundred and fifteen, or where at any time any person possessing an interest in succession surrenders by deed lodged with the Estate Duty Commissioners his interest in possession in, or in succession to, any settled property, no Estate Duty shall be charged on any property passing, or which would have passed, under the provisions of the settlement at his death, and which would but for the provisions of this Section have been liable to Estate Duty under this Act.

Clause brought up and read the first time.

I beg to move, "That the Clause be read a second time."

I desire to say at the outset that which no doubt will soon become apparent, that I do not pretend to be an expert in the law of settled property, and, if the learned Solicitor-General contests with me the form of my Amendment, I must leave it to my learned Friends behind me to carry on the contest. I must, however, say that I think the object of this new Clause is pretty plain. It is to do something to mitigate the effect of the application of the Estate Duty to property passing in succession under a settlement. The effect, I think, was hardly brought out in the course of the Debates on the new Clause which is now Clause 12. I will take two cases which I think are both covered by this Amendment, two cases which, of course, may apply in the course of the same settlement. There is, first of all, the case of a man who is now tenant for life, and who has thought that the property which will pass on his death to his heir would be entirely free from Estate Duty. His arrangements have been made on that assumption. If he had thought otherwise, he might perhaps have saved money and have left it to his heir, or he might have insured against his death; but, owing to the change of the law, he has made no provision against the duties which will now be payable, and which will be increased from the former rates if the estate is above a certain sum. In the case of this man, I suggest by this Clause that he should be free to say, "I am tenant for life only of this property; I cannot dispose of it; I cannot realise it, and probably only to a very limited degree can I charge it. I know I cannot enjoy it for any great length of time, and I wish now to relinquish my interest in it, and to let my successor have the benefit of the enjoyment of the estate, whether it be in land or personal property, as he could have had but for the change in the law this year 1014, which he was fully expecting to have, and on the assumption of which both he and I have based our calculations." I know that the tenant for life can renounce, subject to the three years' provision of Section 59 of the Finance Act, 1910, but I do not think it fair in the case I am talking of that he should not have the right of renouncing his life interest under the changed circumstances of the law without being subject to that limitation.

It is not only the interest of the present tenant for life that I am considering, and perhaps not so much as the interests of others in the succession. I have in mind a very hard case that sometimes occurs where you have property passing from brother to borther, and then to the son of the youngest brother. It is not such a very uncommon case to find three brothers of very much the same age, and only the youngest of the three with a son. I do not know whether hon. Members will have noticed the tragic fact in the case of my lamented Friend the Member for Oxford University (Sir W. Anson), that there were no less than three brothers and one nephew who died within twelve months. It is quite true that they did not die in order of succession, and I do not know whether there was any settlement, but that illustrates the kind of hardship that might be incurred if there were succession from brother to brother, and if the brothers were very much of the same age, and their lives were worth much the same. I propose to deal with such a case by this Clause. A is the present tenant for life, B is the next brother, C is the youngest brother, and D is C's son. I propose to give an option to C and D to cut themselves out of the succession, and that power is to hold good whether they die within three years or not. Surely it is perfectly fair that a man should have the right to say, "I am an elderly man. I am the heir of my brother. I am comfortably enough provided for. I do not wish to inherit. I do not wish to take upon myself the responsibilities of the estate or the responsibility which will inevitably attach to the business if I succeed to any settled share in it. If I succeed I cannot dispose of it or alter the succession. I am provided for, and I wish to stand out and let it go to my next brother." The third brother may say the same. The result of that would be that the heir who would ultimately succeed, the son of the youngest brother, would have the benefit of the succession, and the property would not be ruinously charged as it would be if the present proposal of the Chancellor of the Exchequer with regard to settled property comes into effect.

I ask only that this option shall be exercised if a man in succession entirely renounces his interest. Of course I quite realise that, subject to the three years' provision, C and D could surrender at the present time, and some mitigation is afforded by the Clause which is now Clause 13, but, even so, I submit that it would not be nearly enough. Supposing three deaths occurred within two years, I find, even with those mitigations in the case of quick succession, that a property which would ordinarily pay 10 per cent would pay something like 21 per cent. It surely is not the intention of this House to take advantage of the accidents of mortality to impose so ruinous a charge as that. I do not want to take any advantage; all I want is that settled property should not be at an unfair advantage, and that the tenant for life, or man having an interest in expectancy, should not be unfairly mulct because he is tied up by the settlement. Surely a man who can dispose of his interest is in a quite different position from the man who cannot dispose of it. Although it may be a matter of policy not to discourage settlements, it cannot be right to take advantage of a man being tied up by a settlement by the Exchequer levying heavy sums upon his property when he is quite willing and even eager to renounce all his interest in it for life. It is from that point of view, and not from the point of view of any advantage to settled property, but to save people who would be unwillingly caught in the net of the Inland Revenue, owing to the fact of their being under a settlement made under totally different conditions, and prior to this unexpected change in the law, that I ask the House to read the Clause a second time.

At the invitation of the hon. Member (Mr. James Hope) I will forbear from criticising the language of this Clause, although I think it is quite obvious that, if the House were to adopt it, it would, in order to give effect to his intention, require to be couched in somewhat different terms. I quite agree with what he said that, in discussing a matter such as this, one has to look at the object of the Clause and to consider the real subject-matter of the Debate. In order to make plain why it is that this Clause cannot be accepted, I must ask the House to bear with me for a few moments while I invite its consideration of the state of the law as it stands at the present time. By the Finance Act of 1894 Estate Duty was charged not only upon property that a man owned when he died, but upon the property that passed by reason of his death, and it followed, therefore, when a man who was tenant for life of settled property died, although he owned no interest in the capital of the estate, yet, none the less, the capital of the estate was taxed. That was one of the cardinal principles of the Act of 1894. Another was this. That a man should not be able to dispose by gift of his property within twelve months of his death, or if he did dispose of it none the less it should be aggregated with his other property. That provision was inserted as soon as attempts were made to get out of the Act of 1894.

The particular moment when that provision was added does not matter. Probably it was in 1896. But the provision was made that if a man disposed of his property by gift within twelve months of death the property was none the less liable to be aggregated with his other property. That was how the law stood under the Act of 1894 as amended in 1896. It was then found that the tenant for life by surrendering his life interest caused what lawyers called a merger in the reversion, the result being that when he died the property did not, in fact, pass, because the union of the two estates made by virtue of the assignment effected during his life had caused the whole property to come under a totally different dominion, and it never passed at his death at all. The result was that people began to dispose of their property if tenants for life by surrender shortly before death, and the prudent cautious Government in power in 1900 took steps to remedy that by passing Section 11 of the Finance Act, 1900. That Section provides:—

"In the case of every person dying after the 31st day of March, 1900, property, whether real or personal, in which the deceased person or any other person had an estate or interest limited to cease on the death of the deceased, shall.… be deemed to pass on the death of the deceased, notwithstanding that the estate or interest has been surrendered.… whether for value or not to or for the benefit of any person entitled to an estate or interest in remainder … unless that surrender was bonâ fide resale or effected twelve months before the death of the deceased and bonâ fide possession and enjoyment of the property was assumed … and retained," etc.

In that case the estate might escape duty. Thus under the Act of 1900 hon. Members opposite took care to prevent the mischief that was apprehended under the Act of 1894. But the hon. Member's new Clause seeks to restore it. It was provided that no such surrender of life estate should save the estate liability to duty when it passed, excepting when it was done more than twelve months before the date of death and bonâ-fide possession was taken. Now the twelve months is stretched to three years, and the position is we have extended the area of caution which hon. Members opposite established. What is this Amendment? Its object is to do away with the whole of that—

The hon. and gallant Member says "No, no!" but I invite him to look at the Amendment. He will sue it is exactly what the hon. Member who moved it said it was its intention. It provides—

"Where under any settlement by will or otherwise any tenant for life before the first day of April, nineteen hundred and fifteen, or where at any time any person possessing an interest in succession surrenders by deed lodged with the Estate Duty Commissioners his interest in possession in, or in succession to, any settled property, no Estate Duty shall be charged on any property passing, or which would have passed, under the provisions of the settlement at his death, and which would but for the provisions of this Section have been liable liable to Estate Duty under this Act."

If I understand that Amendment, and I think I do understand it clearly, the effect is as I have stated. Let me assume that the person who surrenders his life estate dies. Where any tenant for life before the 1st day of April, 1915, surrenders by deed his interest in the estate the estate is to be free from duty. And the same thing would be true of any person who had surrendered his life interest previously to this date, provided he died within twelve months of the surrender. That is the position so far as the life tenant is concerned, and to that extent this Clause completely repeals the whole effect of Section 11 of the Act of 1900, amended and extended as it was by our Statute in 1910. That is so far as the tenant for life himself is concerned. But the hon. Member goes on to suggest that it shall be open to a person entitled to any succession to effect release of that succession. It means, I assume, this, that a person who to-day is tenant for life in remainder and expectancy upon the death of his brother with remainder and expectancy on his death to some other relation, shall be at liberty to surrender his life estate expectancy to the third person in the reversion. This person is to surrender on the hypothesis that he must become tenant for life in settlement, because if he does not he will have to surrender nothing; nothing will have passed at his death, and there will never have been any duty payable on it. It can only operate on the hypothesis that the man who surrenders his estate in succession comes into the estate himself, and would, but for his dispossession have been entitled as tenant for life to the property. Therefore, in other words, it is an assignment in advance of the interest that he would enjoy as tenant for life.

So, again, there would be no difference whatever between assigning the estate which you are coming into in expectancy, and assigning an estate when you have come into it, in the case where the assignment will only become effective and operative on the hypothesis that you do come into it. In other words, the subsequent words of this Amendment as to assigning the interest in succession are nothing but providing that the first part of the Section may be extended, so as to affect all tenants for life, who, before the estate falls into their possession, like to assign that estate away. What the reason for such an Amendment is, it is hard to understand. It affects exactly the same consideration as in the case of a tenant for life himself. And when the hon. Member says he does not desire to give any advantage to the tenants for life of settled property, he overlooks the fact that that is exactly what he is doing. If a person who owns property absolutely disposes of it within three years of his death, it would be aggregated. Yet if a man disposes of it before he comes into possession he is to be exempted notwithstanding the fact that he does come into possession as tenant for life.

The hon. and learned Gentleman obviously does not understand the real object of this Amendment. He is perfectly correct in saying that on the Second Reading of a Clause what is important is to get at the real gist of its language, and then you can, if necessary, alter the wording later on. I thought my hon. Friend's explanation opposite perfectly clear, and I will repeat what he said in order to explain the object of this Clause. It is not desired by it to give any advantage whatever to the tenant for life, or anybody concerned in a settled estate which they do not possess now. And I will say at once that some words will have to be inserted in order to ensure that.

The last part does, but not the first. I do not think—I speak with great diffidence—that the learned Solicitor-General is quite correct in saying that the object of the Act of 1894 was to make property passing at the death of the tenant for life, and where the tenant for life had no power over the capital, to pay Death Duty. That was not so. The whole scheme of the Act was that duty should only be paid on the death of the person competent to dispose of the capital. That was the main scheme of the Act upon which the whole duty was founded. A Clause was inserted, as the Solicitor-General will find, providing that, in order that the Act might come into bearing at an earlier date than it otherwise would do, where the tenant for life died, and where the duty had not already been paid on that setttlement, then, and then only, the duty was to be paid on his death. I think the Solicitor-General will find that is correct. The whole scheme of the Act is not to charge on the death of a tenant for life, but only on the death of persons competent to dispose. The words "competent to dispose" will be found in the original Clause. The object of that Act was to encourage settlements. When the Chancellor of the Exchequer himself, in his Budget of 1909–10, raised the insurance rate from 1 to 2 per cent., he endorsed the action of Sir William Harcourt, in 1894, in encouraging settlements. I do not myself think that such a great advantage was given to settled property as the Chancellor of the Exchequer supposes, but there was some advantage. To whatever extent that advantage goes, it follows that the action of Parliament was to encourage settlements. I am sure I have established that. Now Parliament turns round and completely alters its system, and we now say that, instead of encouraging settlements, we are going to charge the same duties upon the death of a tenant for life as those which are otherwise dealt with. I think the Solicitor-General finds I am correct.

Not only do I not find that, but I should like to withdraw my recantation with regard to the twelve months, which came in under the Act of 1894, and not the Act of 1896.

The matter was tried in the Beech case. I debated that across the floor over and over again, and it will be within the recollection of every Member present who was here at that time. The question was whether, whenever an interest was transferred by a person in articulo mortis, the twelve months applied to it or not. The Beech case was the case of a clergyman in Suffolk who had the same name, although spelt differently, as the then Chancellor of the Exchequer. It was selected as a test case, and the then Chancellor of the Exchequer agreed to pay the costs of both sides, so that it should be decided whether the twelve months applied or not. That was settled property.

The hon. and gallant Member will forgive me for interrupting him, but we are at cross purposes. My statement was that the Act of 1894 left it open to the tenant for life to surrender his life estate up to the time he was dying, but that the Act of 1894 provided that if the gift was made within twelve months from that it should not take away the liability to aggregation. It was that statement, which was not advertently but inadvertently corrected by hon. Members opposite, that I was correct in making. I pointed out that it being found that the tenant for life could exercise a right up to the moment of death which the absolute owner could not enjoy, it was that which led to the Act of 1900 being passed, placing him on the same footing in regard to it with the absolute owner. It is quite right to say that the Beech case did decide that with regard to settled property, but not with regard to unsettled property. That was the part of my argument which was misunderstood.

We are discussing settled property now. We do not desire in any way that settled property should be put in a different position. We are dealing with existing settlements which have been created largely and mainly because this House has given settled property an opportunity of insurance. It has insured itself, and the settlements have been created. The Chancellor of the Exchequer will agree that these settlements, having been created for the purpose of obtaining this insurance, cannot now be determined. That is impossible, because they are tied by the leg. The argument by which Clause 10, to which this Clause applies, was supported from the Government Bench was that the intention was to put settled property in the same position as free property. All that we desire is to put settled property in the same position as free property. It is now in a much worse position. Take the case of three brothers mentioned by my hon. Friend. You have three brothers, A, B, and C. A is the owner of free property. He has a brother B a year or two younger, and another brother C a year or two younger than himself. C is a son. D is a son of C. A as the owner of the free property can leave that property by will direct to his nephew D, and no Estate Duty will be payable. It will then pass direct to the next generation, and Estate Duty will only be payable once in a generation. With the enormous Death Duties which are now levied, it is the care of every careful owner of property to see that these crushing burdens do not fall more than once in a generation, because, if they do, even if it is landed property to which the settlement applies, the property is absolutely crushed out of existence. That is a normal case. If the Chancellor of the Exchequer does not agree to some Amendment of this character he will be doing by this Bill what he said he would do, taxing people out of existence. They are tied up and cannot escape.

Take the case of the three brothers, A, B and C, which is not an uncommon case, but a very ordinary case in the ownership of an estate. A cannot dispose of the capital of the property at all. He has no discretion over the capital. He can only deal with his own estate. He has no power to say how much B, C or D is to have, and without any discretion of his own it must pass to B. B may, it is true, divest himself of it by passing it on to C, and C may again divest himself of it bypassing it on to D. In each case the three years have to elapse before that transfer has any effect in avoiding the duty, whereas were the property free, and had the Chancellor of the Exchequer desired to put it in the same position as free property, A might leave the property direct to I), and only one duty would be payable in the generation. This Clause divides itself into the two cases of the existing tenant for life and of those who are expectant tenants for life. In regard to the existing tenant for life, it is perfectly clear that we must give him a limited opportunity to act, and it is suggested that the 30th April next would be a reasonable date. As to the wording of the Amendment, the Solicitor-General is right in saying—I admit it was an oversight—that any tenant for life would be able to transfer, even if he were liable to duty now, on his death. To meet that it would be perfectly easy to insert words which will make the Clause read: "Where under any settlement by will or otherwise any tenant for life at whose death Estate Duty would not be payable but for Section 10 of this Act." I think that would make it clear. That is what we intended, namely, that where a tenant for life is now exempt and has made a bargain with the State—he holds a contract which the State has made with him—Estate Duty shall not be payable at his death. Now the State, although he holds the State's paper and a contract the State has made with him that he is not to pay duty at his death, not only rescinds that contract and says that he shall pay that duty, but it deprives him of a power all free men should have of being able to transfer his property.

We say that where a tenant for life has this contract broken he should have a few months, and only in that case, not in the case where he would pay duty normally at his death because he is tenant for life under the Act of 1894, but where the bargain is broken and where the State has repudiated its contract with him that he should have a few months in which, if he likes, to transfer his property to the next generation; that where other lives intervene in the same generation—that is, taking the difficult case of the brothers B and C—they should both have the option before they succeed, of renouncing their tenure of the property and by agreement although it does not put them in the same position as they would be if the owner were a free owner because he has got to get the consent of B and C—if they desire that the property should pass from A to D, which is the next generation, that they should have the power of transferring within the period of a few months and of renouncing their right of succession; and that they should be put in the same position as the owner of a free property is in. I hope I have made the position absolutely clear. If there is anything in this proposal which gives an advantage to a settled property which is not held by a free property, we are perfectly willing to find words to put that right, but we maintain most strongly that this House has no right, not only to break its contract but to put the individual with whom the contract is broken in an infinitely worse position than a man who has never made a contract with the State at all. There must surely be a point beyond which dishonesty and unfairness in taxation cannot be carried. We have long passed the point when the same code of honour is expected from the State as is expected between one individual and another. My own view is that that is a most dangerous point to pass, because I do not conceive that it is to the advantage of the State or of public policy that there should be one code of honour between individuals and another and a, lower code of honour between the State, and the subjects of the Crown. That is bad, and this shows it.

7.0 P.M.

You are, in this Bill, passing the point where a private individual who dealt with another man as you are dealing with people with whom you have made contracts would be liable to be hauled before a Court of Law to make good his tort. You are above the law. One lapse leads to another. Finding yourselves above the law, there seems to be no limit to which you would not carry the hardship you inflict upon the taxpayers. We ask the Chancellor of the Exchequer to accept this Amendment as a measure of ordinary justice to owners of settled property who are put in a most unfortunate position by this legislation, because they are tied up. Does he understand that Clause 10, with which this new Clause is concerned, even if amended as we propose, may place enormous and unequal burdens on a particular class of property? There are many properties which will not be affected to the extent of one farthing by Clause 10 in any shape or form. There are other properties which by the mere accident of the position of the lives which happen to hold them, and to be likely to succeed to them, would be absolutely crushed, and where anything from £100,000, £200,000, or £300,000 may be demanded over and above the contract which has been definitely made with the State. When the Chancellor of the Exchequer is by the mere force of his majority, against all right and justice, carrying such a Clause as Clause 10, and when his argument on Clause 10 is that he proposes to put settled property in the same position as free property, he is surely bound to see that, at any rate, he does not put settled property in a worse position.

I have always had some hesitation on this Budget in supporting the Settlement Clause. I have supported the Government all through on the Budget, but I did not take part in the Division on the Settlement Clause. I have no interest, directly or indirectly, in settled property, but I think, when the State has entered into a bargain with individuals, the honour of the State should be just the same as the honour of an individual. Whether it has been in this case or not I am not going to say, further than this. If the State finds it is necessary to raise money for the purpose of increased expenditure, I think the State ought to have regard to the interest of those who have entered into a direct bargain with them. In this case where a man has entered into a bargain with the State, and where a settlement would not have been made unless Parliament had given them this right, you ought not to put him in a worse position than where property has not been settled at all. For this reason, though not accepting the Amendment on the Paper, which is of a totally different character, I hope the Government will give consideration to the Amendment to the Clause which my hon. Friend has proposed.

I quite appreciate the fact that we are not discussing the form of this Clause, because the hon. Member (Mr. James Hope) very fairly admitted that it would require consideration. I am in sympathy with his object, and with the reason given by my hon. Friend (Mr. Pretyman). I quite agree with the Solicitor-General that the whole thing began with what he calls one cardinal principle of the Act of 1894, that property shall be deemed to pass on death when it does not, in fact, pass on death. It may be that it is a bad principle, but it is far too late, at any rate this is not the occasion on which, to attempt to alter it, and we must accept it at present. The Act of 1894 did provide that when the life tenant died, the property which passed to others on his death, not under his will or by his disposition, should bear duty as if the whole interest were then created in the successor. Then came this difficulty, that it was thought—I do not know whether it was true or not—that people began to make what might be called death-bed surrenders. A man who was not likely to live surrendered his life estate just before his death. To meet that difficulty the Act of 1900 was passed, and one year was allowed so that surrenders within that year were not really effective. So far, so good. The real difficulty and hardship came in first, under the three years' rule, which the Chancellor of the Exchequer proposed in 1909–10, and, secondly it will be greatly increased by the provision in Clause 10. Under the three years' rule, if a man surrenders or gives property within three years before his death, you treat that as if it passes on his death, which is an absolutely unfair thing. Three years is much too long a time, and very often that provision imposes duty on people who make their gift without the least intention of evading Death Duty. We probably all know cases in which that provision has worked great hardship. We all think on this side of the House that a great mistake is being made in going behind the provisions of the Act of 1894 with regard to Settlement Estate Duty. Naturally the hon. Baronet (Sir A. Markham) agrees with us that bargains of that kind ought to be kept. When you have got two great hardships of that kind it is only right for hon. Members to try and see whether they cannot relieve settled property in some way or other by some fair means. The effect of what my hon. Friend proposes is that the three years' rule shall not apply to surrenders of life estates made within the next year—a very modest proposal. I can hardly understand why it is limited to surrenders of life estates before April next. But, at all events, the Chancellor of the Exchequer cannot complain of that, and the proposal is simply that as between now and April next surrenders should be made without being subject to this very harsh rule, which is created by the two Sections. Really, I do not see why that should not be accepted! At all events, you might go back to the one year imposed by the Act of 1900, and make it one year instead of three. I will go further. I should have thought it a hardship that, notwithstanding the surrender of a life estate, the reversion should bear Succession Duty as if no surrender had been made. I myself would like to alter that rule and to relieve settled property of that burden, but that is not done by this Amendment. So the first part of the new Clause, in principle, is surely right. The second part seems to me merely an extension of it. It only operates if the person who surrenders the life interest survives the actual tenant for life. The only intention is to put the reversionary life tenant upon the same footing as the actual life tenant. While my hon. Friend limits the relief in the case of actual life tenants to surrenders within the year, he makes the relief to the reversionary life tenant general. For myself, I would make the relief general all round. I think, subject to Amendments in detail, something of this kind might fairly be done.

I associate myself with the arguments which have been used by my hon. and learned Friend (Mr. Cave) and my hon. Friend (Mr. Pretyman), but I should like to put a case stronger than my hon. Friend put with regard to his A, B, C, and D. He suggested that at present, in dealing with unsettled property, the donor, instead of leaving the property to A, B, and C in succession, and then to D, should leave it straight away to D. Surely it is stronger than that. I want to draw a comparison between unsettled and settled property. The object of the Government should be to make it equally fair whether the property is settled or unsettled. If the Chancellor of the Exchequer makes his will and leaves me a legacy of £10,000, and in default of my taking that legacy leaves it to his son, it is perfectly open to me to say, "I will not touch the money." I renounce it later. I need not do It before his death. Or, say, he leaves £10,000 to me; if I do not take it, he leaves it to the Solicitor-General, and, if he does not take it, he leaves it to anyone you like, and, in the fourth place, he leaves it to his son D. If that is not settled property, I can say I will not touch the money, and there is no duty payable. The Solicitor-General in turn says, "I will not take the £10,000. I have plenty of my own." Again, no duty is payable. Then the next man will not take it, and finally it goes to the Chancellor's own son D., and there is only one duty payable. Suppose, instead of that, he says, "I will leave my estate to Mr. Joynson-Hicks for life, and after his death to the Solicitor-General for life, and after his death to someone else for life, and after his death to my son D." What is the case there? I cannot renounce without duty being payable, the Solicitor-General cannot renounce without duty being payable, the next person cannot renounce without duty being payable, and if we all three say we do not want to take the life interest which the Chancellor has left, three duties have to be paid before the property gets down.

I appeal to the Solicitor-General if that is not the effect of the law as it stands to-day? In other words, it is penalising settled property as against property which is not settled. A person to whom it is left absolutely may renounce the legacy, but the tenant for life cannot do it. Surely that is not right. My hon. Friend raised this point when the Budget was going through Committee. I think the Law Officers of the Crown will admit that there is no power for a life tenant, either in reversion or in possession, to renounce his life interest without duty-accruing. It seems a monstrous thing.

I do not understand the appeal that is made to me in the least. If the tenant for life assigns or surrenders his life interest at a period within three years before death there is no hardship whatever.

We all know that. I was dealing on the same lines between settled property and unsettled property. Is it necessary for me to renounce a legacy of £10,000 three years before I die or not? That is the whole point of the Amendment. Is it necessary for me to live three years or not? If the right hon. Gentleman will not answer that he is not dealing fairly with me and with my argument.

But if I do not take it, just exactly as the tenant for life says I will not take this life interest. The Solicitor-General knows perfectly well that the cases are on all-fours, and if I renounce the legacy I am not bound to live three years, but if I renounce a life interest I am bound to live three years. That is the whole question. My hon. Friend asks that the life tenant of settled property may be put in exactly the same line as a person who is left a legacy of unsettled property. That seems to be so absolutely fair that the Amendment is one which ought to be accepted.

What I think is always forgotten is this fact, that in justifying the Death Duties originally Sir William Harcourt pointed out that it would be possible to insure. Everybody thought it would be possible to insure against the Death Duties, and what seems to be so very immoral in the present suggestion is the fact that no tenants for life have had the opportunity of undertaking insurance, because they thought the State could be trusted to keep its contracts. I think it is a little doubtful whether many of such settlements would ever have been made if those making them could have had any idea that in three, five or six years they would have to pay a large amount in Death Duties. These Death Duties are very much larger under the new Budget. I think there are many Members of this House who agree that from to-day there are certain arguments which make it advisable that settled estate should bear the same burdens as unsettled estate. But to go back ten, fifteen, or twenty-five years when there was no opportunity for insurance seems to me to be absolutely contrary to all principles of justice and equity. Whatever a man may decide to do in relation to his private life that is his own affair. If he wishes to be regarded as a person who breaks his contracts, that is his own affair, but the right hon. Gentleman has no right to allow the reputation of the State to be dragged in the mud. I have heard, not one, but dozens of hon. Members, deplore this departure from rectitude on the part of the State. I hope the Chancellor of the Exchequer will accept this Amendment, which appears to be only just and equitable. I think it does not meet the point, but it gives some opportunity to those who desire to do so to make over their property at the present time.

I hope that some answer will be given by the Chancellor of the Exchequer to the case which has been presented in support of this Clause. The Solicitor-General, who was misled possibly, and not unnaturally, by the precise form of the Clause, delivered an argument which had absolutely no bearing on the real object of the Clause. The hon. and learned Gentleman directed his attention to an entirely different point, but now that the real nature of the Clause has been explained, I hope the Chancellor of the Exchequer will address his mind to it. The Solicitor-General said that if you pass this Clause then you reverse the policy of the Act of 1894. The exact opposite result would follow. This Clause is not intended to reverse the policy of the Act of 1891. It is intended to carry it out, and it is entirely due to Clause 12 of this Bill that it becomes necessary to introduce the Clause. If Clause 12 had not been in the Bill we should not have been asking this Clause. It is because it runs counter to what Parliament declared in 1894 was fair that this Clause becomes necessary. Sir William Harcourt declared that it would not be fair to exact Succession Duty on every life. The Chancellor of the Exchequer says by this Clause that it is fair. Here is a way in which he can give relief from some of the hardships imposed by Clause 12. The case was put by my hon. Friends, and to that we have had no answer. What we would like to hear from the Chancellor of the Exchequer is an answer, if he can give one, to the case which has been put forward. Clause 12 is really a breach of a Parliamentary bargain, and we wish to know whether he can state reasons why he cannot remove some of the hardships which fall upon tenants for life. By accepting this new Clause he will give some relief, if not the whole relief, they are entitled to.

I rise in response to the appeal made by the hon. Gentleman opposite. I wish to say a word in regard to certain observations which were made before I was present. I understand that there was some complaint made in regard to my absence during the first hour of the Debate. I very much regret that owing to circumstances over which I have no control, because of a duty which has been thrust upon me, certainly not of my own seeking, but which I had no option but to accept, and which entails the giving of a good deal of attention to matters not strictly relevant to my office, it was not possible during the first hour, consistently with the proper discharge of that duty, to be present here. I should like to make another observation in reply to the right hon. Gentleman the Member for West Birmingham (Mr. Chamberlain), I think he rather complained that I was not present at the Debates on other days. I do not think that that would be the observation of those who were here during the Debates. As a matter of fact, I was here every day until nine o'clock. I remained in attendance until that hour before I took my dinner.

I did not mean to say anything offensive with respect to the right hon. Gentleman.

I have been here consistently much longer than is usual, having regard to the arrangements which are made in circumstances of the kind. I hope I may make that statement to the House to put the matter in its proper light. Now, I come to the matter under discussion. The speech of the hon. Gentleman opposite is one which makes it as difficult as possible for the Government even to approach him with a desire to meet the difficulties which he has stated to the House. It is very difficult to get up and make a concession which is based on the assumption that one has been exceedingly dishonest, and has done something equivalent to a fraud. That is a bad beginning to an appeal for some sort of reasonable compromise. I must say that up to that moment I was applying my mind to the case presented by the hon. Member for the Central Division of Sheffield (Mr. J. Hope) which appeared to be one deserving of some consideration. But I felt at once after the speech of the hon. Gentleman that, oven if I met the hon. Member on that point, the speech was tantamount to an appeal for something which the Government could not accede. Let me address myself to the question raised by this Amendment. If we accept the assumption that we are breaking contracts, then the whole case of the other Clause goes. That is not relevant to this Amendment. I agree that if he is right in that argument, then the other Clause ought to go. That is the decision of the Committee of the House of Commons, and I should have thought that the hon. Gentleman made his appeal in respect of this Amendment on the assumption, for the purpose of this Clause, that the decision of the Committee was embodied in the Kill and accepted. I have no doubt he will challenge that decision later on. But when he puts it there will be no need for this Clause. If he moves this Clause, it must be for the purpose of argument when that Clause is accepted by the Committee. There are two classes dealt with in this particular Clause. The first is the case of the tenant for life—the person who is in the enjoyment of settled property. It is suggested that, so far as he is concerned, he should have an opportunity of surrendering. The first case put by the hon. Gentleman (Mr. Pretyman) is that the tenant for life ought to have an opportunity of surrendering, because you can put him in a position under this Clause which he did not and could not anticipate. I see the force of that. He says, "Supposing a tenant for life knew that he was going to be put under conditions of that kind, he might have surrendered in time to make the three years' limit operative." That case is fairly open to that observation.

The second case is this: I am not sure whether remainder man is the proper phrase—I would say the intermediate interest, or the next interest. I think that is in a totally different category. I do not think that that is a case which has the same claim for consideration as the claim of a person who is now tenant for life—a case where a man actually surrenders something he is in the enjoyment of at the present moment. I say so for this reason: I do not think it is the business of the Legislature to encourage transfers of property with the view of defeating the revenue. I am prepared to meet the hon. Member in so far as the first case is concerned—the case of a man who is now actually in the enjoyment of property, and who might conceivably say, "If I knew I was to be put in that position, I would have surrendered my life interest long-ago." As my hon. Friend pointed out, he had not the option of insuring. I should be prepared, as far as that particular case is concerned, to do something to meet it. I would prefer to have a little more time to consider the words which I would propose if the hon. Gentleman would withdraw his Clause at the present moment. I do not know whether it would be possible to move a new Clause if it was not on the Paper, but, if so, I think that would be preferable.

On the point of Order. May I suggest that something to this effect would be possible as a proviso to Clause 12?

I am not suggesting that this could not be put as a new Clause, but on the point of Order am I right in the opinion that this would come in better as a proviso than as a Clause itself? I submit that it can be moved as a proviso to Clause 12 because it deals with the subject-matter of that Clause, and that Clause renders it necessary that this should be moved. If this can be moved as a proviso to Clause 12, as I submit, I would invite the hon. Gentleman to withdraw his Clause and I will put on the Paper an Amendment in the form of a proviso to Clause 12, which can be moved to-morrow.

There is nothing on the face of this Clause to show that it is connected with Clause 12. That came out in the course of the argument on Clause 12. That was taken in the Committee. Therefore it seemed to me to be an independent matter, and that is why I allowed it to be moved as a separate Clause. Now that I have heard all the arguments about it, it is obvious that this is, pro tanto, a remedy, or at all events an alleviation, of the conditions of Clause 12, and as such it might come in as a proviso. The right hon. Gentleman is entitled to move a proviso, but if I may say so, I think that he should put down the proviso to-night in case of what may happen by the time we reach the Clause to-morrow.

I would suggest that the proviso to be added to Clause 12 should be as follows:—

"and (c) Section eleven of the Finance Act, 1900, as amended by Section fifty-nine of the Finance (1909–10) Act, 1910, shall not operate on any such surrender, assurance, divesting, or disposition, as is mentioned in the said Section eleven made by any person between the fifteenth day of August, nineteen hundred and fourteen, and the first day of April, nineteen hundred and fifteen, so as to make any Estate Duty payable on the death of that person which would not have been payable but for this Section."

I do not wish to seem otherwise than grateful to the Chancellor of the Exchequer for the spirit in which he has dealt with this somewhat difficult matter, but I would beg him to take a little more time for consideration, and to devote that consideration not only to the exact wording of what he has undertaken to do, but to further reflection upon the distinction which he has drawn between the two classes of cases. I submit that the distinction really will not hold good. What is the basis of the criticism which the right hon. Gentleman is making? I am not going to use contentious language if I can avoid it, though the right hon. Gentleman knows my opinion of Clause 12. But previous to Clause 12 the State offered to individuals certain advantages under a settlement subject to certain conditions. By Clause 12 you alter that state of things and deprive them of the special advantages which in many cases were the only inducement to settle the property. In such cases these people should not continue to be saddled with the disadvantage which the settlement entails.

There is another point of distinction. [HON. MEMBERS: "Speak up!"] In one case the opportunity must be exercised before 1915. In the other case it can be exercised at any time, and it is in a different category altogether for that reason.

Perhaps the Chancellor of the Exchequer will be good enough to consider my plea without regard to the exact words of the Amendment, which is going to be withdrawn, but rather as a subject-matter for a possible Amendment to Clause 12. The plea which I put forward is strictly limited. I do not want it to apply to settlements in future. It is only a plea for interests under existing settlements, which settlements I contend would not have been made, or at any rate would very probably not have been made, if at the time they were made Clause 12 had already been the law of the land. If the Chancellor of the Exchequer likes to attach a time limit to the concession to the intermediate interest within which he should exercise the option, I should think that that would be perfectly reasonable, and there would be no cause of difference between us. I believe that the Chancellor will find that you cannot make any distinction in justice between the two classes, and that the amount of money involved, if it be safeguarded as we on this side of the House are willing that it should be, by in the first place confining it to existing settlements, and in the second place, by making a time limit within which that option must be exercised, would not be very great, and by conceding it you would really remove a great hardship which, quite apart from the original controversy between us as to the merits or demerits of Clause 12, is only accidental to the scheme and is not essential to its main objects or principle. I only beg him to consider this matter. I do not ask him to give an answer now, but to consider it with an open mind, subject to the restrictions and reservations which I have suggested, and confining it purely to the point which I have indicated.

Can the right hon. Gentleman say how much this concession is going to cost?

That is a very difficult question, and it would be impossible for me to say. I would promise the right hon. Gentleman to consider the matter, and the fact that he has indicated his willingness to agree to a time limit makes it easier for me to do so. Without a time limit it would be quite impossible for me to consider it.

The Chancellor of the Exchequer would meet the views of a great many Members on this side of the House if he would give consideration to the remarks of the right hon. Gentleman the Member for West Birmingham. All those cases should be placed in exactly the same position as if the people had not settled at all. No doubt the inducements held out did induce the settlement of estates, and the option ought now to be given as if those estates had not been settled at all. I am sure that a very great number of hon. Members on this side of the House would join in asking the Chancellor of the Exchequer to give this matter favourable consideration.

I admit that the Chancellor of the Exchequer has met me on the first point, and I hope that he will bear in mind what my right hon. Friend has said. Personally, I attach quite as much importance to the second point as to the first, but in all the circumstances, as he has met us fairly on the one point and promises to give consideration to the other, I would ask leave to withdraw the Clause.

Clause, by leave, withdrawn.

New Clause—(Insurances For Estate Duty)

(1) Any person desiring to provide against the duties which may become payable under the Finance Act, 1804, or any Amending Acts, in respect of property passing on his death, may effect for that purpose a policy of assurance (to be called an Estate Duty policy) upon his life.

(2) Any moneys payable upon the death of a person under an Estate Duty policy effected by him shall be applied by the company with whom such policy is effected in payment in the first instance of the duties payable under the said Acts in respect of so much of the property passing on the death of such person as he shall by writing under his hand direct, and the balance, if any, of such moneys shall be paid to the executor of such person and Estate Duty shall be levied thereon at the proper graduated rate.

(3) Save as herebefore provided, Estate Duty shall not be paid in respect of any moneys payable under an Estate Duty policy.

Clause brought up, and read the first time.

I beg to move, "That the Clause be read a second time."

The object of this Clause is to make some reasonable provision for cases where n man insures against Death Duties. In substance the proposal is this. If a man insures against Death Duties, which shall become payable upon his death, and earmarks the fund which he so provides for the payment of those duties, then when he dies that fund shall not be brought into his estate so as to pay duty, except in so far as it is obliged to pay duty. In existing circumstances a man who insures against the payment of Death Duties is subject to two hardships. In the first place, his thrift is penalised and he is discouraged from making that provision, because he knows that he will have to pay duty, and there is the further hardship, that by the very act of making provision for the Death Duties, he builds up a fund which, in existing circumstances, is added to the estate, so that the estate may be made to pay a higher rate of duty than if he had never provided this fund at all. That is a very serious harship, and it is a hardship even in existing conditions. But when we come to this year and find that the Estate Duties are to be increased largely, this existing hardship is also very largely increased. And what I suggest to the Chancellor of the Exchequer is that the proposal involved in this Clause will be of advantage not only to the subject, which perhaps will appeal to him more or less, but will be to the advantage of the Exchequer itself. It will be to the advantage of the subject because he will be induced to make this provision in his lifetime and save money for his successor, and when his successor comes in, instead of having to pay away a considerable portion of the estate, whether it be realty or personalty, in the shape of Death Duties, he will find a fund ready to hand out of which Death Duties can be paid. The advantage to the subject is therefore quite obvious. An additional advantage is that the Death Duty rate would not be increased owing to the existence of this fund. But it will be to the advantage of the Exchequer itself, because the Exchequer will find a fund ready to hand out of which this duty can be paid, and will not have to wait for a year to run on, as the fund will be ready to pay them at once. A further advantage is that the property itself which pays duty is not going to be diminished by the duty.

In other words, when a man dies with an estate worth, say, £100,000, the Death Duties will be paid out of the fund, and the £100,000 estate will be handed on to his successor, and upon the next death duty will be paid upon the £100,000 intact. In other words, you leave the taxable asset in the form of the estate undiminished for the Chancellor of the Exchequer to get full duty upon the next death. The Chancellor of the Exchequer will therefore see from his own point of view as a tax gatherer that it is very desirable to have this undepleted fund. One of the gravest dangers of the existing system of taxation, which has been pointed out over and over again, is that you are continually depleting the capital by these heavy duties. You are reducing the fund which pays the duty, and in that way reducing the duties themselves and the proceeds of the duties when death takes place. But if you give a man an opportunity of providing in this way a fund out of which Death Duties can be paid, then the capital of the country and the individual remains undiminished for the purpose of future taxation. I offer that to the Chancellor of the Exchequer as a strong inducement for accepting this Clause. May I recall the fact that in 1894 the proposition was made in substantially the same form as the present Clause? It was made by Mr. Byrne, subsequently Mr. Justice Byrne, in this House, and was supported by the present Member for the City of London, by Lord St. Aldwyn, and, I think, by all the financiers of the day. Sir William Harcourt very nearly conceded it; he promised it favourable consideration. Unfortunately the moments expired, and he did not carry that promise into effect.

If the right hon. Gentleman cares to look at the Debate he will find that Sir William Harcourt thought that there was a very great advantage in having a fund earmarked for the payment of duty. Unfavourable comment has been made between the finance of Sir William Harcourt and that of the present Chancellor of the Exchequer, and not to the credit of the latter. I am not going to say anything in any way disagreeable that would induce the right hon. Gentleman to look unfavourably upon this proposition, but he has now an opportunity of doing something better than his predecessor Sir William Harcourt did. The right hon. Gentleman ought to be obliged to us for giving him this opportunity of being able to say that he made a concession which Sir William Harcourt would have liked to make, but which unfortunately for some reason or other—perhaps time—he did not make. Therefore, now that the right hon. Gentleman has increased the Death Duties so largely, I hope he will take the opportunity of encouraging the tenant for life to build up a fund for the payment of the Death Duties—not for his own advantage, but to the advantage of his successors and the advantage of the State itself.

This Clause, if I accepted it, would make a very serious inroad upon the revenue. I do not say that is a reason for excluding it, but that fact in itself is, at any rate, sufficient to compel very careful scrutiny of demands of this character. The Amendment is practically that the owner who insures his life with a view to paying the Death Duties should have the cost of the premium deducted from the Death Duty. If his proposal were accepted it would involve a loss of £2,000,000 a year to the revenue.

I am much obliged to the right hon. Gentleman for stating the figure, but does he take into account the fact that the capital of the estate would be left intact for taxation? That is really a very strong point in favour of my proposal.

I am not so sure that the estate would be kept intact, though that might be the case in the second generation. The capital is not left intact, and the hon. and learned Gentleman knows very well that it does not remain from generation to generation—I will not say in the majority of cases—and the estate is shifted from one to another. Let me point out what the Amendment would mean. It would involve this consequence, that the owner of property would have to earmark the proceeds of his life policy to the payment of Death Duties, and the extent to which the Death Duties would be payable would mean that the amount received under the insurance policy would be exempt altogether from Death Duties. That is a proposition which no Chancellor of the Exchequer could possibly accept. There are many estates where no provision of this kind is made at all—no provision by means of insurance. Other provisions may be made. For instance, the owner might set aside stocks for the purpose of paying the Death Duties, or he might sell certain outlying farms for their payment. In that case the particular owner would have to pay a heavier Death Duty than the owner who had made an arrangement by means of a life policy. This would not be fair as between the one owner and the other, and I therefore cannot see my way to accept the Clause.

I do not think the right hon. Gentleman's answers are really conclusive. He has given two answers. In the first place, he says that the Amendment would make a very serious inroad on the revenue if it were accepted. That is an easy position for the Government to take, and it is not one that I can deny, but I am prepared absolutely to take the right hon. Gentleman's word for it. I think, however, that there are one or two other matters which must be considered, as well as the inroad on the revenue. Last week I looked up some figures as to the yield of the Death Duties during the last twenty years. I have not those figures with me, but the right hon. Gentleman can check them by reference to the Report of the Inland Revenue Commissioners for this year. The conclusion that those figures showed beyond any dispute was that the whole yield of the Death Duties indicated a far less substantial growth than might reasonably have been expected in the last few years, especially the last six or seven years. What was especially noticeable was that the payments which have been made were mainly on the smaller estates. The larger estates had been stationary, and I am almost certain that they showed a diminution. As I am reminded by my Noble Friend near me, one reason of that is that the rates have been altered. I should have thought that the object of the Chancellor, if he was disturbed, and he must be disturbed, by the rather stationary yield of these duties, would have been to use whatever machinery he could to case the collision between the demands of the Treasury and the resources of the taxpayer. The hon. and learned Member for York suggests one way of doing it, and I have often thought that the only profession or calling in the country that has benefited from the increase of the Death Duties is that of the insurance companies. I know, and almost everybody in the House knows very well, that since the Chancellor introduced his Budget, almost every person has had rained upon him policies and advice from the insurance companies in London as to the best way in which the Chancellor of the Exchequer could be defeated. The insurance companies are not doing it for their health, and we all know that these companies have been able to make very substantial profits for their shareholders.

I have often wondered if it would not be worth while for the Chancellor of the Exchequer to consider whether the State—I go rather further than my hon. and learned Friend suggests—could enter into some kind of insurance business with the taxpayers, and allow them to insure with the State in order to make provision for the payment of these duties. I merely throw that suggestion out for consideration. The other point on which the right hon. Gentleman relied in his resistance to my hon. and learned Friend's Amendment, was that it would tend to produce in some cases unequal treatment as between different estates. I really do not think that this House need concern itself with that consideration. It is really desirable, so far as we possibly can, to encourage the taxpayer by every means in our power to provide for occasions of financial strain, which are bound to be occasions to him of great financial dislocation. Therefore, I think we need not be deterred from giving, by every means in our power, encouragement to men who endeavour, not in their own interests, but in the interests of those who come after them, to provide for the strain which the Chancellor of the Exchequer is putting upon them. If you want to encourage them, one simple way, and only a small way, is to do what my hon. and learned Friend suggests; and I do not think that is an unfair proposal to make, if you view the Death Duties as being really what they are, namely, deferred Income Tax. It is surely unreasonable to aggregate for duty any sum of money that has either been set aside on the taxpayer's death, or has been produced by an insurance policy, because if it had been paid as Income Tax it would have been spent year by year, and it would not have been there to be aggregated when the gentleman died. I would only point out, in conclusion, that by trying to encourage insurance in this way you can avoid what is the inherent vice of the Death Duties, namely, that they always tend to spend your capital unless the taxpayer can be induced, by some sort of favourable treatment, to make provision to pay them out of income. For these reasons I support the Amendment.

8.0 P.M.

I support the Amendment, which, if carried, would operate as a very great relief to the taxpayer, and would stop a great deal of the harm arising from the burden of the Death Duties. While it is difficult for the Chancellor of the Exchequer to accept this Amendment because of the inroad upon revenue, I would point out that that is a reason given in respect of a good many other Amendments. It is a reason which ought not to be pressed too far on each Amendment as it comes up for discussion, because the greater the inroad such a proposal makes on the revenue the greater, in all probability, is the injustice which is being done to the taxpayer. In so far as this would mean two millions a year, that shows that considerable injustice is being inflicted on the taxpayer. He is encouraged to insure by the Government, and by the late Sir William Harcourt and his successors, and then the money is aggregated with the rest for the purposes of taxation. I think this Amendment is all the more necessary because of the graduation which has been made steeper, and makes the provision already made inadequate. The discussion we have had on Clause 12 makes the matter still worse. In the case of real property there is to my mind a greater hardship than in the case of personal property. Real property gives a very low rate of interest and is more difficult to replace, while personal property, such as stocks and shares, gives a higher rate of interest, and in forty years, by a sinking fund, will largely replace itself. Therefore, in the case of real property, a provision of this kind would be of the greatest value in preventing the breaking up of estates, which is a debatable point. Some people think it is good and some bad, but, I suppose, the owners would think it a bad thing. If it ought to be done, and I am not discussing it now, it ought to be done directly by legislation, and not by means of a fiscal instrument.

It is all very well for the Chancellor to say that the owner can make provision to sell outlying farms. After the first generation that cannot go on very long. I think I am within the mark in saying that no agricultural property can nowadays possibly survive for more than three generations—probably not more than two—under these burdensome Death Duties.

Is it not desirable from the point of view of the Exchequer that there should be those large blocks of real estate passing intact from generation to generation, and therefore subject to Death Duties? The Chancellor said this proposal would not be fair as between one owner and another. I do not think that argument appeals to me very much, since the present Prime Minister, when Chancellor of the Exchequer, drew a distinction between earned and unearned income for the purposes of Income Tax, although the distinction is really a very flimsy one. A man who has earned his money and invested some, is really as much entitled to favourable treatment in Income Tax as the man who continues to earn his income. If the Chancellor says this would cost too much to the revenue, no doubt we shall not be able to persuade him to give way on this point, but, if he cannot give the whole thing, can he not make the money represented by the insurance policy a separate estate, and not aggregate it with the rest? That would be some mitigation of the present difficulty.

It has been suggested that it might be advisable for the Government to enter into some scheme for insurance in this matter. Anybody who knows anything about the insurance of the Government knows that it would be rather a bad thing for the insured people, because there is no system of insurance the Government have undertaken but is entirely to the detriment of—

We are not concerned with that just now. This is an obiter dictum of the hon. Member.

The question had been raised, and that was the reason I referred to it. I think my hon. and learned Friend has made his case perfectly plain. We had the argument last week about the sale of land, and if there is a large amount of duty payable the Chancellor may realise how harshly it presses on landowners. Surely, if men under such circumstances insure against those heavy duties, they should not have those amounts included for taxation. It seems rather hard that such sums should be charged on the same basis according to the sliding scale. It might be dealt with separately, as the Noble Lord has suggested. The Chancellor has mentioned the amount this would cost him, but I think that in many cases he is entirely out of his reckoning in his calculations. In 1909 motor taxes were estimated to yield £250,000 or £300,000, and that amount has already been doubled or

Division No. 192.]


[8.12 p.m.

Agg-Gardner. James TynteDuke, Henry EdwardPollock, Ernest Murray
Ashley, W. W.Eyres-Monsell, Bolton M.Pryce-Jones, Colonel E.
Astor, WaldorfFell, ArthurRandles, Sir John S.
Baker, Sir Randolf L. (Dorset, N.)Flannery, Sir FortescueRawlinson, John Frederick Peel
Baldwin, StanleyFletcher, John SamuelRees, Sir J. D.
Banbury, Sir Frederick GeorgeGardner, ErnestRonaldshay, Earl of
Baring, Major Hon. Guy V. (Winchester)Gibbs, G. A.Rothschild, Lionel de
Barrie, H. T.Gilmour, Captain JohnSalter, Arthur Clavell
Beach, Hon. Michael Hugh HicksGlazebreek, Captain Philip K.Sanders, Robert Arthur
Benn, Arthur Shirley (Plymouth)Goldman, C. S.Sanderson, Lancelot
Bennett-Goldney, FrancisGreene, Walter RaymondSharman-Crawford, Colonel R. G.
Bigland, AlfredGuinness, Hon. W. E. (Bury S. Edmunds)Spear, Sir John Ward
Bird, A.Haddock, George BahrStanier, Beville
Blair, ReginaldHall, Frederick (Dulwich)Stanley, Hon. G. F. (Preston)
Boscawen, Sir Arthur S. T. Griffith-Hamilton, C. G. C (Ches., Altrincham)Staveley-Hill, Henry
Boyton, JamesHenderson, Major H. (Berks, Abingdon)Stewart, Gershom
Bridgeman, W. CliveHewins, William Albert SamuelStrauss, Arthur (Paddington, North)
Bull, Sir William JamesHibbert, Sir Henry F.Swift, Rigby
Burn, Colonel C. R.Hohler, G. F.Sykes, Sir Mark (Hull, Central)
Cassel, FelixHope, Harry (Bute)Talbot, Lord E.
Castlereagh, ViscountHope, James Fitzalan (Sheffield)Thomas-Stanford, Charles
Cave, GeorgeHorner, Andrew LongThomson, W. Mitchell- (Down, N.)
Cecil, Evelyn (Aston Manor)Jardine, Ernest (Somerset, East)Thynne, Lord Alexander
Cecil, Lord Hugh (Oxford University)Joynson-Hicks, WilliamTuilibardine, Marquess of
Cecil, Lord R. (Herts, Hitchin)Locker-Lampson, G. (Salisbury)Ward, A. S. (Herts, Watford)
Chaloner, Colonel R. G. W.Lockwood, Rt. Hon. Lt.-Colonel A. R.Watson, Hon. W.
Clyde, J. AvonLyttelton, Hon. J. C.Weston, Colonel J. W.
Craig, Captain James (Down, E.)M'Calmont, MajorWheler, Granville C. H.
Craig, Norman (Kent, Thanet)Malcolm, IanWhite, Major G. D. (Lancs., South port)
Crichton-Stuart, Lord NinianMorrison-Bell, Major A. C. (Honiton)Williams, Colonel R. (Dorset, W.)
Currie, George W.Newman, John R. P.Willoughby, Major Hon. Claud
Dalrymple, ViscountNield, HerbertWills, Sir Gilbert
Denniss, E. R. B.Orde-Powlett, Hon. W. G. A.Wood, Hon. E. F. L. (Ripon)
Dickson, Rt. Hon. C. ScottOrmsby-Gore, Hon. William


Du Cros, Arthur PhilipPerkins, Walter FrankButcher and Viscount Helmsley


Abraham, William (Dublin, Harbour)Bowerman, Charles W.Compton-Rickett, Rt. Hon. Sir J.
Acland, Francis DykeBoyle, Daniel (Mayo, North)Cornwall, Sir Edwin A.
Addison, Dr. ChristopherBrady, Patrick JosephCory, Sir Clifford John
Adkins, Sir W. Ryland D.Brockiehurst, William B.Crooks, William
Allen, Rt. Hon. Charles P. (Stroud)Brunner, John F. L.Crumley, Patrick
Armitage, R.Bryce, J. AnnanCullinan, John
Arnold, SydneyBuckmaster, Sir Stanley O.Dalziel, Rt. Hon. Sir J. H. (Kirkcaldy)
Baker, Joheph Allen (Finsbury, E.)Burt, Rt. Hon. ThomasDavies, Ellis William (Eifion)
Balfour, Sir Robert (Lanark)Byles, Sir William PollardDavies, Timothy (Lincs., Louth)
Barnes, George N.Carr-Gomm, H. W.Davies, Sir W. Howell (Bristol, S.)
Benn, W. W. (T. Hamlets, St. George)Chancellor, Henry GeorgeDawes, James Arthur
Bentham, George JacksonClancy, John JosephDelany, William
Bethell, Sir John HenryClough, WilliamDenman, Hon. Richard Douglas
Black, Arthur W.Clynes, John R.Devlin, Joseph
Boland, John PlusCollins, Godfrey P. (Greenock)Dickinson, Rt. Hon. Willoughby H.
Booth, Frederick HandelCollins, Sir Stephen (Lambeth)Dillon, John

trebled. I think it might be advisable for the right hon. Gentleman to look into the amounts he is likely to obtain.

The Chancellor said something, I think in his Budget Speech, to the effect that the Government are considering some method as to whether they would themselves insure against Death Duties.

I rather referred to advancing money at Government rates of interest.

Question put, "That the Clause be read a second time."

The House divided: Ayes, 103; Noes, 225.

Donelan, Captain A.Kilbride, DenisRea, Walter Russell (Scarborough)
Doris, WilliamKing, JosephReddy, Michael
Duffy, William J.Lambert, Richard (Wilts, Cricklade)Redmond, John E. (Waterford)
Duncan, C. (Barrow-in-Furness)Lardner, James C. R.Redmond, William (Clare, E.)
Duncan, Sir J. Hastings (Yorks, Otley)Lawson, Sir W. (Cumb'rld, Cockerm'th)Redmond, William Archer (Tyrone, E.)
Edwards, John Hugh (Glamorgan, Mid)Levy, Sir MauriceRichardson, Thomas (Whitehaven)
Elverston, Sir HaroldLewis, Rt. Hon. John HerbertRoberts, Charles (Lincoln)
Esmonde, Dr. John (Tipperary, N.)Lundon, ThomasRoberts, George H. (Norwich)
Esmonde, Sir Thomas (Wexford, N.)Lynch, Arthur AlfredRobertson, John M. (Tyneside)
Falconer, JamesMacdonald, J. Ramsay (Leicester)Robinson, Sidney
Farrell, James PatrickMacdonald, J. M. (Falkirk Burghs)Roch, Walter F. (Pembroke)
Fenwick, Rt. Hon. CharlesMcGhee, RichardRoche, Augustine (Louth)
Ffrench, PeterMaclean, DonaldRoe, Sir Thomas
Field, WilliamMacNeill, J. G. Swift (Donegal, South)Rowntree, Arnold
Fitzgibbon, JohnMacVeagh, JeremiahRunciman, Rt. Hon. Walter
Flavin, Michael JosephM'Callum, Sir John M.Russell, Rt. Hon. Thomas W.
George, Rt. Hon. D. LloydM'Curdy, C. A.Samuel, J. (Stockton-on-Tees)
Gladstone, W. G. C.McKenna, Rt. Hon. ReginaldScanlan, Thomas
Glanville, Harold JamesM'Laren, Hon. F. W. S. (Lincs, Spalding)Scott, A. MacCallum (Glas., Bridgeton)
Goddard, Sir Daniel FordMarkham, Sir Arthur BasilSeely, Rt. Hon. Colonel J. E. B.
Goldstone, FrankMarshall, Arthur HaroldSheehy, David
Greenwood, Hamar (Sunderland)Meagher, MichaelShortt, Edward
Greig, Colonel James WilliamMeehan, Francis E. (Leitrim, N.)Simon, Rt. Hon. Sir John Allsebrook
Griffith, Rt. Hon. Ellis JonesMeehan, Patrick J. (Queen's Co., Leix)Smith, Albert (Lancs., Clitheroe)
Guest, Hon. Frederick E. (Dorset, E.)Molloy, MichaelSmith, H. B. L. (Northampton)
Gwynn, Stephen Lucius (Galway)Molteno, Percy AlportSmyth, Thomas F. (Leitrim, S.)
Hackett, JohnMond, Rt. Hon. Sir AlfredSpicer, Rt. Hon. Sir Albert
Hancock, John GeorgeMontagu, Hon. E. S.Sutherland, J. E.
Harcourt, Rt. Hon. Lewis (Rossendale)Mooney, John J.Sutton, John E.
Harcourt, Robert V. (Montrose)Morgan, George HayTaylor, John W. (Durham)
Harmsworth, Cecil (Luton, Beds)Morison, HectorTaylor, Theodore C. (Radcliffe)
Harvey, A. G. C. (Rochdale)Morton, Alpheus CleophasTaylor, Thomas (Bolton)
Harvey, T. E. (Leeds, West)Munro, Rt. Hon. RobertTennant, Rt. Hon. Harold John
Haslam, Lewis (Monmouth)Murphy, Martin J.Thorne, G. R. (Wolverhampton)
Hayden, John PatrickNeedham, Christopher ThomasThorne, William (West Ham)
Helme, Sir Norval WatsonNeilson, FrancisToulmin, Sir George
Henderson, Arthur (Durham)Nicholson, Sir Charles N. (Doncaster)Verney, Sir Harry
Hewart, GordonNolan, JosephWalsh, Stephen (Lancs., Ince)
Higham, John SharpNuttall, HarryWardle, George J.
Hinds, JohnO'Brien, Patrick (Kilkenny)Waring, Waiter
Hobhouse, Rt. Hon. Charles E. H.O'Connor, T. P. (Liverpool)Watt, Henry A.
Hodge, JohnO'Doherty, PhilipWebb, H.
Hogge, James MylesO'Donnell, ThomasWhite, J. Dundas (Glasgow, Tradeston)
Holt, Richard DurningO'Dowd, JohnWhite, Sir Luke (Yorks, E. R.)
Howard, Hon. GeoffreyO'Malley, WilliamWhite, Patrick (Meath, North)
Hudson, WalterO'Neill, Dr. Charles (Armagh, S.)Whitehouse, John Howard
Hughes, Spencer LeighO'Shaughnessy, P. J.Whittaker, Rt. Hon. Sir Thomas P.
John, Edward ThomasO'Sullivan, TimothyWhyte, Alexander F. (Perth)
Jones, Edgar (Merthyr Tydvil)Palmer, Godfrey markWilkie, Alexander
Jones, H. Haydn (Merioneth)Parker, James (Halifax)Williams, Aneurin (Durham, N. W.)
Jones, J. Towyn (Carmarthen, East)Parry, Thomas H.Williams, Penry (Middlesbrough)
Jones, Leif (Notts, Rushcliffe)Pearce, William (Limehouse)Williamson, Sir Archibald
Jones, William (Carnarvonshire)Phillips, John (Longford, S.)Wilson, Rt. Hon. J. W. (Worcs-, N.)
Jones, William S. Glyn- (Stepney)Pratt, J. W.Wilson, W. T. (Westhoughton)
Jowett, Frederick WilliamPrice, C. E. (Edinburgh, Central)Winfrey, Sir Richard
Joyce, MichaelPriestley, Sir W. E. B. (Bradford, E.)Wing, Thomas Edward
Kellaway, Frederick GeorgePringle, William M. R.Yeo, Alfred William
Kelly, EdwardRadford, George Heynes
Kennedy, Vincent PaulRaffan, Peter Wilson


Kenyon, BarnetRea, Rt. Hon. Russell (South Shields)Illingworth and Mr. Gulland.

New Clause—(Appeal)

( a) If any person, charged by an assessment or surcharge of the duties contained in Schedule D of the Acts relating to Income Tax in England or Scotland, shall think himself aggrieved by the determination of the Commissioners for general purposes or the Commissioners for special purposes directed to hear appeals in any appeal against such assessment or surcharge, it shall be lawful for him, on giving notice in writing to the inspector or surveyor within twenty-one days after such determination, to require that such appeal shall be reheard by His Majesty's

High Court of Justice, and thereupon such appeal shall be reheard by a judge of His Majesty's High Court of Justice (King's Bench Division) in such manner and in accordance with such conditions as shall be prescribed by rules of the Supreme Court, and the determination of such judge on such appeal shall be final and conclusive on all questions of fact; but if any party to such appeal shall be dissatisfied with the determination of the judge in point of law, or upon the admission or rejection of any evidence, the party aggrieved may appeal from the same to His Majesty's Court of Appeal and from thence to the House of Lords.

( b) The fact that an appeal is pending before the High Court of Justice shall not in any way interfere with the payment of the Income Tax according to the assessment appealed against, but the Income Tax shall be paid according to such assessment as if there were no appeal; and in the event of the amount of assessment being altered by the order or judgment of the Court the difference in amount, if too much has been paid, shall be repaid with such interest (if any) as the Court may allow, and if too little shall be deemed to be arrears, and shall be paid and recovered accordingly.

( c) In the application of this Section to Scotland a lord ordinary or judge of the Court of Session shall be substituted for a judge of the High Court of Justice, and the Court of Session for the Court of Appeal.

Clause brought up, and read the first time.

I beg to move, "That the Clause be read a second time."

When the Income Tax law was first passed in 1842 there was considerable fear in the mind of the public as to the publicity which might ensue with regard to the finances and means of individuals, and it is probable that, owing to that fear of publicity, the law provided that appeals from assessment should be heard by the Commissioners, of whom there were two, and by them alone. No option was given to anyone who was dissatisfied with the assessment levied upon him to go to the Courts with his appeal; he was forced to go to the Commissioners. As I understand it, when the Commissioners hear a case they are in the habit, after hearing the aggrieved taxpayer, of letting the appellant leave the room while they consult privately with the surveyor, who is, in effect, the defendant in the case. If that is a correct statement of what takes place, it seems to me a very unfair and unreasonable procedure as against a private individual. The Income Tax law is undoubtedly full of intricacies, and it is very difficult for even the most subtle intellects of the country to decide certain cases which come up for decision. There have been to my knowledge cases of a very intricate and involved nature brought before the Commissioners. When a case is heard by the Commissioners, if the decision is adverse to the taxpayer, the latter may desire to appeal to the Courts. In that case the Commissioners are asked to state a case. As I understand, the case is generally drawn up by the clerk to the Commissioners, who is very likely a local solicitor, and who, not unnaturally, does not wish to see a decision which has been arrived at reversed. What is stated is very often that "the Commissioners, having investigated the facts, found as follows." The consequence is that the aggrieved taxpayer has no chance of succeeding in the Courts, because the Courts at once say, "The Commissioners have inquired into this matter, and found on the facts. As we can only decide on questions of law, you have no case to bring before us at all." The position of the taxpayer and the whole view of Income Tax have very much changed since 1842, and if there are people who desire to have their cases heard by the Courts, both as to facts and as to law, I cannot understand why that right should be refused to them. Such a proposal can no doubt be justified, not only because of the procedure of the Commissioners themselves, but also on the ground that some of the cases are of a most intricate and difficult nature. I believe I speak the mind of many who are interested in this matter when I say that it would be very desirable that such a Clause as I now propose should be accepted, so that questions arising upon the assessment of any individual could be investigated, as regards both the facts and the law, in the Courts.

I have much pleasure in seconding this Amendment. Like my hon. Friend, I feel that matters have changed very much One reason why I am glad to second the Amendment is that even those who have drawn up our Acts of Parliament have stated—it was even stated in the House this afternoon—that it was not for a Minister to give an opinion upon an Act of Parliament. If it is so difficult for one of our Ministers to give an opinion upon an Act of Parliament, it is very difficult for a Commissioner to give a positive opinion upon an Act. These amounts now have come to be such enormous sums that I think it is right for the Government to accept this new Clause. If a case has been taken to one of the higher Courts it will form the basis upon which the Commissioners in future will be able to decide cases. Applicants then will realise that there is a fair decision given. There are many business men in my experience who feel a great deal of dissatisfaction. They wonder whether they have always been able to get justice in the manner in which these claims are now heard and decided. I have a great deal of confidence in saying to the Government that it would have the good wishes of the mercantile world in this country if this Clause were added. I see one difficulty to which the Chancellor of the Exchequer may refer—that is, that it may involve the Government in an enormous number of lawsuits. Whether that objection is a valid one or otherwise, I do not know; whether there will throughout the country be many who will defend these cases and carry them up to the High Court, I do not know. But it is right that we as Englishmen should always have the consciousness that we have got full justice, especially in regard to the payment of taxes.

This suggested new Clause involves a very serious departure in law and practice in regard to the assessment of Income Tax. At the present moment the Court of Appeal deals with questions of law. Whether the procedure by which you get to the Courts is good or bad is a matter for argument. I know something about the statement of special cases, and I have always felt that there has been a grievance in the matter of stating special cases from magistrates. It is even true in respect to County Court judges, because you are appealing against the statement of facts which the judge has entered in his notebook. That, however, is an objection that applies not merely to this particular kind of appeal, but to most cases of appeal from the inferior Courts. The facts are stated by the very judge against whose decision you are appealing. That seems to call for reconsideration as to the basis of appeal. But that is a matter I should be very sorry to see considered merely in connection with the Income Tax Commissioners—and that is the point which my hon. Friend is seeking to cover by this Amendment. The Amendment goes far beyond that. He proposes that you are to have an appeal not merely on questions of law, but on questions of fact. I cannot conceive anything more disastrous from the point of view of the Income Tax machinery, and I cannot conceive anything more disastrous from the point of view of the Courts. The Courts hitherto have not merely decided questions of law, but upon the facts which are presented to them, and they, it is suggested, are to retry complicated questions of fact!

My hon. Friend says "Hear, hear!" If you want to double the number of judges that is the way to do it. What does the proposition mean? It naturally means, of course, that this method of procedure would not really be open to the ordinary Income Tax payer. It would be available for the men who had large sums of money involved. It might be worth their while to pursue the matter. It certainly would not be worth the while of the ordinary trader or professional man to have a retrial in the higher Courts, with counsel, witnesses, and all the ordinary machinery of litigation, for the purpose of trying a question of fact. It would be a ruinous temptation to such men, and I hope it will not be put in their way. I do not say that the present system is the best one, but, on the whole, it has worked fairly. There is a good deal to be said about the method of appointing Commissioners. My hon. Friend has criticised the method of appeal. He said you are practically appealing to the defendant in the case. You are not doing that.

I do not think you are consulting him quite. I think it is perfectly impartial. I have entered into this matter before; you go before another Commissioner altogether. [HON. MEMBERS: "Where do we come in?"] I do not think my hon. Friends below the Gangway would be very anxious to keep up the opportunities for litigation. As a matter of fact, the only persons who would really be grateful to my hon. Friend are the lawyers. I am told that business in the High Courts is not good. There is depression in trade there. My hon. Friend has come to the rescue just at the right moment. I have no doubt that the lawyers in the High Courts will be so grateful that they will be proposing to erect a statue—I do not say to his memory, I hope that is a long way off!—but they will be exceedingly obliged to him for this proposal. It is a proposal to provide them with what will be an increased income, subject to Income Tax, that comes from the direction of the Inns of Court. They do very well out of it. But the Income Tax payer, with the exception of the men who have very large incomes—and companies perhaps—would not think it worth their while to have a rehearing of these cases. It would only be the means of embarrassing the Commissioners in the collection of the taxes. It would enormously increase litigation. It would bring about very considerable delay. When you proceed to appeals of this kind it takes a very long time before they are settled.

Then it would take the Court of Chancery about thirty years, judging by the comparative rate, or speed, at which these cases are settled as between the Income Tax Commissioners and the High Court judges. I am not sure that I would be in order in speaking on the question of fact, but on questions of this kind I would often rather have the judgment of these Commissioners than that of many judges of the High Court. I cannot enter upon that without perhaps getting within some rule of order. My own experience of many of these cases does not encourage me to extend the area of operations of the Judges of the High Court. I think, therefore, my hon. Friend had better be satisfied with the opportunities of litigation which are afforded him by the Act of 1842, and other Acts. I should have thought they were ample for most of the subjects of His Majesty in this Kingdom. I hope he will not extend the area of temptation in this respect which might lead many poor tradesmen and professional men to ruin. I am sure he would not like to have that on his conscience! I therefore appeal to him in the interests of the general repose of mind that he limits the temptation that would be there if this Clause were added to this particular Finance Bill. I appeal to him in the interests of his composure that he will withdraw his Amendment.

Question, "That those words be there inserted," put, and negatived.

New Clause—(Income From Capital Earned By Recipient)

For the purpose of computing income for the assessment of Income Tax and of Super-tax, income arising from capital earned by the recipient shall be regarded as earned income.

Clause brought up, and read the first time.

I beg to move, "That the Clause be read a second time."

No one has dealt with the matter so far with which I am endeavouring to deal in this new Clause, or which the new Clause is meant to cover. I cannot understand if an income which is earned, say, by a doctor, barrister, or any other class of profession that may occur to hon. Members, is earned income while he is earning it, why that money which has just been earned and saved, and accumulated as capital, instead of being spent, should not be regarded as much as earned income as the several classes of income enumerated in the Finance Act of 1907. The cases I have in mind, and which I have been asked from many quarters to raise, are not in the least differentiated from other cases, but I may mention, with the indulgence of the House, the particular class of cases which have been brought under my notice from many quarters. Take the case of an official who serves a great part of his life, say, twenty-five years, abroad, and then comes back to this country to live and educate his children and spend his declining years. He saves, during his service abroad, a certain sum of money, and when he comes home with the interest on that money to supplement his pension, he hopes to be able to bring up his family in tolerable comfort. Why is the money, which he has earned and put aside for this estimable and admirable purpose, as every hon. Member will allow it to be, not just as much earned income when banked and invested, as when he actually earned it? I confess I do not know what the answer to this question will be, and I hope that the right hon. Gentleman the Secretary to the Treasury, if he does not accept this Clause, will explain what is the difference. Is the definition in the Finance Act of 1907 to be rigidly construed?

What is the difference in kind and principle between the income arising from earned income when invested in this manner, and from earned income when it is being received? The effect of the inclusion of income of this character would seem to me to be to induce people—Government officials and others—who otherwise might be prudently inclined to lay by money for the benefit of their children, to dissipate that money, I will not say in riotous expenditure, but in very liberal expenditure, of what they should properly lay by for that time when they have returned, and when, in the absence of special circumstances, they are always rather hard pushed for money in order to maintain themselves upon a similar plane to that which they occupied when enjoying the full income of their salary. It is a case of extremely common occurrence, and there are hon. Members of the House, I am sure, who are acquainted with towns or districts in this country which are populated to a great extent by people of that class. They are very seldom heard in this House. Very rarely representations are made in their behalf. They are a feeble part of the electorate, and they do not count for very much. They have no claim upon the Chancellor of the Exchequer, and, therefore, I am appealing to the House for a fair consideration of their case. But, as I said, I do not see that their case in any way differs from that of any professional man. Take a man engaged in a profession in this country. Why should his earned income be rigidly restricted in the manner in which it is by the Finance Act of 1907? I must accept it that it does not cover a case of this sort. I will not venture to take up the time of the House by reading the Section of the Act, but it is quite evident that that interpretation is accepted by the Government, and, for my part, I do not dispute that that is the interpretation, and for that reason I venture to move this Clause.

There is one answer that I hope will not be given. The Attorney-General, in reply upon another new Clause, pleaded that it would cost too much to accept it. I submit that is not a satisfactory reply, and that any such plea comes with very ill-grace from a colleague of the Chancellor of the Exchequer in a Government which has added some £50,000,00 or £60,000,000 to the expenditure of the country. None of those affected in this case can accept any such plea as satisfactory. I confess it does not seem to me to be satisfactory. I think it is absurd to plead that lack of funds is a sufficient reason for not doing justice when once a case of injustice is established. I have endeavoured to establish that case of injustice, and I will leave it to my hon. Friend who is to second this new Clause to develop the case which. I have endeavoured, however inadequately, to put before the House.

I desire to second this new Clause, which appears to be of real substance and importance. I have never been able myself to understand why a legislative distinction has been drawn between earned and unearned income. I should think it was obvious that the King's English meant something quite different from what the Statute of 1907 laid down. After all, earned income is income that has been earned; to my mind, it does not change its character because it is put into the funds where it is invested. If a man is a success in business and a success in the world and makes a fortune, large or small, he has earned the whole of that fortune, and that fortune, be it large or small, remains earned income as long as it is in his possession. That seems to me to be the natural sense of the word "earned," and I have never been able to understand thoroughly, or to understand at all, why the Chancellor of the Exchequer and the Government have chosen to set up this artificial distinction, which is entirely contrary to the ordinary meaning and sense of the word. I know the Chancellor of the Exchequer always pleads on these occasions that the Government want the money, and therefore that they must spread their net as far as possible. I think he must admit that these taxes are not justifiable. The reason for all this is that the Government, and in particular the Chancellor of the Exchequer, has launched out upon a spendthrift policy, and having done so entirely contrary to the advice of wise financiers, whether permanent officials of the Treasury or outside, he is obliged to resort to this sort of tactics in order to accumulate the money which he requires. I urge that this is a hard case in respect of many people. It is hard in the case of those who have succeeded in making large fortunes, but it is much harder in the case of those who have made small fortunes. In many cases small tradesmen whom I represent have said to me, "It is very hard upon us to pay this tax after having worked for fifteen or twenty years at our business, and, after we have put enough money away to make a material difference in the bringing up of our families, to be told that all this is not earned income, and that we are to pay this tax upon it." I think this does involve a great injustice, and I urge upon the Chancellor of the Exchequer that some mitigation ought to be devised by which such people would not suffer. After all, an action of this kind is really a penalty on thrift. These people have been thrifty, and why are they to be penalised by an artificial interpretation of this word by Statute, such as this artificial definition of the word "earned" is? It is time this House should recognise that such business men as I have referred to and others are harshly treated, and I urge upon the Government to alter this definition so as to make the tax more equitable in the cases to which I have referred.

This is the first time I have had to deal with a proposal of the hon. Member for East Nottingham since I left the India Office, and once again I have to differ from his view. On this occasion I think the arguments advanced are not such as ought to commend this Clause to the House. The first argument was that the hon. Member hoped the Chancellor of the Exchequer or the Minister who represented him would not urge as an answer to this new Clause that it would cost too much, because, it is said, this would be a ridiculous argument in the face of an injustice from any Chancellor of the Exchequer, and much more so from the present Chancellor of the Exchequer. I have been unable to see any difference between this Chancellor of the Exchequer and his predecessors except that when there has been an irresistible demand for money the present Chancellor of the Exchequer has been more fertile and successful in finding the money than his predecessors.

Hon. Members opposite are moving this Clause on the Report stage, cost what it may, when both of them know that any alteration in the balance-sheet cannot be repaired by imposing new taxation. Consequently the cost of their proposal becomes all the more important. Even if we had plenty of money and a large surplus to meet this demand, I would suggest to the House that it should be resisted, because I do not think it is founded upon equity. The hon. Member for East Nottingham talked of the hardship upon a tradesman who finds that his invested savings are treated as unearned income. After all it is a concession to that tradesman only dating from 1907 that any attempt has been made to differentiate between earned and unearned income.

The hon. Member forgets that at that time the Income Tax was totally different, because it was not an inordinately high and penal impost like it is now.

If it had not been for the new departure then made, the tradesman to whom the hon. Member referred who is sensible of such hardship, would have been taxed at 1s. 3d. instead of 9d. When this new differentiation was made in 1907 the arguments now put forward were urged upon the House then, and it is quite clear from the speeches of both hon. Members opposite that they have not read the relevant Debate on the Finance Act of 1907, because they have not attempted to deal with any of the arguments dealt with at that time by the Prime Minister, which are as good to-day as they were then. The Prime Minister then dealt with the difference between savings which are not treated as earned income, and those which are treated as earned income. Earned income which has not been saved and invested is a precarious income, dependent upon the earning capacity and the health of the man who earns it, where as the savings are not dependent upon the man's health or upon whether he is capable of earning them or not. That is one substantial difference between the two. Further than that, earned income was not intended to include pensions or deferred pay at all, and it was only after a considerable amount of Debate that the present Prime Minister, who was then Chancellor of the Exchequer, said that after a great deal of heart searching and doubt he had agreed to include as earned income pensions and superannuation allowances.

A distinction was then made, despite the very cogent arguments of the hon. Member for Yarmouth, between pensions and superannuation allowances on the one hand, and the savings of those officials whom the hon. Member refers to on the other hand. For this reason: the pension might be regarded as deferred pay and as part of the consideration upon which the official enters a public service; he was to get so much a year, and when he retired from that service he was to get either a superannuation allowance or a pension. That was part of the terms of his contract, and there was this further distinction: If a man saved during the time he was employed and invested his savings he could sell either the annuity he had bought or the investments, as he thought fit, whereas the pension was an unsaleable thing, and died with him. So that on all these grounds, on the ground of the fact that one is a voluntary saving from pay and the other might be regarded as a compulsory deduction from pay; on the ground that one was saleable and the other was not; on the ground that both pensions and savings do not depend upon the health and well-being of the individual who is earning the income, there is every reason to differentiate between capital invested as a result of earnings and the earnings themselves. I do not think, after this feeble recapitulation of the unanswered arguments of the Prime Minister in 1907, that I need add anything; but, if anything more has to be added, I would say that if you were to try and differentiate between investments made out of savings and investments made out of truly and strictly unearned income, it would put upon those who administer the Income Tax Acts a task which would be almost impossible. You would have to accept the guess arrived at by the taxpayer himself when he said: "I think this part of my investment is savings, and this part ought legally to be taxed as unearned income." Not only would it increase the difficulty of the administration of the Acts, but it would increase the expense of administration. I think it will be agreed in all parts of the House that the more easy it is to administer the Acts and the less friction there is in the collection of the tax, the better on the whole for the tax; and when you have in this particular case to set the Inland Revenue a task which must admittedly be difficult to meet a grievance which does not really exist, I venture to suggest to the House that it would do well to reject the proposed Clause.

Is the hon. Gentleman aware that in the cases to which I refer, and to which my hon. Friends refer, the taxpayer would have no difficulty in differentiating, because he has nothing except what he earns?

9.0 P.M.

The Financial Secretary to the Treasury has made a statement which needs a reply. He says that this is not a Clause which could be upheld in equity. If there is a Clause which has been suggested which could be upheld in equity, it is this one. Once it has been decided that there shall be a differentiation between earned and unearned income, surely it must be a matter of equity that the savings of a man who denies himself over many years should be treated as his earnings. I was made executor of one gentleman whose life is an example of the point in question. He started with a salary of £150 a year, and he told me that whatever his salary was he determined to save a certain percentage. His whole system was continued as he advanced in business until, at the age of ninety-four, after an enormously long life, he had saved £90,000. Surely during that man's lifetime, while he was still working, the money which he had little by little invested in one security and another was earned income, and I claim, in equity, if there is any differentiation, that he was entitled, and all those who deny themselves in order to save money which they may leave to their children, and their children's children, are entitled to have it regarded as earned income. The Financial Secretary to the Treasury suggests that it would be almost impossible for the Commissioners to decide these matters. I know there would be a difficulty, but the Chancellor of the Exchequer has told us that there is practically no appeal from the Commissioners, and we know, when we enter the Commissioners' room, that it is a matter of secret questions and cross questions, and there is no reporter there. It would be a simple matter for these Commissioners to ask a gentleman whether this item was his own earnings or whether it was an inheritance from somebody else. It would be very easy for the Commissioners to discriminate between investments and securities held by any man who could prove whether they were his own savings or whether they were an inheritance. I claim that this Clause is perfectly sound in equity. Now that the Government have raised this taxation so high they have roused the feelings of individuals against them to such a point that this sort of difference exasperates the individual to an enormous extent. I have heard men on the business exchanges resent this kind of difference in their taxing enormously, and surely it is the province of the Government, while levelling the tax at an enormously high rate, to prevent this irritation of the individual against the tax collector and against the Government. Surely we do not want them to be at enmity where it is necessary that the individual shall pay. There is a very strong feeling by the average man that he should be treated differently in his Income Tax return between the money he saves and the money for which he works.

There has been certain loose talk with regard to what is earned and what is unearned income. I suppose all income is earned by someone, though the person who earns it does not always receive it, and, so far as the Income Tax applies to unearned income, it applies to that portion of a person's income for which he has put forth no effort except to receive the cheque. That is about what it amounts to. You have some money invested in the bank or in the funds, and before the interest is paid over to you obviously someone, somewhere and somehow, has had to put in some work to earn that income. If you are to receive income, as I suppose some of the Members of this House, including the Labour Members, in some small degree do, which is the product of other men's labour, surely, altogether apart from Socialism or any of these things, it is only just and right that upon that income you should pay a larger tax than upon the income which you may earn by manual or brain labour. I am opposed to the Clause, and though I agree there are certain hard cases, I have no sympathy with the poor Indian Civil Servant who retires with £1,000 a year. Perhaps it is rather hard in the case of the widow who is left with an income of not more than £150 or £160 year, or even less sum, so far as unearned income is concerned. The Amendment, however, has not been moved to deal with that case, but with the question of unearned income generally. I claim that there is a wide difference between the income which a man earns as a Member of Parliament or as a navvy and the income which comes to him from money deposited at the bank or invested in Consols, and I think that the law which differentiates between the two is perfectly just and equitable.

I hope it will not go forth to the world, as a result of what the last speaker has said, that the income which many of us here unwillingly receive as Members of this House is easily earned. I may say that every penny that I receive in this regard is devoted to the destruction of Radicalism—

That is hardly a question relevant to the matter before the House.

It was rather provoked by what has fallen from the hon. Member for Halifax (Mr. Parker). I wanted it to be known that the treadmill of daily life in this House is as hard as any work performed outside. The view expressed by the hon. Member was rather in the direction of suggesting that money earned by a daily avocation stands in a different category to money accruing from dividends. But it must be remembered that in the case of small persons their capital fund is the creation of their own work, and therefore it never loses its character as earned increment.

No one suggests that that capital was not earned. What I do say is that the money received in respect of it is not earned by the recipient.

If a man in a humble walk of life is able to put by year by year a sum of £10 or £20, and in due course invest it, ought he by reason of his self-denial to be penalised by having to pay Income Tax upon it at a different rate from the Income Tax on his ordinary income? It seems to me an almost suicidal policy from the Government point of view, because it destroys the opportunity of creating a capital upon which Death Duties are charged. It destroys the encouragement to be thrifty, it encourages people to live up to the last penny of their incomes, and it is bad for the State, because it brings about a condition of disturbance. Anyone who was a Member of this House fifteen or twenty years ago, if he had heard such a speech as we have just had from the Secretary to the Treasury, would have been very much surprised. We are not, because we have been accustomed to that kind of speech since 1906. But anybody would think from the lecture the hon. Gentleman delivered to us, that we are all conspiring to defraud the State, when we are merely protesting against the heavy imposition put upon us. I do not suppose the Secretary to the Treasury, bearing the name he does, has ever experienced what any ordinary person feels who is dependent upon a small-earned income. We have been told it is not right to seek to have this differentiation made in respect of income which has really been put aside simply as an act of self-denial. Although it may make a considerable difference in the final balance-sheet, which would have to be redressed by still further impositions on unearned income, I do say this is an act of injustice which ought not to be withheld. It seems unintelligible to me that, because a person chooses to say "I will not live like my neighbours, I will provide against any accident happening to me which may deprive me of my earning capacity," therefore the income he receives from the money thus saved is to be specially taxed. I say such a course prohibits a person adopting that thrifty policy; it penalises him for his self-denial, and it destroys the very fund from which considerable Death Duties can be collected. If a man comes into a windfall, for which he has done nothing himself, then, of course, he should pay the additional rate of tax, but if he chooses to be frugal in his method of living, then he

Division No. 193.]


[9.11 p.m.

Agg-Gardner, James TynteDickson, Rt. Hon. C. ScottOrde-Powlett, Hon. W. G. A.
Ashley, W. W.Du Cros, Arthur PhilipOrmsby-Gore, Hon. William
Baker, Sir R. L. (Dorset, N.)Duke, Henry EdwardParker, Sir Gilbert (Gravesend)
Baldwin, StanleyEyres-Monsell, Bolton M.Pease, Herbert Pike (Darlington)
Banbury, Sir Frederick GeorgeFell, ArthurPerkins, Walter Frank
Baring, Maj. Hon. Guy V. (Winchester)Fletcher, John SamuelPryce-Jones, Colonel E.
Barlow, Montagu (Salford, South)Forster, Henry WilliamRandles, Sir John S.
Barrie, H. T.Gardner, ErnestRawlinson, John Frederick Peel
Benn, Arthur Shirley (Plymouth)Gibbs, G. A.Salter, Arthur Clavell
Bennett-Goldney, FrancisGlazebreek, Captain Philip K.Sanders, Robert A.
Bigland, AlfredGoldman, Charles SydneySanderson, Lancelot
Bird, A.Guinness, Hon. W. E. (Bury S. Edmunds)Sassoon, Sir Philip
Blair, ReginaldHaddock, George BahrSharman-Crawford, Colonel R. G.
Boscawen, Sir Arthur S. T. Griffith-Hall, Frederick (Dulwich)Spear, Sir John Ward
Boyton, JamesHamilton, C. G. C. (Ches., Altrincham)Stanier, Beville
Bridgeman, W. CliveHarris, Leverton (Worcester, East)Stanley, Hon. G. F. (Preston)
Bull, Sir William JamesHelmsley, ViscountStaveley-Hill, Henry
Butcher, John GeorgeHenderson, Major H. (Berks, Abingdon)Stewart, Gershom
Campbell, Captain Duncan F. (Ayr, N.)Herbert, Hon. A. (Somerset, S.)Strauss, Arthur (Paddington, North)
Carlile, Sir Edward HildredHewins, William Albert SamuelSwift, Rigby
Cassel, FelixHibbert, Sir Henry F.Sykes, Sir Mark (Hull, Central)
Castlereagh, ViscountHohler, G. F.Talbot, Lord E.
Cave, GeorgeHope, Harry (Bute)Terrell, H. (Gloucester)
Cecil, Lord Hugh (Oxford University)Hope, James Fitzalan (Sheffield)Thomas-Stanford, Charles
Cecil, Lord R. (Herts, Hitchin)Horner, Andrew LongThomson, W. Mitchell- (Down, N.)
Chamberlain, Rt. Hon. J. A.Jardine, Ernest (Somerset, East)Tullibardine, Marquess of
Clay, Captain H. H. SpenderJoynson-Hicks, WilliamWatson, Hon. W.
Clyde, J. AvonLocker-Lampson, G. (Salisbury)Weston, Colonel J. W.
Cooper, Sir Richard AshmoleLockwood, Rt. Hon. Lt.-Colonel A. R.Wheler, Granville C. H.
Craig, Captain James (Down, E.)Magnus, Sir PhilipWhite, Major G. D. (Lancs., Southport)
Craig, Norman (Kent, Thanet)Malcolm, IanWills, Sir Gilbert
Crichton-Stuart, Lord NinianMorrison-Bell, Capt. E. F. (Ashburton)Worthington Evans, L.
Currie, George W.Newman, John R. P.
Dalrymple, ViscountNewton, Harry Kottingham


Denison-Pender, J. C.Nield, HerbertJ. D. Rees and Mr. Evelyn Cecil
Denniss, E. R. B.


Abraham, William (Dublin, Harbour)Clough, WilliamFarrell, James Patrick
Acland, Francis DykeClynes, John R.Fenwick, Rt. Hon. Charles
Addison, Dr. ChristopherCollins, Godfrey P. (Greenock)Ffrench, Peter
Adkins, Sir W. Ryland D.Collins, Sir Stephen (Lambeth)Field, William
Agnew, Sir George WilliamCompton-Rickett, Rt. Hon. Sir J.Fitzgibbon, John
Allen, Rt. Hon. Charles P. (Stroud)Cornwall, Sir Edwin A.Flavin, Michael Joseph
Armitage, R.Cory, Sir Clifford JohnGelder, Sir William Alfred
Arnold, SydneyCrooks, WilliamGeorge, Rt. Hon. D. Lloyd
Baker, H. T. (Accrington)Crumley, PatrickGladstone, W. G. C.
Baker, Joseph Allen (Finsbury, E.)Cullinan, J.Glanville, H. J.
Balfour, Sir Robert (Lanark)Davies, David (Montgomery Co.)Goddard, Sir Daniel Ford
Barnes, George N.Davies, Ellis William (Eifion)Goldstone, Frank
Beale, Sir William PhipsonDavies, Timothy (Lincs., Louth)Greig, Colonel James William
Benn, W. W. (T. Hamlets, St. George)Davies, Sir W. Howell (Bristol, S.)Griffith, Rt. Hon. Ellis Jones
Bentham, G. J.Dawes, James ArthurGuest, Hon. Frederick E. (Dorset, E.)
Black, Arthur W.Delany, WilliamGwynn, Stephen Lucius (Galway)
Boland, John PlusDenman, Hon. R. D.Hackett, J.
Booth, Frederick HandelDevlin, JosephHancock, J. G.
Bowerman, C. W.Dickinson, Rt. Hon. Willoughby H.Harcourt, Rt. Hon. Lewis (Rossendale)
Brady, P. J.Dillon, JohnHarcourt, Robert V. (Montrose)
Brockiehurst, William B.Donelan, Captain A.Harmsworth, Cecil (Luton, Beds)
Brunner, John F. L.Doris, W.Harvey, A. G. C. (Rochdale)
Bryce, J. AnnanDuffy, William J.Harvey, T. E. (Leeds, West)
Buckmaster, Sir Stanley O.Duncan, C. (Barrow-in-Furness)Haslam, Lewis (Monmouth)
Burns, Rt. Hon. JohnDuncan, Sir J. Hastings (Yorks, Otley)Havelock-Allan, Sir Henry
Burt, Rt. Hon. ThomasEdwards, John Hugh (Glamorgan, Mid.)Hayden, John Patrick
Byles, Sir William PollardElverston, Sir HaroldHelme, Sir Norval Watson
Chancellor, H. G.Esmonde, Dr. John (Tipperary, N.)Henderson, Arthur (Durham)
Chapple, Dr. William AllenEsmonde, Sir Thomas (Wexford, N.)Hewart, Gordon
Clancy, John JosephFalconer, JamesHigham, John Sharp

ought not to be made to pay Income Tax as for unearned income.

Question put, "That the Clause be read a second time."

The House divided: Ayes, 103; Noes, 230.

Hinds, JohnMontagu, Hon. E. S.Runciman, Rt. Hon. Walter
Hodge, JohnMooney, John J.Russell, Rt. Hon. Thomas W.
Hogge, James MylesMorgan, George HaySamuel, J. (Stockton-on-Tees)
Holt, Richard DurningMorison, HectorScanlan, Thomas
Howard, Hon. GeoffreyMorton, Alpheus CleophasScott, A. MacCallum (Bridgeton)
Hudson, WalterMunro, Rt. Hon. RobertSeely, Colonel, Rt. Hon. J. E. B.
Hughes, Spencer LeighMurphy, Martin J.Sheeny, David
John, Edward ThomasNeedham, ChristopherShortt, Edward
Jones, Edgar R. (Merthyr Tydvil)Neilson, FrancisSimon, Rt. Hon. Sir John Allsebrook
Jones, Henry Haydn (Merioneth)Nicholson, Sir Charles N. (Doncaster)Smith, Albert (Lancs., Clitheroe)
Jones J. Towyn (Carmarthen, East)Nolan, JosephSmith, H. B. L. (Northampton)
Jones, Leif (Notts, Rushcliffe)Nuttall, HarrySmyth, Thomas F. (Leitrim, S.)
Jones, William (Carnarvonshire)O'Brien, Patrick (Kilkenny)Spicer, Rt. Hon. Sir Albert
Jones, W. S. Glyn- (T. H'mts, Stepney)O'Connor, T. P. (Liverpool)Sutherland, J. E.
Jowett, Frederick WilliamO'Doherty, PhilipSutton, John E.
Joyce, MichaelO'Donnell, ThomasTaylor, John W. (Durham)
Kellaway, Frederick GeorgeO'Dowd, JohnTaylor, Theodore C. (Radcliffe)
Kelly, EdwardO'Malley, WilliamTaylor, Thomas (Bolton)
Kennedy, Vincent PaulO'Neill, Dr. Charles (Armagh, S.)Thorne, G. R. (Wolverhampton)
Kilbride, DenisO'Shaughnessy, P. J.Thorne, William (West Ham)
King, J.O'Sullivan, TimothyToulmin, Sir George
Lambert, Rt. Hon. G. (Devon, S. Molton)Palmer, Godfrey MarkVerney, Sir Harry
Lambert, Richard (Wilts, Cricklade)Parker, James (Halifax)Walsh, Stephen (Lancs., Ince)
Lardner, James C. R.Parry, Thomas H.Wardle, George J.
Law, Hugh A. (Donegal, West)Pearce, William (Limehouse)Waring, Walter
Lawson, Sir W. (Cumb'rld, Cockerm'th)Pease, Rt. Hon. Joseph A. (Rotherham)Watt, Henry Anderson
Levy, Sir MauricePhillips, John (Longford, S.)Webb, H.
Lewis, Rt. Hon. John HerbertPratt, J. W.Wedgwood, Josiah C.
Lundon, T.Price, C. E. (Edinburgh, Central)White, J. Dundas (Glasgow, Tradeston)
Lynch, A. A.Priestley, Sir W. E. B. (Bradford, E.)White, Sir Luke (Yorks, E. R.)
Macdonald, J. Ramsay (Leicester)Pringle, William M. R.White, Patrick (Meath, North)
Macdonald, J. M. (Falkirk Burghs)Radford, George HeynesWhitehouse, John Howard
McGhee, RichardRaffan, Peter WilsonWhittaker, Rt. Hon. Sir Thomas P.
MacNeill, J. G. Swift (Donegal, South)Rea, Rt. Hon. Russell (South Shields)Whyte, Alexander F. (Pertn)
MacVeagh, JeremiahRea, Walter Russell (Scarborough)Wilkie, Alexander
M'Callum, Sir John M.Reddy, MichaelWilliams, Aneurin (Durham, N. W.)
M'Curdy, C. A.Redmond, John (Waterford)Williams, Penry (Middlesbrough)
McKenna, Rt. Hon. ReginaldRedmond, William (Clare, E.)Williamson, Sir Archibald
M'Laren, Hon. F. W. S. (Lincs, Spalding)Redmond, William Archer (Tyrone, E.)Wilson, Hon. G. G. (Hull, W.)
Markham, Sir Arthur BasilRichardson, Thomas (Whitehaven)Wilson, Rt. Hon. J. W. (Worcs., N.)
Marshall, Arthur HaroldRoberts, Charles H. (Lincoln)Wilson, W. T. (Westhoughton)
Meagher, MichaelRoberts, G. H. (Norwich)Winfrey, Sir Richard
Meehan, Francis E. (Leitrim, N.)Robertson, John M. (Tyneside)Wing, Thomas Edward
Meehan, Patrick J. (Queen's Co., Leix)Robinson, SidneyYeo, Alfred William
Millar, John DuncanRoch, Walter F. (Pembroke)
Molloy, M.Roche, Augustine (Louth)


Molteno, Percy AlportRoe, Sir ThomasIllingworth and Mr. Gulland.
Mond, Rt. Hon. Sir Alfred M.Rowntree, Arnold

New Clause—(Investment In British Colonies And Possessions)

Income received in the United Kingdom from investments in British Possessions and Colonies shall be assessable to Income and Super-tax under this Act after the deduction of such Income Tax as has been paid in any British Possession or Colony upon such income.

Clause brought up, and read the first time.

I beg to move, "That the Clause be read a second time."

It is an unjust thing that income which has already paid Income Tax in one part of the British Empire should be assessed for further Income Tax at home. In case it should appear that this principle is a difficult one to urge upon the Chancellor of the Exchequer—whose attention I am not so fortunate as to enjoy, and which, perhaps, I do not deserve—I would point out that the principle of the deduction in such cases has already been allowed by the Government in respect of Death Duties. The Death Duty payable to the Government of India in respect of Indian assets is deducted or allowed in assessing the Death Duties payable on the entire estate of the deceased person leaving assets located in India. This Clause extends that principle to Income tax and to other British Possessions. My submission is, that a principle which is allowed in regard to Death Duties should be equally allowed in regard to Income Tax. It is a hardship, when an income has paid Income Tax amounting to 2½ per cent. to the Government which affords the protection under which it is earned, that the same income should be subject to a tax of four times as much by the Home Government, to which it owes no protection commensurate to that of a Government, financially independent, under which the income is earned. I believe I should be careful here not to reiterate any of the arguments used in regard to the merits of Clause 5 of the Bill. I would urge that not only should the Income Tax paid in a British Possession be deducted, but that the commissions paid to bankers and agents to recoup themselves for any services they offer, should also be deducted, with other necessary expenses. If the Chancellor of the Exchequer will not consider a proposition to make all those deductions, at any rate one might be allowed. I do not think I should be in order in urging that taxation like this, which deprives of capital a British possession greatly in need of capital, is in itself thoroughly bad, and should be resisted upon that score. On the present occasion it would be more immediately to the point to urge that such a deduction as I propose is called for by equity and justice. I do not know whether the claims of those who are affected by the provisions of the Finance Act in this respect appeal to the Chancellor of the Exchequer. I imagine I should not be justified in taking up the time of the House in pleading the way in which this affects the general financial position of a British possession. Perhaps I should be more in order in sticking closely to this immediate Clause.

That has nothing whatever to do with this. I think the hon. Baronet has misunderstood, but I do not know that the fact of one Member having misunderstood the point I was making would justify me in putting the whole House to the pains of hearing it all over again.

The hon. Gentleman has certainly explained his Amendment, but I am not quite certain whether his explanation is what I should have expected from the terms of the Amendment itself. If I understood him rightly, he was assuming this case: Supposing in some British Possession there is an Income Tax of 1s. 2d., and here the Income Tax is 1s. 3d., he suggests that it would be right to tax that income, so far as we were concerned, only by the amount of the difference, namely, 1d.

It would be fairer if the right hon. Gentleman were to say, suppose the Income Tax somewhere else were 2d., and here it is 2s. Then my point would be far clearer.

I am prepared to take either. I thought I had reproduced the illustration of the hon. Gentleman. Let me take his illustration. He is proposing, apparently, that the whole income should be taxed on the difference. Unfortunately that is not his Clause. The Clause has nothing in the world to do with that. It is a provision that we should first subtract out of the income that portion of the income which is used to pay the Income Tax elsewhere, and then that you should impose the British Tax at the full rate upon the difference, which is a different proposition. Either proposition is intelligible, but neither is the same as the other. Then there is this further consideration which I do not think the hon. Gentleman has had quite sufficiently in mind. He really is proposing to reverse what is the principle of Income Tax law. It is not the case, even about British Income Tax that you pay the tax on your income less the amount of the tax. That may be true of some other charges, but not about Income Tax. If a man has an income of £1,000 he has to pay Income Tax on the £1,000 and not on the £1,000 less some sum which will be sufficient to pay the tax on the smaller amount. Whether it be Income Tax or Super-tax the principle on which these things apply, he will see on consideration, is that you tax the amount of the income and not the amount that is left of the income after you have paid the tax. If that is true about the British tax, I cannot conceive why it should not be true about other taxes. The principle which is supposed to be at the bottom of the Clause is one which we could not accept in any case. If such a proposal was going to be made I doubt whether it could be fairly limited to British Possessions and Colonies. It is enough to say in general terms that the principle which we suggest should apply is a principle which is completely contradicted by the proposal which the hon. Gentleman makes, whether it is the proposal of the new Clause or the different proposal which I understood him to explain in his speech.

I really do not think the answer which we have had from the right hon. Gentleman is adequate to the question which is raised by this Amendment. It is a question of serious concern to every portion of the Empire. I do not allege for a moment that the change which the right hon. Gentleman is making in the law at present raises this question for the first time. It has been raised at more than one Colonial Conference, and it has been raised in communications from Colonial Governments to the Home Government on other occasions than those of the Colonial Conference. I do not, therefore, wish to be thought for a moment to allege that the change in the law proposed by the Chancellor of the Exchequer raises this very difficult and complicated question for the first time. But I think it still further complicates it, and I think it introduces new matter which it would be well for the House to consider at the outset. I am struck, with such experience as I have had of financial changes in this House, with the great difficulty which there is, once you have imposed a tax in a particular form, in subsequently alleviating its hardships or its burdens. We have had illustrations of it to-night. Take, for instance, the question as to the exclusion of an insurance to provide for the payment of Death Duties. My hon. and learned Friend (Mr. Butcher) was correct when he said that at the time when the tax was imposed and the Amendment was first moved in the Budget of Sir William Harcourt it was touch-and-go whether Sir William Harcourt would not accept it.

I think at that time the difference would not have been very serious compared with the new-revenue which Sir William Harcourt was then raising. Perhaps I put it a little too strongly when I said it was touch-and-go, but at any rate Sir William Harcourt seriously hesitated before refusing to accept the Amendment. Now the Chancellor of the Exchequer says, "After all the years in which this has been in force you are asking me to make so great a sacrifice—in fact, to transfer so heavy a burden from shoulders which have become accustomed to bear it to other shoulders. That I cannot do." Therefore, I rather press that it is important to consider the bearing of these new taxes at the moment when they are imposed, and to try and make concessions at that moment, if we are going to make them at all, because it is at that moment when we make them most easily, and with the least sacrifice of revenue and the least disturbance of the financial arrangements of the Chancellor of the Exchequer. In return for what do we pay taxes? In return for the security which we receive from the Government to which we pay them, and for all the benefits which we draw in any shape or form, and as an obligation which we owe as citizens of the country to the common weal and the common defence. The Chancellor of the Exchequer, rightly, under these circumstances, taxes all income which is brought home here and enjoyed here, and therefore is subject to his protection and the privileges which our law and our society and our nationality afford. The Chancellor of the Exchequer under this Budget goes one step further and attaches this taxation to income which is not brought home nor owned by someone who resides here. In the case of that income the possessor owes nothing specifically to the Government of this country in respect of that income which he does not bring home, which is not earned here, and which is not protected by the Government of this country. I am not arguing that the Chancellor of the Exchequer is wrong in doing so. That is quite a distinct question which I do not wish to raise. But I think the House will go with me so far as to say that the income which is earned in another country and remains in another country, under the protection of another country, is not in the same position as income which is earned in this country, or which is brought home to be enjoyed under the protection of this country.

It is not therefore quite sufficient to say, as the Attorney-General did, that we tax the whole income in the one case and that therefore we ought to tax the whole income in the other case. The circumstances of the two kinds of income and the services which the State accords to the citizens are quite different in the two cases. But that is not the whole of the argument. We are dealing in this Amendment with income earned in the Colonies. We are going to tax it in this country. The Colony also has an Income Tax. The double Income Tax is the subject of a difficulty which I, in my official career as Chancellor of the Exchequer had to consider with the Colonial authorities, and I think the right hon. Gentleman has had to consider it as well. I have felt that under the present fiscal relations of the Empire, we had no choice, and that we could not meet the Colonial demand. But the right hon. Gentleman is now proceeding farther in the matter on which the Colonies have already remonstrated. In the case of an income earned in this country you charge on the full income, but is that parallel to what you are doing now on income earned in a Colony? If it is earned in a Colony, that Colony has its Income Tax, and the citizen only gets the income subject to that. You are going to tax this particular class of investment—not only the income which the investor possibly enjoys in this country, but also on the tax he has paid in another country. I do not complain of the system by which a man who earns £1,000 in this country is taxed on that income. But what you are saying here is that if he has an income in another country, where it is subject to the Income Tax of the Colony, even though he does not bring home the money, he is to be taxed here on that income. If you do that, ought you not to tax him on the income less the tax which he pays in the Colony? If he has lived in this country and brought the income home, you have taxed him on the income brought home. What you set out to do was to tax in the same way the man who does not bring the income home, but reinvests it in the colony. But you are going to tax him in a different way from the man who brought the money home. You are going to tax him on the money earned in the colony where it is subject to Income Tax.

It is rather a delicate question. I hope I have made my meaning clear. I think the House will see that the answer given was not a proper answer. There is a real distinction between Colonial income and Home income. There is a case for redress. I do not want to pledge myself to particular words, the effect of which only a lawyer or a draughtsman can exactly measure. What I wish to impress upon the Chancellor of the Exchequer is, that there is a case which he ought to meet, and that now is the time to meet it. When raising new revenue you can afford to give away a little part, but when the whole balance of the Budget depends upon the yield you are accustomed to expect, it is almost impossible for a Chancellor of the Exchequer, even when he realises what is being done, to right the wrong which is being committed. I urge this particular case with the more seriousness because I do feel that there is a danger in our Imperial relations in connection with this delicate question of taxation. I am anxious to say nothing which would make a case against the Imperial Government, or embarrass them in the presentation of the case which has to be met on behalf of this country at any conference, or in any negotiations which may take place. But I do feel that we are on delicate ground, and I beg the Government to walk warily and to make such concessions as are reasonable to meet and to mitigate any sense of injury or any sense of irritation which may arise through our form of taxation.