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New Clause—(Repeal Of 10 And 11 Geo V, C 18, Ss 52–56)

Volume 155: debated on Wednesday 28 June 1922

The text on this page has been created from Hansard archive content, it may contain typographical errors.

The Finance Act, 1920, shall be amended by the omission of Sections fifty-two to fifty-six, inclusive.—[ Sir Arthur Fell.]

Brought up, and read the First time.

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

I moved a similar Amendment to this last year. The feeling against the Corporation Profits Tax has steadily increased and spread throughout the country. The newspapers now understand much better than they did, and even the shareholders who suffer from it are beginning to associate with it the effect which it had upon them. I will try not to repeat what I said last year, but I must shortly explain the facts, and the effect of the tax on the ordinary shareholder. This tax is upon the profits of the company; the debenture and preference shareholders are exempt from it. The whole charge of the tax falls upon the ordinary shareholders of the company. It amounts to an extra Income Tax at the rate of about 2s. in the £ on the profits of the various companies that come under it. There are certain exemptions about which we had a short Debate the other day. The ordinary limited liability companies of this country are all liable to it. It does not matter whether their profits are earned in this country or abroad, or in the Colonies, as so many are, they all have to bear this Corporation Profits Tax if they are registered in this country. In a good many of the Colonies and Dependencies they take into consideration the question of the Income Tax which is payable in England, but in the case of the Corporation Profits Tax they have not hitherto done it. On, therefore, all the profits, wherever in the world they are earned, by limited liability companies in England, falls the Corporation Profits Tax which is exacted from the ordinary shareholders of these companies.

To make quite sure of what the effect would be, or is, I had a long chat yesterday with the secretary of an important and substantial company which, having been a dividend-payer for many years, now pays this tax. I asked him what effect it had upon the ordinary shareholders. He replied that in their case the tax amounts to about £3,500 a year, and that would have admitted a further dividend of 12 per cent. to be paid; so that if the ordinary shareholders had been getting a dividend of 5 or 6 per cent. it would have permitted the company to pay 62 per cent. or 7 per cent. Unfortunately, many shareholders do not know this. Very few shareholders, if they get the same dividend as in the previous year, look into the question at all, and are not generally aware that but for the tax the company might be paying a higher dividend, though it is possible if the company could not pay the same dividend, owing to the Corporation Profits Tax, then those concerned would probably look into the subject and find out what was the cause of the reduction in the dividends. I take it that the greater proportion of shareholders in the country do not appreciate that this falls upon them as an extra Income Tax.

In the company to which I have referred, and which I yesterday inquired into, the tax amounted to an extra Income Tax of 2s. in the £ on the ordinary shareholders, so that they are now paying 7s. in the £ Income Tax, and they do not know it. Last year they must have paid 8s., although I believe the Corporation Profits Tax was not fully assessed. This, then, is the effect of this tax on the ordinary limited liability companies of this country, and it is a most serious effect. I wonder if the Chancellor of the Exchequer or the Solicitor-General has looked into the question of what effect this is having upon the trade of the country and upon the issues of capital which are being made? The effect is very apparent at the present time. It is, I believe, the fact that in the last 12 months there has hardly been an issue made of the ordinary shares of any company, and I believe I am right in saying there has not been one new company which has issued ordinary shares to the public in the past 12 months. That is most extraordinary, and is rendered the more remarkable following the investment boom. In the old days when there were large investments, there would have been hundreds of companies started in the City of London. They would have obtained their capital, and it would have brought business to the City, and trade and profit to this country. In all probability it would have gone further and helped to open up the Colonies and Dependencies, and even foreign lands. The employment of this capital for these purposes in days gone by was provided by these registered limited liability companies. They used to be started in London most successfully, and countries like Rhodesia, Hudsons Bay, and great fields of the world were opened up by private shareholders 'by their investments. At the present time this has totally ceased. There are no new companies at present being started in London. The employment of money has been by way of investment entirely in foreign loans, loans to our Colonies and Dependencies and loans to successful concerns in this country which have made issues of further capital, very rarely have even these successful issues been made by way of ordinary shares. They have limited their issues to debentures or preference shares. Surely, when the ordinary shareholders are feeling the effect of this tax, and are not likely to subscribe for ordinary shares as they used to do in this country, it is not well! There are great blocks of these companies which at different times have been established, and whose head office is in London, who fall under this Corporation Profits Tax. I refer to one class. The great railway companies in the Argentine Republic, Hundreds of thousands of pounds of English capital have been provided in the past, to the great benefit of the Argentines, and a corresponding benefit to the manufacturers and people of this country. A very large amount of this money is represented by the railways. These companies represent enormous sums of English capital and earn a large profit. All fall under this tax. English railways do not fall under it. All these other companies do fall under it. In the case of these companies it amounts to a very large sum.

It must have occurred to the Chancellor and to the Government that, while these limited liability companies continue to work under present conditions, they have only to transfer their head offices abroad — their management is there now—and they would not be liable to this heavy burden. I do not say that arises at the moment, because they had hoped this would be the last year on which this tax would be imposed; but if ever the idea got about that this was to be a permanent tax upon the limited liability companies, then I am quite sure that the present companies will see whether or not they can to their advantage change the status of the company and the locality of its management and register in another country, and consider whether new companies should be registered in this country or be registered in other countries. It is a matter which no doubt the Chancellor of the Exchequer will deeply consider, because I believe that the future of industry and the progress of this country, and even of the Empire, largely depend upon the fact of whether these new issues are to be made in London, under London influence, and British influence, or whether they are to go elsewhere. If it is once realised that this is to remain a permanent tax, not one of these companies, I believe, but will consider the position and see what they will have to do in the interests of their shareholders.

Even in the case of the companies which are earning their money abroad it may be just as well that the management should be abroad as here. Not only would they lose the Corporation Profits Tax if they transferred abroad, but they would lose a large part also of the Income Tax. In cases of that sort the shareholders in this country would still continue to pay Income Tax upon the dividends which they received. In all eases Income Tax paid by an English company is much larger than the dividends paid to the shareholders. That portion must be loss for the Income Tax collectors, as well as for those who take the Corporation Profits Tax if these companies remove their head office abroad. I will not dilate, on that any further, but I will say with regard to the particular class which you are taxing, the ordinary shareholder, that he is the salt of the commercial community. He is the man who takes the risk. He is the man of energy and enterprise. He goes to foreign countries and says: "I believe there is a great future for this country: I will put my money into it, will grow up with it, and my investment kilt increase in value with the growth of the country." These people are those who are being singled out to bear this tax, and they were well described the other day in one of the principal financial papers in the city, from which I will read the following passage:
"Ordinary shareholders, as everybody knows, are the people who take the risk. They are the people who initiate; the people willing to test new methods, new ideas, and new openings. For the rest of the community, through its Government, to impose a fine upon them for so doing, when it is crying out for employment, and paying out in doles for unemployment times over the yield of the fine, comes very near indeed to the limit of imbecility. The effect is not merely to check enterprise; the effect, by heightening the risks and lowering the rewards of enterprise, is to add to the cost of capital for the purpose. The further effect of adding to that cost is to raise the cost of debenture and preference capital pro rata. Thus the very foundation of joint-stock investment is undermined. In short, there can be no sort of question but that alike in limited yield and in unlimited incidental harm the Corporation Profits Tax is a bad tax, and that the sooner it cam be abolished the better."
That is a short summary of the results of this tax. I hope if the Chancellor of the Exchequer cannot do anything to remedy this grievance this year, at any rate, he will be able to tell the business community that this is the last year this tax will be imposed, and that some other way must be found of raising the money which is now being raised by the Corporation Profits Tax. I think this money could be much better raised by an increase of the Income Tax, which falls upon everybody, while this tax falls only on the most enterprising people in the country, and the very people whom the Chancellor of the Exchequer and the Government should do their best to encourage.

I wish to support the Second Reading of this Clause.

I ventured to make a few remarks upon this Clause on the Second Reading of this Bill and the Financial Secretary to the Treasury received my remarks very kindly and agreed to make a slight concession which I see he has carried out by an Amendment which appears later on the Paper, but it only deals with a very small class of companies which are not allowed to use the word "Limited after them. I object to the Coropration Profits Tax on two grounds. The first is that the tax is a bad one; and, secondly, the way in which it is raised is also exceedingly bad. The true history of this tax I have never been able to discover. I know some time ago we were discussing.a luxury tax which was put forward by the Government because there was a suggestion that we might be able in this way to increase the turnover, but that proposal fell through entirely, and the next tax that was produced was the Corporation Profits Tax. I have never yet heard a really clear defence as to why this tax was put on at all.

Let me now deal with the way in which it is imposed. The way you arrive at the profits is, instead of finding out the profits in the same way as you do in the case of the Income Tax—namely, the real profits of a year after deducting expenses, you are not allowed to deduct any interest on a permanent loan. How that proposal slipped through the House of Commons I do not know, and I am certain that few hon. Members know how it got through. In ascertaining the profits of a company you are not allowed to make any deduction for interest on a permanent loan. There is a company in which I am interested, although not financially, which occupies very considerable premises.

Those premises were built and bought with borrowed money and erected in this country, and ever since then this company has occupied those premises, and they have been paying interest on their permanent loans. Each year they have not, been able to make a profit. It is an education establishment, and there is no difficulty in making up the small details of the business. Since the Corporation Profits Tax came into being, owing to this extraordinary Clause in the Finance Act which by this proposal we are seeking to repeal, this company is not entitled to deduct a single penny on account of the interest on their permanent loan, and the company now have to pay £500 by way of the Corporation Profits Tax on a concern which has never made a profit and is never likely to make a profit. I put that case forward because it shows that there is something wrong with the tax, and a case of that kind ought to be exempted even if the tax cannot be abolished altogether. I can give the exact figures if it is thought necessary, but the Chancellor of the Exchequer knows the case to which I am referring. This is an instance of a considerable sum of money having been spent on the buildings. The people have occupied them and no sum is allowed to be deducted for what really is the rent of the premises where the business is being carried on. As regards the tax itself, let us see how it affects people. It is really an Income Tax of so much in the £ upon the interest of the holders of ordinary shares, and it is levied upon every holder of ordinary shares, irrespective of whether they are exempt from taxation or not. Take the case which I know this House always likes to hear, that is the case of the widow or orphan whose total income is only £150 or £160 a year. She is exempt from the Income tax altogether by the law of the land, but if she has the misfortune to invest her savings in the shares of a company then she has to pay the Corporation Profits Tax at 5s., 6s., or 7s. in the £.

It is obvious that this is an unfair tax, because there are no exemptions under it. There are exemptions under the Income Tax up to £1,000 or £2,000, but there are no exemptions under the Corporation Profits Tax. Even from the point of view of the Income Tax there is not the slightest doubt that a very serious injustice is being done to those who are now getting remissions under the ordinary Income Tax, because they cannot get any remissions under the Corporation Profits Tax. My hon. Friend has pointed out the effect upon the big companies of this liability and the prospect of the Chancellor of the Exchequer losing a very considerable amount by this proposal. I am familiar with many trading concerns in England in the form of partnerships. I know that it has been the policy of this House in the past to encourage partnerships in every way. The policy has been to turn these partnerships into limited liability companies, and the idea has been to get them to do this. The Government gain by this policy, because the stamp duty in the first place is pretty considerable, and there is also Income Tax paid on the profits of the company. Therefore, for some reason or another, it has always been thought desirable to turn their businesses into a limited liability company.

I have known one or two instances since this tax was first imposed of people turning their businesses into limited liability companies, but directly they do it they have this tax put upon them in addition to their ordinary taxes. I know the case of a large printing works which is run by two or three brothers, and not only have they to pay large sums in the way of the stamp duty, but they have to pay this Corporation Profits Tax in addition to their ordinary taxes. I am only putting forward the case of small trading companies carried on exclusively in England, and even from that point of view I ask is it a wise thing to keep on this tax, which is a very bad one. I strongly appeal to the. Chancellor of the Exchequer to see whether if he cannot abolish the tax he can at least do away with some of the injustices I have mentioned. I hope he will be able to make a bold sweep and have done with this tax once and for all.

In addition to the objections which have already been raised to this tax I want to call attention to another, and that is the unequal incidence of this tax between one industry and another. A most striking example is the case of the Port of London. The business of that port has been divided between the dock companies and the wharfingers. That has accentuated the situation because the dock companies are immune from the Corporation Profits Tax, but the wharfingers have to pay the tax. The same thing happens with regard to a large number of other companies carrying on very extensive operations. I wish to call the attention of the Chancellor of the Exchequer to this point because, in addition to the argument that this is a very heavy tax, there is the point that its incidence ought to be fair and equal. I think that is another reason why this tax should disappear altogether next year.

It is very clear that in the present state of our national finances the Chancellor of the Exchequer cannot afford to repeal this tax, and therefore this discussion may, to some extent, be considered as purely academic. The larger the sum involved the more important it is that we should ascertain from the Chancellor of the Exchequer here and now whether he intends to make this tax permanent or not. That is really the question we wish to put to the right hon. Gentleman now. We do not intend to divide upon this proposal because we know it is impossible for the Chancellor of the Exchequer to do without the money.

5.0 P.M.

When the tax was first imposed, in 1920, I opposed it in common with other hon. Members very strongly indeed. There is not a good word to be said for it. It is an absolutely unjust tax. It is unequal, and that is, of course, a great test of taxation, because it does not apply to all limited companies. The only excuse given by the then Chancellor of the Exchequer, the present Lord Privy Seal, for bringing it in was that inasmuch as in 1867 limited liability companies were allowed to be formed to limit their liabilities, therefore they ought to be taxed for that privilege. Members of the House could not see any reason in that. On the contrary, bearing in mind public policy, it should be a ground for the remission of taxation, because limited companies facilitate very much, not only the obtaining of revenue, but the actual collection of it. It was accepted in 1920, undoubtedly because it was absolutely necessary to raise more money. The Chancellor of the Exchequer and his predecessor had stated perfectly clearly that the Income Tax was so high that it was impossible to increase it. It was higher than it ought to be and they could not increase it. But they had to get money somehow and so they brought in this Corporation Profits Tax, on the flimsy pretext I have mentioned in regard to what occurred in 1867. The real reason, however, for it was the need for money, and it, is a double Income Tax on a limited class of people. Hon. Members who have spoken have given very weighty reasons for the repeal of this tax and have even suggested that it would have been better to increase the Income Tax than to continue the Corporation Profits Tax.

Instances have been given of hardship to individuals. Two years ago I mentioned in this House the effect on the Lancashire cotton trade. An enormous number of the working classes have shares in the mills in which they work. They are not liable to Income Tax, but they have to pay it in the shape of this Corporation Profits Tax, and from it they are unable to get relief. If it had been in name what it is in fact, an Income Tax, they would have got relief and the money would have been returned to them. But as it is, this Corporation Profits Tax is deducted from the interest on their very small investments, although they are not liable to Income Tax at all. I ventured to prophesy when the tax was introduced that it would be continued. It is a tempting tax for the Chancellor of the Exchequer, because it is so easy to collect. I also asserted my belief that it would be increased as time went on. I still believe it will be if this House suffers it to continue. I seriously warn the Chancellor of the Exchequer that he will find an enormous amount of opposition to this tax in the future. He may say he wants money and must have it, but eventually the House will insist on it being raised in a more equal and just way, from the whole of the public and not from a section of limited companies, and from one class of shareholders, the ordinary shareholders in these companies.

This matter was considered by the Income Tax Commission on which I had the honour of serving. I cannot now vote against the Government without giving a reason for my action. We who sat on the Income Tax Commission for two years tried to arrive at some basis on which taxation should be raised according to ability to pay. The matter was worked out in great detail, and the recommendations of the Commission were accepted by the Chancellor of the Exchequer and by the House, and have been almost entirely embodied in our Statute law. At the very moment when the bulk of those recommendations on the basis of ability to pay were being accepted by the House, this entirely new tax was imposed without any regard whatever to the principle of ability to pay, and thereby the whole of our calculations were upset. The only ground on which I understood this tax was imposed was that in the consideration of Income Tax by the Income Tax Commission, one of the points we had great difficulty with—and this will be within the recollection of the Committee—was the question of charging Income Tax upon co-operative societies. In the evidence they gave before the Income Tax Commission, those who represented the great co-operative societies stated that if a Corporation Profits Tax were imposed they would he perfectly willing to pay it.

Acting no doubt on the faith of that statement, the tax was introduced into this House, and immediately the representatives of the co-operative societies raised such strong objections and such an outcry against being asked to pay it, although they had actually given evidence before the Income Tax Commission that they would be prepared to pay, that they were exempted. Thus the whole object of the tax fell to the ground, and other people who are already paying the Income Tax are now burdened with this tax. On the grounds I have stated, I cannot vote with the Government on this occasion unless we get some assurance that this tax is regarded as a temporary tax. I understand, of course, that the present Chancellor of the Exchequer was not responsible for it, and that he has to face an extraordinarily difficult financial position in which he has the support of every member of this Committee. If he will say he recognises the justice of our claim, but that he cannot take the tax off now, because he must get money, and yet he regards it as a temporary tax, then I shall feel I can go into the Lobby with the Government. But if this is to be a permanent tax, for the reasons which have been given by hon. Members on both sides of the Committee, then I shall certainly vote against it. I want to get an assurance, however, that it is to be regarded only as a temporary tax.

We have been told that the object of this tax in the first place was to get more money. That, I think, is the origin of most taxes imposed by Parliament. Like other speakers, I am well aware that the Chancellor of the Exchequer needs every penny he can get in order to balance his Budget in the present financial year, and on that ground, if I could get some assurance from the right hon. Gentleman that this tax is not to be a permanent tax, I might be inclined not to vote against the Government. But I am going to vote against it, because, to my mind, the continuance of this Corporation Profits Tax involves a breach of faith with the retail trading community. The retail traders got a certain pledge, or, rather, an undertaking from someone in the right hon. Gentleman's office last year in regard to this tax. I think it was the Financial Secretary who assured them that if the tax were kept on this year, the Government would assess to it the co-operative societies.

May I say at once that nobody in my office ever gave any such pledge.

That is the story which is told to me. It will be in the recollection of the Committee that last year when this tax was being discussed, there was an Amendment down to exempt the co-operative societies from its operation. After all, it was a comparatively small sum which those societies were called upon to pay—I think it was about £180,000—but they turned up in full force against, it, there was hardly a Member on the Committee who was not lobbied, excepting perhaps myself, whom they knew of old. Some of us were told by the Whips on that occasion to be back from dinner by 9.30, but when we got back at that hour we found that a Division had been taken and that the Government had been defeated by two votes. As a result, a deputation went to the Treasury on behalf of the retail trading community, and, as I am informed, they saw the Financial Secretary to the Treasury, who gave them a pledge or, at any rate, who gave them to understand that the Government were so nettled at their defeat that they were considering whether they should not recommit the Bill or else, if the tax was continued in the next Budget, assess the co-operative societies to it. Fortified with that pledge or understanding the deputation left the Treasury, but to their astonishment when this Budget came along they found in it no mention of the co-operative societies or of their being rendered liable to it. The retail trading community feel that they have been let down by the Chancellor of the Exchequer. I can speak with some authority for them, and I say that they feel this very acutely.

At any rate, they have been led to believe that that was the understanding arrived at and they are extremely angry with the Treasury because it has not been given effect to. I am sorry that the Chancellor of the Exchequer or someone at the Treasury could not have received a deputation from the retail traders before this Debate. They should, at any rate, have done so, and told them that they had been misinformed. They should have told the deputation frankly that they could not do this thing and that the Chancellor of the Exchequer declined to raise a hornet's nest about his ears by bringing the co-operative societies under the operation of the tax. The right hon. Gentleman has not done that, and as one speaking on behalf of the retail trading community, I intend now to vote against the Government.

I do not think I have ever concealed from the House of Commons the fact that I am not at all enamoured of the Corporation Profits Tax. I entirely agree with much that has been said to the effect that it is a burden on the industry of this country and a check to enterprise. All taxation has to some extent the same effect. Undoubtedly a very high Income Tax and a high Super-tax produce that result to- day to a degree which disturbs the equanimity of everyone who is interested in the subject. Accordingly, as has, I think, been well recognised by Members of the Committee on the present occasion, it would be quite impossible for me to give up this source of revenue just as it would be impossible for me to give up many other sources of revenue which are at least equally burdensome. For example, I have no doubt that I should shock my hon. Friends opposite if I said that I regard the extent of Super-tax at the present time as one of the greatest burdens upon industry—as even more burdensome than the Income Tax. It may seem to be something like a paradox to say that to take away money from those who seem to have it in excess, is a course of action which can be readily defended as expedient and profitable, but that really you are taking away money from the people who have shown that they know how to use it and how to make it fructify. I venture to say that, paradoxical as it may seem, one of the heaviest burdens upon industry to-day is the grevious extent of the Super-tax. I cannot, however, give up any portion of the Super-tax at the present time, as I am sure hon. Members will readily realise: nor can I give up the Corporation Profits Tax; but I should be as sorry as anyone who has spoken this afternoon if I were to think that the Corporation Profits Tax had taken any permanent place in our system of taxation. It can only be regarded, at the best, as a second-rate tax, if it even amounts to that; but, as I have said, the considerations which move one in dealing with taxation at the present time are rather such as compel one to adopt expedients that are ready to one's hand, in order to meet the exigencies circumstances over which we have not sufficient control.

Having said so much, I hope I have satisfied hon. Members with regard at least to my own personal opinion on this matter. I cannot give anyone's opinion but my own, but I readily assent to the general principle with regard to the Corporation Profits Tax. I agree also that to some extent it forms a double Income Tax upon a certain portion of the community, although I believe some modified justification can be given for it even upon that score, if it be remembered that, perhaps, there is an oppor- tunity of treating it as a working expense, and, to some extent at least, passing it on to the consumer—the person who buys the goods. That is not by any means a full justification, but it affords some sort of excuse and explanation as to this particular tax. It was said—I think by the hon. Member for Oldham (Sir E. Bartley-Denniss)—that no sort of excuse has ever been made for this tax. While I agree with a certain amount of the criticism that has been made, I do not entirely accept that statement. A certain measure of privilege is obtained by limited companies, by reason of the fact that their shareholders are not liable to the same extent as if they were partners in a private business. That, no doubt, has been a great advantage to trade, but, at any rate, the privilege must be recognised when one is dealing with this matter. I do not, however, want to delay the Committee by presenting that consideration further, but I should like for one moment to advert to something that was said by my hon. and learned Friend the Member for Cambridge University (Mr. Rawlinson). He instanced the case of a private partnership of several brothers who were contemplating the possibility of turning their business into a private limited company, but who were deterred by the operation of the Corporation Profits Tax. What is the balance of considerations, for, believe me, they are not all on one side? The private partnership has to pay Super-tax upon its income. The private limited company has not to pay Super-tax on anything it puts to reserve, and, therefore, it escapes a burden which is imposed upon the private partnership. I can imagine two or three brothers balancing these considerations and saying to themselves, "Can we better afford to bear the Super-tax as a private partnership, or the Corporation Profits Tax as a private limited liability company?" And, in cases where the private partnership was a very lucrative concern, it would, in my view, pay them better to become a private limited company, with the necessity of paying Corporation Profits Tax, rather than to remain a private partnership with the burden of Super-tax upon them. It altogether depends, of course, upon the financial condition of the firm and the rate of profit-making which it is enjoying at the time.

The illustration I have given will have brought home to the Committee the fact that there is at least this one justification for the Corporation Profits Tax, that the private limited company, while it has to bear the Corporation Profits Tax, is at least escaping a burden which it would have to bear if the business were being carried on as a private partnership. As I have said, these are excuses and explanations, and I have assented quite frankly and candidly to the main proposal, that it is at the best a second-rate tax, and that it should not become a permanent part of our system of taxation. I now turn to a less pleasant matter which was raised by the hon. and gallant Member for Finchley (Colonel Newman). The hon. and gallant Gentleman complains that the Government has been guilty of a breach of faith towards the co-operative societies.

Towards the retail trade. No such attack upon the Government has any foundation whatever. Let me recall to the hon. and gallant Gentleman what happened last year. It is not any use saying that he was away at dinner. That kind of excuse is not of any value in the House of Commons. The situation was that the Government proposed to apply the Corporation Profits Tax to co-operative societies, in accordance with what seemed to be a recommendation—although it is now disputed by the co-operative societies—of the Royal Commission on Income Tax; but a very eloquent and powerful case was made by my hon. Friend the Member for Linlithgow (Mr. Kidd). He put forward the same case the year before and failed, but he put it forward again last year and got a great accretion of support, with the result that the Government was defeated, and we had seriously to consider whether we should accept that defeat as so serious as to give rise to consideration whether we could carry on with the Finance Bill or not. It is no use saying that that defeat occurred when a certain number of people were away at dinner. Many may have been away at dinner, and, although my hon. and gallant Friend would, as I understand, have voted with the Government on that occasion, many other people who were absent might have voted the other way. The fact was that in a large House—it was by no means a, small Division—the Government suffered defeat. What happened thereafter? I am very familiar with the circumstances, because it was my first Finance Bill as Chancellor of the Exchequer, and I think my hon. and gallant Friend will take it from me that I did not regard that defeat lightly. I had made the best case I could to a large House, and had been defeated. That is how the matter stood, and that is the fact which must, be considered in relation to the decision. My hon. and gallant Friend says we have been guilty of a breach of faith by not coming to the House to ask it to reverse that decision.

No. May I interrupt for just a moment? The right hon. Gentleman missed the point of my complaint altogether. My complaint was not that the Division was taken while I was at dinner. That has happened in other cases, and I am only sorry for my own negligence. But subsequently, either the next day or two days after, the Financial Secretary to the Treasury received a deputation representing retail traders, and gave them to understand that either the co-operative societies would be assessed to Income Tax or else that the Corporation Profits Tax would be repealed altogether. That is what. I complain about.

I am prepared to say with complete confidence that not only was no such pledge given as my hon. and gallant Friend suggests, but that nothing approaching any sort of understanding upon the matter could possibly be founded upon what was said by my hon. Friend the Financial Secretary to the Treasury, upon whom I have as great reliance as upon myself, and who knew my views. As the person who is alleged to have come to this understanding, he has denied it. I accept his denial, and I should expect my hon. and gallant Friend to accept it also.

I am familiar with the circumstances, because I have heard this suggestion before. The question has been asked on the Floor of the House, and the denial given. Why the suggestion should be repeated I cannot tell, but I think it is not out of place for me to tell the Com- mittee that, after the Division to which I have referred, I was approached by a representative of the retail traders, whose complaint to me was that the Government had deliberately engineered the Division in order to let them down. If that be the class of accuracy, or the attitude of mind with which these people are going to approach this matter, the Committee will forgive me if I ask them to accept the version of the, Financial Secretary to the Treasury rather than that which has been given by my hon. and gallant Friend, which is a complete travesty of the facts. There was no suggestion whatever on the part of the Treasury that this matter was going to be reopened, and I hope I have now laid the matter to rest. My hon. and gallant Friend says that the retail traders of this country are a very large body. I agree, but, however large they are and whatever voting power they control, we really must be honest with each other and state the facts with accuracy. I think I have dealt with all the matters that have been raised—

Will the right hon. Gentleman deal with the question of the Argentine railways?

And also with my other point as to whether he can see his way to make any concession as regards interest on permanent loans?

I beg my hon. and learned Friend's pardon for not recollecting that that was one of the matters which he raised. I readily understand the difficulty of the particular case to which he refers, where permanent loans are raised upon buildings and lands which, as I understand, were purchased with borrowed money. The reason, as I understand it, why the provision about permanent loans was inserted in the Clause dealing with this matter in the original Act, was in view rather of debenture issues than of any permanent loans such as my hon. and learned Friend has referred to. To anyone conversant with money matters it will be apparent that by means of debentures the imposition of the Corporation Profits Tax could, to a large extent, be evaded if interest upon debentures were to be exempted from the tax—or, as I should rather put it, if it were to be allowed as a working expense before arriving at the amount which ought to be assessed to the tax. My hon. and learned Friend, who is familiar with these things, will readily see how that position could be abused, but I shall certainly, in accordance with his request, look into this matter of permanent loans of a public character, and if there is any way in which I can alleviate the position, without infringing upon the general necessities of the situation, I give my hon. and learned Friend the assurance that I will do so.

Will the right hon. Gentleman deal with the question of small shareholders who are not liable to Income Tax?

I am afraid I cannot give any answer upon a specific matter which has not been brought to my notice sufficiently early for me to get information upon it, and that must be my reply to my hon. Friend the Member for Yarmouth (Sir A. Fell). As regards the suggestion of the hon. Member for Oldham (Sir E. Bartley-Denniss), I am afraid I could not undertake at the present time to carry out the proposal he commended to me.

Question, "That the Clause be read a Second time," put., and negatived.