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Clause 22—(Payments To Superannuation Funds; &C, In Respect Of Back Service)

Volume 390: debated on Wednesday 2 June 1943

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In calling upon the hon. a9nd learned Member for Montgomery (Mr. C. Davies), I would like to suggest that we might have a wide discussion on the principle, on the first of his Amendments and that standing in the name of the hon. Member for Northamp- ton (Mr. Summers). Later, particular Amendments can be moved, if hon. Members wish to secure some small points, but there can be no further general discussion.

I beg to move, in page 13, line 17, to leave out from "in," to the end of the paragraph, and to insert:

"addition to the ordinary annual contribution or premium payable under those arrangements."
I thank you, Mr. Williams, for your suggestion. It will meet the general convenience of the Committee to have a general discussion upon the Amendments standing in my name. Both they and a new Clause proposed in my name are framed to settle what rule is to apply to money set aside for superannuation funds by private companies. The Clause provides certain rules. My Amendments provide a different rule and the Amendments in the names of some of my hon. Friends are a mitigation of the rule in the Clause. The Amendment which I am now moving is the main Amendment. The others will be consequential.

The provision of pensions is a development in industry, and a very desirable development, which has made very big strides during the last 20 or 30 years. It has a quality rather like mercy—it blesses him that gives and him that receives, for the benefit both to the employer and to the employee is obvious. It puts in the mind of the employee a certainty that when he reaches old age he will not be faced with a miserable 10s. a week old age pension on Which to exist. So far as the employer is concerned, he gets employees who are satisfied, and there is, more or less, a sort of working partnership. If there has been a tendency during the last three or four years to set aside more sums for this purpose, I do not think it is with any intention of avoiding either Income Tax or Excess Profits Tax. I think it is really due to greater co-operation between employers and employees, and to greater consideration being given to the employees than was ever given before.

If such sums are set aside for the purpose of evading tax, then the Chancellor already has his remedy under Section 35 of the Act of 1941. Further, if a man desires not to contribute to the State, in the form of Excess Profit Tax, the profits he has made over and above the standard profit, he can do so by taking a short line rather than a long one. Under the Bill as it stands, if he puts a sum on one side now, with a view to providing pensions, he comes within this Clause. But if he says that in the circumstances he is not able to do so because he will be bearing the extra tax, he can avoid all this by increasing the wages of his employees straight away, or by giving them extra bonuses, coupled, perhaps, with an expression of the hope that they would use the money in a proper way and put it on one side so as to provide for old age, though he could not compel them to do so. That is a shortsighted policy. No one will approve of that. The only objection there can be to setting aside a sum of this kind is that the sum set aside is too large or that the sum is set aside for the purpose of evading Excess Profits Tax. Both these objections can be met. So far as evasion is concerned, it is met by Section 35 of the Act of 1941. So far as overdoing it is concerned I hope that my Amendment would meet that condition.

I think it is important we should consider how these funds are created. When an employer starts a fund of this kind it has to apply to the whole of his staff, whatever their ages and however long they may have been working. Usually he begins by saying, "I will put aside the equivalent of a percentage—say 5 per cent.—of the wages, and you will from your wages pay an equal amount of 5 per cent. These two put together in course of time will provide a proper pension for you at the end of your employment." If the fund remains in existence, say, for 40 years then all will be well. The amount of pension then paid out will be adequate to meet ordinary circumstances. But unfortunately people are of varying ages, and you may get a man who has contributed for only a year and has then reached the age when he can work no more. On the percentage given by the employer and that given by the employee, the amount available to the employee retiring at the end of one year, or five years, or even 10 years, would be negligible and not worth while. So the employer sets aside out of his own pocket, a sum to meet such cases.

He can do this in one of three ways. One way is to say, "I shall provide for you a pension at the time when you come to retire." The disadvantage of that is that the question of whether it is available or not when the employee comes to retire, depends upon the stability of the employer and what he is making, not only when the pension comes to be paid but during the whole period in which the pension has to be paid. There are two other ways. First the employer can set aside a lump sum, put it in the hands of trustees as a pension fund. It is thus earmarked for the particular purpose of paying pensions and cannot be touched for any other purpose. Secondly, he can pay a sum to an assurance company; he can go through their actuarial tables, work the thing out, and say, "When my people retire you will pay a particular sum in pension." Those are the two methods against which this Clause is aimed, as it stands at present.

It will probably be convenient for the Committee if we consider why these payments are covered by this Clause. The very title of the Clause shows what is in mind:
"Payments to superannuation funds, &c., in respect of back service."
The objection is to these sums being set aside, because it is said they would be used in respect of back service. That is a complete misconception of the position. There is no legal right of the employee to claim for back service over and above his wages which have been paid to him week by week. He has made his contract of employment whatever it may be. It may contain no clause, with regard to the provision of a pension but only for the payment of a weekly wage; it may contain a clause with regard to the provision of a pension and it is now desired to increase the pension, and it is increased from a certain day forward. No employee up to that moment, at the time the fund is created, has any right to claim for back service. Therefore, no action would lie for it, and the employer could not be sued. What has happened is that at the moment that fund is set aside and put in the hands of trustees a new agreement is then in existence between the employer and employee for future service. The consideration can only be for future service. The real consideration, of course, is that it makes the older employees as satisfied as the new ones who are coming along; and therefore, there is a better atmosphere throughout the works.

Yet, contrary to all our common law, and also, I might say, contrary to all reason and common sense, the Treasury in this Clause attempt to go behind all that, and treat the new contract as relating to back service. What happens is that when the employer puts down the sum of money, he wants a fair pension distributed among his employees, and he will say, "In computing that pension, there shall be taken into account the number of ears you have served in the past." That is not the only computation he will make—very often. it will depend on the position of the man at the time of his retirement—but this is one of the ways in which the computation can be made. What is the present law? It is contained in Section 33 of the Act of 1940. Prior to that Act, all such payments were allowable in computing profits. But under that Section in computing profits for any year only such payments are allowable as the Commissioners think reasonably and properly attributable to that year, and any payment in excess of what the Commissioners regard as resonably attributable to that year shall be attributable to other years, just as the Commissioners think fit. That means that, instead of taking the lump sum which the employer had set aside, and taking it away from the gross profits for that year, the Commissioners are allowed to split it, and to attribute it to a series of years. One would have thought that the Commissioners would have said, "We will split it up over the years ahead." That is 'precisely what they did not do. They saw the words "back service," and said, "We will now split it backwards." That reopened all the assessments, leaving a state of uncertainty and chaos throughout the country. There was a storm of protest, which was so great that at last the Commissioners themselves set down a test case.

That came before the Board of Referees, and the Board decided that that method of splitting and counting back was wrong. The right way of doing it was to count it on the years ahead. The Board of Referees said, in that instance, "Just for that particular case, the right way to divide it is the way we have hitherto done in regard to Income Tax, and we will apply the same rules." While that case was waiting, a number of people settled their cases with the Treasury. The Exchequer then said, "We will not allow this sum as a deduction at all for this particular year or for any future year." That was bad enough. But they went further and said, "Now that you have paid it, and cannot touch it again, you have, to that extent, reduced your working capital, and so your standard profits will be reduced, according to the statutory percentage of reduction, so that in future years your Excess Profits Tax will be all the greater, because' you have this year set aside this sum." So it was a double penalty. The Chancellor of the Exchequer was asked a Question by an hon. Member, and he replied that this was the practice of the Income Tax Commissioners. Unfortunately, there had been a case which rather reversed that, but he proposed to introduce a Clause which would reestablish this practice—which had been in existence only six months—as the right practice. That is the reason for this Clause.

If the Clause becomes law, two results will follow. Not only will the payments be disallowed for that particular year, but, as I have explained, the working capital will be reduced, and, therefore, the statutory standard will be reduced. If the employer has been accustomed up to the present to pay the pensions by an agreement, those amounts can be deducted. Now, instead of doing that, he sets aside a sum, and gives it to an insurance company, and tells them to pay the pensions in future. Three things will happen to him. That sum will not be allowed as a deduction in finding out what his excess profits are. His capital will be reduced as a result, and his profits will be reduced, because he is not paying the sum, but the insurance company will be paying it. I am sure that the Treasury have not realised another effect of the Clause. The cheater, the evader of the tax, is better off under the Act of 1941 than the honest man trying to work a proper scheme under this Bill. A man trying to dodge the tax sets aside this sum for that very purpose. Under Clause 35, his dodging can be disregarded. The sum is then. regarded as being still in his possession, as if he had never paid it out, so, in his case, the only result will be that, for the moment, that sum will be treated as part of his profits. But in future, in as much as it is treated as never having been paid out, his working capital will remain the same and so his standard profits will be kept up. Therefore, I presume that the Treasury in future, in order to get more Excess Profits Tax, will say, "Although this fellow is a criminal, an evader, and a dodger, we will say nothing about it, because it is better to treat him as an honest man and get more."

Under the Clause as it now stands the punishment for the honest man will be much greater, because his standard will be reduced by the amount of' capital, and in future the difference between standard profits and the profits he is making will be all the greater. I am sure that that is not what the Chancellor desires. He is fair and reasonable, and I know that when these matters are pointed out to him he likes to go into them with the very greatest care. I am proposing in my Amendment that the sum which has been put on one side shall be treated as a payment but not for that one year; that it shall again be split and divided in the following years in the same proportion and according to the same tables as one assesses what the capital sum you are paying in would have to be in order to provide these pensions. There are actuarial tables used for that purpose, and these could be applied in exactly the same way. The spread would be forward instead of backward, and the Chancellor would get a fair proportion of the profits in future years.

One alteration I have made is this, in case it should happen, and it could only happen in a very few instances. There are a great number of older people in a particular firm who will suddenly come upon the fund in the next three or four years, and it would not be fair that the spread-over should only be for a year or two, and I have suggested that the minimum should be seven years. That again is a matter for the consideration of the Chancellor. I suggest—and I hope there will be a discussion in Committee on this —that the Chancellor should hear what the Committee has to say on these matters and take them into consideration between now and the Report stage.

I am glad that it has been thought fit to give considerable scope to the one discussion and to take the discussion on a number of Amendments to this Clause simultaneously. The Mover of the Amendment that has been called described the Amendment standing in my name as modifying the effects of the Clause devised by the Chancellor of the Exchequer, but that is true of all but one, for there is one Amendment which seeks to cut out the entire Clause. I hope that it will have been apparent that great exception is taken to this Clause from many points of view. I do not propose to burden the Committee with an analysis of the amending of the Clause as it stands, for we are indebted to the hon. and learned Member for Montgomery (Mr. C. Davies) for a very fair exposition on that score. There are one or two points I would like to add, and I would also like to emphasise some of the fundamental principles which I believe are worthy of the attention of the Committee. He showed how, on the merits of the cases which have come before the Treasury, they took the point of view that payment in connection with these pension schemes should be spread backward over the years that had already past rather than forward. He pointed out how that was a false assumption in his mind, because there were many other considerations beside the number of years the employees had spent with the firm which it was proper to take into account.

Many of the pension schemes for Government servants, I believe, take great account of the remuneration of the employee during the last year of his service, and that in itself may affect at least as much what his pension shall be as the number of years he has served. But apart from the actual merits, what seems to me a very dangerous precedent is where there is conflict of opinion as to what is a reasonable thing to do between the Treasury on the one hand and the citizen or company on the other, and the independent tribunal or court of referees gives a ruling; and the Government at a later date come forward and introduce a Clause in the Statute to override the opinion of that tribunal and make the original opinion of the Treasury valid. I understand that where the referees are obliged, because of the nature of the wording of the Qause, to find in favour of the company or citizen, that clearly demonstrates that a change in law is wanted and that to avoid the technical point there is good reason for a fresh Clause. But in this Clause it was not some technical quibble or action which the original drafters of the Clause failed to take into account, but it was a studied argument as to whether a back- ward spreading or a forward spreading is ,the proper method to be adopted. Therefore it was not a quibble in any sense at all.

There is one point, however, in connection with the case which went to the referees which I would like to bring out. Having decided that it was proper in their view to spread the lump sum forward, for want of a better reason, they said they would follow the practice of Income Tax and divide the lump sum payment over six years. But that was, in my view, unduly generous and meant that if E.P.T. were retained for six years, the entire lump sum would be absorbed at the expense of E.P.T. Therefore in any fresh method that may be devised it seems a fair proposition to the Treasury in this instance to spread that sum over many more years than six because that will represent more accurately the number of years put into the fund to make up what the employee himself has been unable to find.

The Mover of the Amendment showed how it was possible for a company which wished to escape E.P.T. to distribute its profits and at the same time to appease its employees by increasing wages, whereas there are many good reasons why it could equally achieve the same result by introducing a pension scheme. Whereas on the one hand the high wages would be absorbed at the expense of E.P.T., under this Clause the pension scheme is at the expense of back wages. In these times—and we are speaking of war-time and E.P.T. conditions—the one form of increased advantage for services rendered which it is desirable to make is that of a deferred payment rather than one which puts additional money into people's pockets to spend against inflation. Therefore, by making it less attractive to introduce a pension scheme than put up the wages, the Chancellor is himself encouraging a policy directly contrary to tax that he is advocating in connection with inflation.

There are one or two other points upon which I must touch and which have not been mentioned as yet, and I am doing my best to avoid repeating much of what has already been said. There is a very strange reference in Sub-section (1, b). It has been pointed out already that the Treasury have reasons why back-spread- ing should be the practice in reference to back service. But here in this Sub-section they go to the length of assuming that back service for the employer is that service which was Trade to another employer before he joined the company issuing the pension scheme. It says in Sub-section(I, b) that this arrangement is
"in respect of back service (whether rendered to the person carrying on the trade or business or not),"
This means that if a man joining the company now issuing a pension scheme has had two years with him and 20 years with his predecessor this 20 years may be taken into account in assuming the amount of back service which may be taken into account.

There is another point. There will be companies which started pensions schemes maybe 10 years ago and as a result of their experience have found it necessary to pay some additional sum to insurance companies or add to the fund they themselves have created to make a proper actuarial balance. That is in no sense related to the current basis. The scheme was there many years ago. But a new payment is not to be related to the old pensions scheme and treated as such, but is to be treated as something entirely new, which penalises a firm for a scheme which has not been introduced now but which might have been introduced 10 years ago. The joining of modifications of an old scheme with an entirely new scheme seems to me an unreasonable way to go about it. I would like to draw the attention of the Committee to the strange wording which appears in Paragraph (ii) on page 14 of the Bill. There the question is what tax it would be proper to take into account. The remarkable statement is made in the paragraph that
"statements of the parties concerned …shall not be taken as conclusive."
I have never heard it suggested that any of this Clause is deliberately pointed at people seeking to avoid their obligations, but the wording here can be construed, in my submission, to mean that a perfectlybona fidetrader, bringing forward evidence to show that he is bona fideand that he is completing negotiations which have been on hand far some time, will have that evidence ignored. These words strike me as very strange in this context.

I would like to conclude by emphasing the fact that under this Clause as it stands a bona fide trader, anxious to follow a policy, which is recommended on all sides and by Sir William Beveridge, of introducing a pensions scheme and adding all such amounts as the State may think it proper to provide, is liable to be in a worse position than a criminal who deliberately sets out to evade E.P.T. I hope the Committee will not consider that the challenge made to this Clause in its present form is an attempt on the part of those interested in it to have lump sums which have been spoken of completely paid at the expense of E.P.T. There is no such suggestion. It is thought proper that some part of the lump sum should be taken at the expense of E.P.T. The Amendment suggests that that part should be the amount represented by the actual pensions paid, and I for one regard that as a perfectly reasonable method. There will also be a twentieth part by deciding that the lump sum shall be spread over a period of 20 years hence. There are various ways in which it can be done, but some part is a proper charge without seeking to get behind the spirit of the Excess Profits Tax as such. I hope the Chancellor will take into account the views which have been put forward and show that he is not desirous of penalising reasonable and progressive bona fide firms to a degree which a criminal himself is not called upon to bear.

It may be convenient if I say a few words on this matter now, but before I do that I would like to tell the Committee that I think it would be for the convenience of everybody if we did not proceed any further with the Bill to-day than the consideration of its Clauses and take the new Clauses on our next Sitting Day. I think that would enable us to finish in reasonable time today. We have made very good progress, and I do not want to press the Committee to sit late. I think this arrangement will not make an undue tax on the patience and efforts of the Committee, to whom I am obliged for the progress which has been made so far.

In regard to this Amendment, I would propose that after hearing anyone else who wishes to speak on it that I should take into account any suggestions which have been made, and which might be made, in relation to this Clause between now and the Report stage and consult with those who are particularly in- terested, to see whether there is any way in which the suggestions can be met. That will relieve the Committee of the necessity of going through the detailed Amendments on the Order Paper. Hon. Members can be assured that I have only one object, namely, to confer with anybody interested in the subject to ensure that the right and fair thing shall be done by the taxpayers of this country.

Anyone who has heard the observations of the hon. and learned Gentleman the Member for Montgomery (Mr. C. Davies) and my hon. Friend the Member for Northampton (Mr. Summers) might well say, "What is all this about? How reasonable these two gentleman are What is behind all this? Why is the Chancellor taking such an acute interest in these matters? It seems to be very unnecessary interference when everything is going smoothly. Why is all this happening?" There was nothing in their speeches which gave an indication to the Committee of what all the trouble was about. My conclusions on the matter are these:

There is no attack whatever on the principle of superannuation funds. We are only too glad, from the point of view of the Exchequer, to see them established, but we want to see them established under proper and fair conditions. We do not want to see the occasion seized as a means of making the great bulk of the payments at the expense of the Exchequer and the taxpayer. In other words, if you are going to do the fair thing by these funds, a proper allocation must be made and undue advantage must not be taken of the situation of zoo per cent. Excess Profits Tax. That is all that actuates me in the proposals of this Clause. Its object is, in the case of a tax which depends upon a comparison between the profits of the chargeable accounting period and those of the standard period, to prevent the undue loading of any period with more than its fair proportion of the total cost of making provision for a pension. In computing profits for the purpose of a war tax like E.P.T., which aims at taking the excess profits arising from the war, there should be allowed as a deduction only the expense in earning those profits. If, for instance, there is a provision of a pensions benefit for service in 1942, that is a proper charge in computing the profits for the year 1942, but, if you are dealing with the provision of a pension benefit for service which relates to the year 1932, that is not a proper charge and the cost of it ought not to be a burden to fall on the State. Those are my general propositions.

The matter arises out of what is the fair thing to be done when a company desires to establish a pension fund, and the question arises how the money is to be raised and utilised for what are called back payments. When you establish a pension fund you want to bring in the whole body of your employees and give them an equal pension, whatever their situation in the firm at the moment, and you either have to find a lump surf, sometimes called an initial solvency payment, or you. have to go to an insurance company and establish pensions based upon back service by means of a separate policy. The Clause is not in any way aimed at the disallowance of a payment because the deduction itself is objectionable. The object is to secure that the payment is not deducted in respect of the period or periods to which it does not properly belong. The provisions in the Clause are the accepted practice that has hitherto prevailed. In adopting this machinery the Inland Revenue do not act as semi-dictators. They co-operate with the people concerned, and, when the question came up, they took the usual steps by which they have been able to maintain their good associations with business and the workers of the country in a satisfactory way for so long. They consulted those acquainted with the matter in the insurance world, and a decision was arrived at that, inasmuch as you were dealing with any payment for back service, that must be related to the period of back service and not what was called forward service. I should have thought that was a perfectly obvious and reasonable thing to do when dealing with the position created by E.P.T.

It may be said, "Look at the precedent of Income Tax." I am not disclosing any secrets of the future when I say that Income Tax is going to continue for a very considerable period, and, if this matter were related to Income Tax only, you might well say it is not hurting anyone and it will not deprive any taxpayer of his proper due if the payment is spread forward. But no one would expect E.P.T. to continue after its object has been achieved, which is to take Too per cent. of the profit out of war. When you say this must be treated in the same way as Income Tax, you are in fact dealing with two matters which cannot be compared as matters are at present. He was a bold man who advised the particular company concerned to take this case to the referees. He did it on a chance. When we come to other matters in the Bill, particularly in the next Clause, we shall find how other people have been equally enterprising with regard to other matters in relation to our taxation affairs. There are a number of people who have more time than my right hon. Friend and myself to look carefully at these provisions and to see whether, by this method or that, some other result might not in fact be arrived at. Whoever advised the company know that, if they obtained a decision as favourable as they desired, a very undue proportion of the sum which would have to be paid in respect of this back service would be taken out of E.P.T. and would be obtained at the expense of the taxpayer.

Anyone who is concerned with the administration of superannuation funds knows that if you have such a scheme and want to be assured that everything is in order and that you are doing right so far as the general practice of the Inland Revenue and the intentions of the House of Commons are concerned, you can submit the scheme to the Inland Revenue, and your anxieties and troubles are at an end, because they will tell you whether the matter is in order. In this particular case no such step was taken. An enterprising appeal was entered, and a decision was arrived at. If I were to submit to it, an unfair burden would be imposed upon the Exchequer. My hon. and learned Friend rightly says that he does not want me to have to abide by that decision, but he wants to put forward some further proposal. I have endeavoured in this Clause to put forward what I think is a reasonable solution, much on the lines of what was previously approved by the House and carried into effect. I will examine the proposal. I do not want to treat unfairly those companies which want to go forward with superannuation schemes, but I want at the same time to see that an unfair proportion of the amount is not put on the State. There are Amendments dealing with the position of those companies which have not gone to appeal, and whatever proposals we have on the Report stage I will bear this matter well in mind. There may be a number of cases where Inland Revenue officers have said to the people concerned, "Do not appeal, as there is an appeal pending and you need not go through all the process yourselves." Where that has happened we shall have to look into the individual cases and make provision so that they are put in the same position as if an appeal had been made.

It has been stated that provision for back service, though not allowed as a deduction in computing profits, will be treated as reducing capital employed in the business. I cannot agree that any allowance should be given in the Excess Profits Tax period for back service payments relating to service before that period. If capital is taken out of the business, it cannot be taken into account in computing the capital employed in the business. If payments were to be included in the capital, this would go far to defeat the whole object of the Clause, because traders would receive under the provisions of the Excess Profits Tax relating to increase of capital an allowance of 8 per cent. on the amount of the payment which is roughly equivalent to spreading the payment forward for a period of 12 years. I wish to assure the Committee that I am not doing this from any desire to harry anybody or to do anything unfair. I only want to act justly. I am prepared to discuss any suggestions with my hon. Friends, and if I cannot satisfy them, we will take another turn on the Report stage of the Bill. If we can sit down together, however, I hope that I shall be able to satisfy them. All I am anxious about is that whatever is done is done fairly and not at the expense of the taxpayer.

I would not have intervened in this Debate were it not for the fact that I have interested myself a little for some years in the establishment of superannuation and pension funds. I hope that whatever happens to-clay nothing will be said or done to prevent the extension of these very beneficial schemes. We have to remember that there are tens of thousands of people who are outside the scope of the State contributory schemes and are included in voluntary schemes of this kind. Whether the Government adopt the Beveridge plan or not, I am assuming that private superannuation and pension schemes will continue in addition to any pensions provided by the State. There is a body of opinion in connection with this specific problem we are discussing which is neither that of the employer nor that of the employed. The superannuation and pensions schemes of this country have connected themselves together into a national association for mutual protection—the Association of Superannuation and Pension Funds. Once the employer and employee have made their contributions the money passes out of their control into a separate fund, and payments are made out of that according to age and length of service. This association cannot therefore be regarded as representing either employers, employed or the Treasury. In consequence it is fair that their view as an impartial tribunal on this Clause should be stated. I will read a paragraph of their memorandum to show how their mind is affected by Clause 22: They say:

"In seeking the amendment of this Clause a distinction must be drawn between those who are genuinely anxious to set up a superannuation or pension fund for the benefit of their employees and those employers who are merely actuated by a desire to avoid the payment of Excess Profits Tax, or in other words to set up such a fund at the expense of the Exchequer."
That is their point of view, and I am not saying whether I agree with them or not. Let me carry the right hon. Gentleman a little further into the intricacies of what is called back service. I helped to establish a small superannuation scheme some years ago, and, therefore, I am familiar with many of the points raised by the hon. and learned Gentleman. When the words "back service" are used it means in fact that the money is to cover future liabilities. I want to impress that point on the Chancellor. Back service refers to the number of years the employee has served the employer, but the lump sum that is paid for back service is to cover a future liability. It is not money that has been earned by the employer during the period called back serivce. Those are some of the reasons which have induced this Association to challenge Clause 22. I am very glad that the right hon. Gentleman has promised to consider the representations which have been made to him.

Here is another point which the Treasury ought to remember. When you establish a superannuation fund for your employees—there may be 20, 30, 50 or 100; you cannot apparently establish superannuation funds actuarially sound for less than 100—what you do in the case of a small number of employees is to open a separate ledger account in respect of each of them, and when an employee arrives at the age of 65 you ask an insurance company to provide an annuity for the accumulated sum. If the hon. Member does not mind my being personal, I get a small annuity myself in that way, and the Treasury take one half of it in Income Tax. That method works all right, and you may pay a lump sum in respect of back service to the account of an employee who is already 50 years of age at the time you establish the fund. There is not, of course, any back service in respect of young people of 15 or 16; the contributions cover their liabilities for the whole of their period of life. But supposing a new employee joins the staff, after having served another firm for 15 or 16 years, at 40 or 50 years of age! When he comes into the firm's employment they may pay £500 or £600 lump sum into the fund in respect of him, and the words used there, under this Clause are "back service" although he has never rendered any such back service to that employer. That is another point that concerns this Association. The Chancellor of the Exchequer poured a little contempt upon my hon. and learned Friend. I do not know why he should do so upon the hon. Gentleman and call him a learned Gentleman at the same time, but he did so. That is his habit, by the way.

Let me say that I am very glad that the hon. and learned Gentleman and the hon. Gentleman on the other side have induced the Chancellor to say that he will look into the problem before the Report stage. There is one thing in what he said about this which appeals to me very much, and that is that in regard to paying these sums into. any superannuation scheme we want to be fair to the decent employer who wants to establish a scheme because he thinks it is right, but the position must be guarded against employers who would establish a scheme merely to avoid their liability towards the Exchequer. As already stated, I do not take sides on this issue, but I am pleased that the Chancellor is willing to look into the points we have raised on Clause 22.

I think the Committee must be very grateful that the Chancellor has agreed to give serious consideration to the points that have been made by nay hon. and learned Friend the Member for Montgomery (Mr. C. Davies) and the hon. Member for Northampton (Mr. Summers). No one would question his deep interest in superannuation and in the social value of establishing a good, sound pensions system, and yet although he has expressed his sympathy the Clause gives no effect to that sympathy but, as it stands, actually, discourages the very thing which he has so much at heart. We must ask him to consider that it is important to encourage all employers, all those responsible for large businesses, to get the maximum of good will among those who are working for them. The establishment now of a sound superannuation system will be of immense benefit in this way in the conduct of the business both at the moment and in the future. Allowance ought to be made for that fact with regard to the incidence of these back payments. No one has suggested that the whole of these payments should be written off out of excess profits, but surely a larger allowance could be made than is provided for under the Clause, for this is a payment which is in the national interest; it is not just in the interest of the firm but in the interest of all the workers and the interest of the whole of our society. That must be borne in mind in corning to a final decision. I want to say how glad I am that the Chancellor of the Exchequer is willing also to reconsider the Sub-section which makes this legislation retrospective. I am not speaking in the interests of any one of the firms to which he alluded, but on general principles I hold that it is not fair or just that we should take away from firms a right which they have under the existing law and make the financial provisions which are being enacted in this Clause retrospective. I hope very much that the Sub-section may be reconsidered, and I am very glad the Chancellor of the Exchequer is willing to give very serious consideration to the other points which have been raised.

I want fo raise one or two points which have not yet been touched upon. I should like to say at the outset that I was very glad to hear what the Chancellor said about the spirit in which he approached this matter, and if we credit him with the desire to view it only in the national interest, I hope he. will give us the same credit. Personally, I think that the principle of spreading the contributions forward is equitable and just, but I am not going to argue that question again, because it has already been covered to-day. I wish to put forward a very moderate request, arid that is that the Chancellor in reconsidering this matter should do so with three objects in view. The first is to see that no employer who makes a provision of this kind shall be worse off as regards tax liability than if he had not done so. The second is that the funds which have been established before anyone had any knowledge that E.P.T. was coming should not be prejudiced. The third is that the scheme should be made practically workable. The hon. and learned Member for Montgomery (Mr. C. Davies) pointed out one or two directions in which the employer who made a lump sum contribution would find himself worse off than if he had not done so, but there was one point he did not mention. I should like to know whether I am correct in this. If what are regarded as back service payments are reckoned backwards, then that will reduce the profits of earlier years. If, for example, I set aside a lump sum of £200,000 in 1942 which covers back service for 10 years, that may be taken as having represented an expenditure of £20,000 a year over those 10 years. If that is so, the annual profits of the firm during the standard years will be reduced by £20,000. Therefore there will be an additional £20,000 of liability to E.P.T. I wonder whether that is intended?

Beyond this I am very puzzled by the wording of the Clause. It seems to me that its effects may spread' very wide so as to cover actual pension. payments. Suppose, for example, I have half a dozen employees of 65 years of age who retire in the course of this year. Suppose I have no pension fund, but, in accordance with my normal practice, I give them each a pension of £5 or £6 a week. These payments may be said to be made in respect of back service. Are such non-contributory pensions that are paid out by a firm in continuation of its ordinary practice to be disallowed?' It seems to me that the Clause could be interpreted in that way.

I put forward these special points for consideration.

Then as regards making the scheme workable, I want to put a question. Suppose a fund had been started, say in 1930, and there were a number of employees there who had entered the service from the. years 1910 onwards. Suppose the contributions were then fixed higher than they would have been if a pension fund had been started at the commencement of those people's service, fixed, that is to say, on a proper actuarial basis so as to give those people a reasonable pension when they retired. It would be a genuine contributory fund. The employees would be contributing, and the firm would be contributing, amounts which were actuarially necessary to pay the pensions which were promised when retirement came; but it could certainly be argued, if I have correctly understood the wording of the Clause, that a proportion of those payments really represented back service payments. The Revenue authorities might come along and say that a man who had entered the pension fund in 1930 but who had, commenced his service in. 1920, might be paying £50 a year, but that if he had started paying his contribution in 1920, he would be paying only £40, and that therefore a proportion of the £50 which he and the company were contributing represented a payment made this year in respect of back service. If that attitude were to be adopted, it would be necessary to make an actuarial calculation as to what does in fact represent the back service liability in respect of practically every employee. I say practically every employee, because I should think there are very few who are now members of a contributory pension fund who started their contributions in the first year of their service. A great majority of the existing business funds were started when the majority of employees had a considerable number of years of service. I put it to the Financial Secretary to the Treasury that if that is the result, then this Clause will create a totally unmanageable situation because the task of calculating the right figure in every case would be beyond the powers of the total force available in the country of men who are capable of making that kind of calculation.

I hope that points like these will be taken into consideration, and that the discussions which the Chancellor has pro- mised will lead to the production of a really fair Clause which will protect the national interest but will riot penalise people for trying to do the right thing.

I hope that as an outcome of this discussion the Chancellor, knowing what the Committee desire, will devise an Amendment which will give that assurance to which the most responsible and respectable employers of labour are entitled. Under the Finance Act, 1921, a number of schemes have been approved, but there is an almost endless variety. The coming of E.P.T. and the existence of abnormal profits which had to be disposed of in some way, gave an impetus to the initiation of some of these superannuation schemes. No Member of the Committee ought to be surprised that, under the cloak of a well-intentioned piece of legislation, people are trying to advantage themselves. I have a good deal of sympathy with the Chancellor and I can imagine that he will try to devise something drastic to meet a case which has 'caused some alarm among sincere and responsible employers.

The points raised by the hon. Member who spoke last are perfectly sound, particularly with respect to schemes which were initiated before there was any breath of E.P.T. and are therefore not under the suspicion of being devices to avoid tax. I cannot see how you can go carefully into allocating exactly what proportion of these superannuation funds applies to each year. That would mean an almost endless calculation, and would not secure final certainty. Expectation of life would enter into it as well as considerations of actual service. I hope the Chancellor will find his solution without involving the necessity of such calculations. This is all the time a prospective liability in actual human values. When a scheme is started, it is an invariable experience that while there is a sense of gratitude for the years of service given, years when wages were probably very low, the scheme is really looked on as a record of a sense of obligation for the workers' future. The employer does not want to feel that anybody who has been associated with his business should be in want.

I should like the Chancellor to look at cases where there is a ruling out or modi- fication of some of these schemes. Many superannuation schemes have been started which are very poor. They represented the thin edge of the wedge; the employers and the boards concerned, sooner than do nothing at all, did something of which they were really ashamed. When the scheme had gone on for a few years, people grew accustomed to superannuation ideas but were rather ashamed of their own tawdry and shabby scheme. They felt that if they were going to do the thing at all, they ought to do it decently. As the Clause stands it would be a bar to that. I am certain the Chancellor of the Exchequer would not desire that this Clause should be a hindrance to turning schemes which are really only apologies for superannuation schemes into proper schemes, bringing them up to a standard of respectability.

In all our discussion on this point there has been a good deal of criticism but not much in the way of constructive suggestion on how to let in proper charges, while putting up a bar against exploitation of the Chancellor's generosity, if it may be so termed. The only suggestion I have to make is that a special Clause should be introduced extending the powers given to the Treasury with regard to the approval of schemes. It seems to me that a basis ought to be laid down and that schemes should have to comply with certain conditions. Our experience has been that in the past the Treasury have been far more concerned about the solvency of superannuation schemes than about the solvency of the firms initiating them. That is sound. The Treasury have identified themselves with the people who were to benefit under the schemes, and I should like that attitude to continue. I remember one instance of a long dispute as to the percentage of interest to be paid on a capital sum provided by the firm which still retained the use of the fund. The Treasury stuck out for 5 per cent. as a minimum. That showed quite sound concern for the human interest involved. I am quite sure the Chancellor would not desire that this Clause should be used to prevent the extension or improvement of superannuation funds and I hope that ways and means will be found to give effect to his desire.

I cannot see how my hon. Friend reads into this Clause a bar to superannuation funds.

I understood my hon. Friend to say that superannuation funds should not be started at the expense of E.P.T. I was astonished also to hear the hon. Member for Walsall (Sir G. Schuster) say that he hoped the Chancellor of the Exchequer would see that no firm which started a superannuation scheme would be worse off.

If a firm starts a superannuation fund it must take the money either out of its own pocket or, alternatively, get it from the Chancellor of the Exchequer. Before E.P.T. was imposed the money always came out of the firm and the fact that E.P.T. has now become part of our taxation system does not seem a reason why the burden should fall on the Chancellor of the Exchequer. If a firm wants to be generous let it be generous, but not at the expense of E.P.T. There is no virtue in being generous and establishing a superannuation fund, if the Chancellor of the Exchequer pays the Whole cost. Calculation of past service may be difficult, but if a firm is going to spread the cost over seven years and E.P.T. lasts four years, then four-sevenths of the cost will fall on the Chancellor of the Exchequer, and that seems a very handsome contribution from the Treasury. Nobody wants to put hindrances in the way of the establishment of superannuation schemes, but if we want to encourage them, let us know what we are doing, and if there is to be any subsidy let it be given direct and not by way of abatement of tax. There is no reason for letting the whole burden fall on the Exchequer.

I am afraid I find myself in total disagreement with the hon. Member for Chesterfield (Mr. Benson). Having been associated for many years with a union that has encouraged many employers, especially in the distributive trade, to set up superannuation funds I have grave misgivings about the Clause and what can be done with it, if it becomes law. I think the arguments used by the hon. Member for Finsbury (Mr. Woods) deserve great consideration and call for a further explanation by the Minister. When it is argued that the cost of a superannuation should come out of the employer's pocket, I must say that in the case of very big firms it is difficult to see any legitimate profits which can be used for that purpose, unless it is at the expense of E.P.T. It is only very small firms with normal profits that can be in that position. It may be that the Chancellor of the Exchequer has evidence that some firms are contemplating using this Clause as enabling them to be generous at the expense of the Treasury, and we ought not in any way to associate ourselves with what is a form of common trickery. At the same time I think there is some explanation that can be given as to how projected superannuation schemes will be encouraged and how necessary funds can be found for a scheme acceptable to the Government and all concerned.

Therefore, I appeal to the Chancellor to make clear to the Committee how this will affect us, and whether it will retard in any way normal negotiations on behalf of the trade unions or workpeople concerned, and where the money will come from, or should come from, when this Clause becomes law.

I rise to refer for a few moments to the Amendment which is down in the name of the hon. Member for Canterbury (Sir W. Wayland), because it raises an entirely different point from that which has been brought into the Debate so far. I am concerned with superannuation funds which are arranged by local authorities, and certain superannuation funds which are a statutory obligation upon local authorities. There are three sources from which local authorities superannuation funds are built up. The first source is a charge of about five or six per cent, on the salary of the employee and there is then a similar payment contributed by the local authority, so that there is practically a fifty-fifty contribution to the superannuation funds. But it does happen that that superannuation fund, built up as I have outlined, may not always be at a figure which an actuary would consider to represent a solvent position. The. Act of Parliament which directs this particular sort of fund says that the local authority may make a contribution based upon a certificate issued by the actuary.

I understand that the first two items that go to build up this particular fund are admitted in arriving at the position of profit and loss but that the third item is to be disallowed. I submit that the Chancellor cannot deal with this case as he has suggested dealing with the other points which have been raised. I put it to the Chancellor that this is a statutory obligation, and I submit that in all fairness, being a statutory obligation, it should be allowed to be brought into the accounts in arriving at profit and loss.

I do not know whether I am intervening too soon. We have had a very interesting discussion. In view of the promise by the Chancellor to get a formula which is fair to the Government and to the taxpayer, and not in any way to discourage the formation of superannuation funds—I hope he can get, that formula before the Report stage—I beg to ask leave to withdraw the Amendment.

I would like to associate myself with the remarks of the hon. and learned Member with respect to the Amendments, a great many of which stand in my name, and to thank the Chancellor for the consideration he has given to the views which have been expressed.

I take it that the promise of the Chancellor referred to the Amendment standing in my name, and accordingly I do not move it.

Amendment, by leave, withdrawn.

Clause ordered to stand part of the Bill.