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Clause 23—(Disposal Of Company's Stock At Under Value)

Volume 390: debated on Wednesday 2 June 1943

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

I beg to move, in page 15, line 10, to leave out "may," and to insert "shall." I move this Amendment because I feel that the Clause as now worded leaves this matter within the discretion of the Commissioners, and I think that the duty should be laid upon them more emphatically.

If it commends itself to you, Major Milner, and to my hon. Friend, and to the Committee, I should like to avail myself of this opportunity to give a brief sketch of the purview of the Clause. There is a considerable number of Amendments to be discussed on this Clause, and the general argument on many of them will be much more easily understood by hon. Members if that course is taken.

I am in the hands of the Committee, but I should have thought that that explanation' might have been better given on the next Amendment.

Like yourself, Major Milner, I am entirely in the hands of the Committee, and I willingly accede to your suggestion. May I deal briefly with the point raised by my hon. Friend the Member for Southampton (Mr. Craven-Ellis)? This Clause empowers the Commissioners to give directions with regard to the remedy necessary for dealing with abuses at which this Clause strikes. When persons in the position of the Commissioners are enabled to take that action, it becomes a duty upon them to take it in the appropriate case when the conditions precedent are complied with. I appreciate that what is troubling my hon. Friend is whether it is left to them in a discretionary way. I assure him that modern drafting practice, when it is intended that a matter should be left to the Commissioners in a discretionary way, is to insert after the word "may," the words "when they think fit," or words to that effect. The word "may" has been used on a number of occasions, and consistently, to deal with a situation like the present. If we change the word "may" to "shall," it will throw doubt on the use and interpretation of the word "may" in many similar provisions in previous Finance Acts—I can give my hon. Friend many instances afterwards. Therefore, with this assurance, that the wording which has been used will not deter the Commissioners from fulfilling the duty laid upon them by this Clause, I ask my hon. Friend to withdraw the Amendment.

I should like to point out that the Commissioners are called upon to make a decision upon what is a fact. They are not brought in until it has been established that stock has been sold under value. Having established the fact, which may be extremely serious, the Commissioners should decide to take proceedings. I understand that according to the modern interpretation, "may" means "shall," although that is contrary to the dictionary. When a fact is established it should not be left to the Commissioners to decide whether they "may" or "shall" do certain things. They should have no discretion at all. I will withdraw the Amendment provided the Chancellor is prepared to give me some satisfaction that the word "may" is justified in this case.

Amendment, by leave, withdrawn.

I beg to move, in page 15, line 29, at the end, to insert:

"Provided further that the provisions of this subsection imposing joint and several liability shall not apply in the case of any person who satisfies the Commissioners or (upon appeal) the Special Commisioners that there was no concert or arrangement between him and any other person upon whom the direction is made for the avoidance or reduction of liability to excess profits tax and in such a case the liability of the said person shall subject to the succeeding provisions of this section be limited to such part of the sum specified in the direction not being greater than the financial benefit he received as is in the opinion of the Commissioners appropriate in the circumstances."
I move this Amendment in the absence of my hon. Friend the Member for South Croydon (Sir H. Williams), and I shall detain the Committee very briefly, because I have already sent to the Chancellor of the Exchequer, who is always very receptive, even if he does not carry out what one desires, the points I would otherwise have given in Committee. Clause 23, as we see it, is undoubtedly a penal Clause. When a new enactment is being put on the Statute book, it behoves us to see that no new criminals are created. We understand that this Clause has been put in just to deal with some particular glaring case that has taken place recently. I am not really concerned about why the Clause has been proposed, I am only reading it as it is before me. No business or professional man desires in any way to aid those who are wishful to take advantage of the law or absence of laws to evade paying legitimate taxation. We look upon such actions with contempt. But under this Clause it will be possible to link up quite innocent people, merchants, traders, stockbrokers and even solicitors, who might be roped in as having taken part in some transaction which at its initiation was legitimate, or of which they had no knowledge. That might happen with regard to an individual. Later in the Clause it is stated that action taken by the Commissioners can be retrospective and that makes the matter more dangerous. Parties might easily be mixed up in the ordinary course of their business and a man of perfectly good faith might be trading with these people—perhaps not the original people but subsidiary people—and find himself in difficulties according to this Clause. I am anxious to know what is the Chancellor's reaction to the notes I sent to him a little time ago. If he is not satisfied with the wording of the Amendments we have put down, perhaps he would, between now and the Report stage, make it clear that anybody who was quite innocent in a transaction and who could demonstrate his innocence, would not be penalised. If so, I think we would be satisfied.

I would like to support the hon. and gallant Member for the Exchange Division of Liverpool (Colonel Shute), in his objections to this Clause. These Amendments try to put the Clause into a form which would avoid the danger of abuse. There is great risk of abuse as the Clause stands at the moment. This question of joint and several liability is a serious question. All parties who are chargeable are jointly and severally liable, and in many cases it would mean that people who knew nothing about malpractices could be charged with offences. Traders, solicitors, accountants and auditors might, for instance, be charged. I am certain that that is not the intention of those who drafted this Clause. This matter should be made perfectly clear. As Sub-section (5) is drafted at present it suggests that where a direction has already been made by the Commissioners the provisions of the direction can be upset.

On a point of Order. Are we discussing the whole Clause now or the Amendment?

As I understand the position we are discussing the Amendment.

Before we had the pleasure of your presence in the Chair, Mr. Williams, your predecessor signified that when the Amendment on the Order Paper was disposed of, he would be willing, if it was the wish of the Committee, to take all the other Amendments together. I gather that that was agreed to by the Committee and that that was the intention. May we take it that it is your wish that the Committee should accede to that?

Certainly, I was not aware of that. If that is the position, perhaps we can discuss the bearing of, all the Amendments.

My hon. Friend implied that if he got satisfaction on the first point, he would regard the whole of the other Amendments as being dealt with under the same heading. In the same way Subsection (7) makes the whole Clause retrospective, and again that is far too wide. The effect should be limited to that part of the Act which is a clarification of the previous law. Again Sub-section (8) gives very wide powers, which I am advised are much greater than those to His Majesty's Judges generally. They are apparently in a position to compel everyone to become a compulsory informer. There seems no reason why their powers should not be limited to giving evidence in the normal way. Phrase after phrase throughout the Clause gives drastic powers which are really very unusual and ought undoubtedly to be limited. If we could get an assurance that between now and Report the Clause will be carefully looked at, so that any of these abuses that might arise could be avoided by a little closer wording, I feel certain that we should be satisfied and it would not be necessary to deal with each Sub-section and each Amendment in detail.

I should like to support my hon. Friends, and I hope the Chancellor will amend the Clause so that it shall be just and fair. Although one might feel that perhaps the draftsmanship is at fault, one cannot also help feeling that perhaps the Commissioners are hankering after powers which they would very much like to have in their own hands. If the Clause stands as it is, whatever assurance the Chancellor gives, as it is not temporary legislation, it might be interpreted in future in a most unsatis- factory way. In regard to the phrase "those who obtain financial benefit," does, the liability extend to innocent parties? Are bona fidetraders buying goods or stocks liable for some acts of their vendors which were unknown to them? Does liability extend to accountants, solicitors and those who take commissions in good faith. I think those matters should be made clear. It should be made clear that these people are not going to be affected by the Clause. A man may be acting quite innocently and yet be liable for large sums of money and with no redress against the original vendor who might have dissipated the funds.

I cannot understand how the phrase "joint and several liability" ever got into the Clause in the present loose form. Joint and several liability is generally concerned with persons engaged in partnership and sharing in profits, or men who have conspired to evade their legal obligations. To bring it in the sense that innocent parties, perhaps, might be joined jointly and severally seems extraordinary. I hope this will be amplified or swept away or explained in some way or other, so that, when the Bill passes, it will be quite clear to those who have to administer it that it rests not merely on an assurance by the Chancellor in this Committee but on the definite wording of an Act of Parliament.

In regard to Subsection (7), I cannot understand how the retrospection has got into the Bill in the way it has. The general purpose of retrospective legislation is that it should be retrospective in regard to the clarification of existing law. That is not made clear in this Subsection. The Subsection is actually a clarification of Section 35 of the Act of 1941, and it should not bring in transactions which were not previously liable to tax. It is of far-reaching effect and should refer only to the sale of stock below cost in accordance with Section 35 of the Act of 1941 as I presume may be supposed. Subsection (8) is a penal Subsection which imposes a heavy penalty up to £500. It must be made clear that the right of appeal is not taken away, for there is no reference to it in the Clause. If these powers are to be given to the Commissioners, they should, at least, be only temporary—during the war. This Bill makes them permanent. I always distrust temporary measures in any case, because one Statute becomes a precedent for another and after all, Statute law is only a matter of expediency for one particular generation. The Commissioners have the right to demand information about a person's affairs from another person who may not be connected in any way with the business. Such a person can be subpoenaed not only for the hearing but also cross-examined in any way in order that the Commissioners can obtain information. How does that affect the confidence between a client and his solicitor? Does this mean that a solicitor can be called upon to betray the trust which a client has always been able to repose in his solicitor?

I understood the hon. Gentleman to say that under Subsection (8) it was the Commissioners who imposed the penalty. It is nothing of the sort. It is the court which imposes the penalty.

It is not a question of what it means; it is a question what is laid down in the Bill. The court is not mentioned in the penal Clause, therefore we have no right to make any assumption. The Commissioners are given almost Star Chamber powers, certainly inquisitorial powers. There is another point I would like to make about retrospection. It would be fatal if matters which are outside the things envisaged by Section 35 of the Act of 1941 could do away with judgments which have already been made by the courts. That can happen under this Bill. There is nothing to preventit. I have spoken perhaps somewhat emphatically, because I think this Clause attacks the citadel of liberty itself, and I hope, in view of the feeling of the Committee and in view of the expressions we have heard, perhaps the Chancellor will, between now and the Report stage, look into the matter again to see whether he cannot produce a Clause which has been purified in all respects, not one allowing the wrongdoer to escape, but one which will not allow the innocent to suffer.

I only intervene in this discussion to assure the Chancellor that the Committee are not unanimous, nor do they wholly endorse the point of view expressed by previous speakers. The Amendment is intended to prevent certain people from being brought to book and giving art account of whether they have profited by their interest in a particular concern. Why should we allow any to escape their obligations if they are receiving any profit from any company or any organisation? It is fairly obvious that, as the law stands, the Chancellor is riot able to call folks to account in the manner he would wish. I do not mind confessing that some weeks ago I myself was prosecuted for an offence of which I had no knowledge. I did not complain. I am a member of a local authority, and a person who was called the catering manager of a restaurant had certainly defrauded the nation. He had taken unto himself more food than he ought to have had, and he was prosecuted, and the local food committee decided to prosecute the local authority for failing to exercise adequate supervision, and they were convicted. The Chancellor may have reason to believe that certain persons have profited as a result of disposing of a company's stuck under its value. Has the Chancellor not reason to believe that such things are happening to-day? If he wants evidence, he certainly does not need to send out many investigators to find out.

It is not a question of evading the law. It is a question of the Chancellor legislating in such a way that he catches those people who have offended and those people only, and does not bring into his net a whole host of innocent people, and of not giving the Commissioners such powers as a court of law has never had since the days of the Stuarts.

I put it the other way round. I am anxious that the Chancellor shall not allow anybody to escape, no matter who they are or how big they are. I do not think it is a question of the Commissioners wanting to weary Parliament with Clauses to take to themselves powers which they do not require. I believe that some of the glaring cases in recent months in which there have been prosecutions have provided sufficient evidence of what is going on. Those cases have caused anxiety in the minds of the public; they have wondered how people could escape with such benefits as they have obtained through illicit transactions. In no circumstances should the Minister make a promise that will in any way weaken the Clause. Acceptance of the Amendment would weaken his powers, and I hope that he will remain firm. We are not disposed to agree that everybody is being brought into the net to-day or is being handled in the way that he ought to be, because possibly of inadequacy or weakness. We wish the Minister well, and I hope that he will remain firm.

It may be convenient for the Committee if I intervene at this stage and give some indication of the problems with which we are faced in the Clause. My right hon. Friend and I are always anxious to consider any improvement, and we are primarily interested in dealing effectively with the mischief with which we are faced. I should like the Committee to understand what the mischief is in this case. The scheme with which we are dealing works on these lines: The whole of the shares in a company holding substantial stocks, say of whisky, are acquired by a speculator. Having thus obtained control, he arranges for the whisky to be sold to him or to some person under his control at the pre-war manufacturing cost of whisky. He then disposes of the stock of whisky using the company as his agent, at the full war-time market value. The present value may be 20 times the pre-war value. He uses the proceeds of disposing of the stock to pay for the shares, and in some cases to pay extravagant commissions to middlemen who have intervened in the matter.. The shares may have changed hands several times at gradually increasing prices. Finally, in a number of cases, the eventual speculator who purchased the whisky and purports to make the profit, is a person living abroad, whose whereabouts cannot be discovered.

The intention of that scheme is that the Revenue can only assess the person abroad, a man of straw who cannot be discovered, to excess Profits Tax, as the person making the profit, but it is useless to assess him, because he is outside the jurisdiction, is a man of straw, or may have had only a small amount of the profit. The intermediaries may have filled their pockets well. The Commissioner has counter-attacked with the suggestion to which my hon. Friend the Member for Southampton (Dr. Thomas) has referred, under Section 31 of the Finance Act, 1941, and endeavoured to charge the Excess Profits Tax liability on the various persons who really benefited; but under that Section, when the persons affected appealed, the Special Commissioners decided that, although the purpose was clearly the avoidance of liability to tax and they had no doubt about that whatever, the only adjustment which could be made under the provisions of that Section was to charge the whole Excess Profits Tax liability on the whisky company. That was quite useless. The company had ceased distilling, it had sold its whisky, and it had no funds. So the person who really got the profit under the Section which my hon. Friend regards as sacrosanct, would have got away scot free.

I hope I am not taking up too much time, but I want the Committee to understand this matter; and I would like to put the facts in£s. d. I think hon. Members will then understand the question quite well. I call the first person "J" because in the numerical order of letters in the alphabet that is where he comes into the story. First, there is the purchase by "J" from "G" and "H" of the issued capital in "A" company—7,500 £1 shares for £ 210,000. "J" sells to "L" for £222,100, and "L" sells to "D" at £270,000. That is one side of it. Now we get the other side. "A" company sells the stock of whisky to "D"—I told the Committee the amount "D" paid for the shares—£21,940. There is a slight difference between £270,000 and £21,940. Then "D," not, of course, the "A" company but "D" using the "A" company as his purported agent, sells his whisky to "B" company and "C" company for £327,000. Now if the "A" company had sold it to the "B" company and "C" company for £327,000, their liability to E.P.T. would have been £303,897. By the process which I have shown, by the acquisition of the shares in that way and the gradual mounting-up of the matter, I think hon. Members can understand quite clearly how the tax evasion scheme was carried out. I suggest that my right hon. Friend with such assistance as he can get would not be doing his duty if he did not take strong powers to deal with a scheme of that kind.

Now let me sketch as shortly as I can what those powers are, and then I will deal with the specific points which my hon. Friends have raised. The general power for which we are asking in the Clause is that when these two conditions precedent are fulfilled, namely, that trading stocks are disposed of at less than the market value and the stocks are disposed of in such a way that the full Excess Profits Tax payable, if sold at full market value, is not paid or likely to be recovered—that is, if there is this artificial manipulation, a sale at less than value to somebody who has got the controlling position in such a way as to dodge tax—then the Commissioners are empowered to direct that the full Excess Profits Tax shall be chargeable and that the charge shall be a joint and several liability on all the persons who, in the opinion of the Commissioners, derive financial benefit as a result of the transaction or associated transactions.

Complaint has been made about the words "joint and several." I think the Committee will understand the reason for that very well. I have said that in a specific case the person purporting to make the profits is an elusive man of straw outside the jurisdiction, but, apart from that, the Commissioners will often have difficulty in determining how the booty has been shared by the persons behind the scenes who are the real profit takers. Therefore we quite deliberately adopted the principle of saying, "Well, there you are. You are in it, you are jointly and severally liable, and you will" —subject to safeguards which I will make clear in a moment— "settle the question between yourselves as to who is liable for what amount, but we want the money." I wish to make it clear that we have definitely given what I submit are the safeguards which are applicable and which are compatible with equity and justice, but not with sentimentality about people who choose to take this course of action.

My hon. and gallant Friend the Member for the Exchange Division (Sir J. Shute) was concerned with the distinction between the innocent and the guilty in this way, the persons who were concerned and acting in concert in working the scheme and the persons who had merely been concerned in the sale. The obvious case, which I think my hon. and gallant Friend mentioned or clearly had in mind, was that of the original shareholder who sold his shares in an innocent way. That is one class, at any rate, with which I will deal. It is quite true he may not be a member of the group which is engineering the avoidance, but of course we have had plenty of cases in which the original shareholder is really sharing in the avoidance by getting a price for his shares greater than the market value, assuming that the avoidance had not been carried out.

It does not stop there, and I will ask the Committee to consider the three answers there are to my hon. and gallant Friend's doubts. The first answer is that Sub-section (4, b) defines, in the case of the original shareholder—the persons who sell their shares—that the benefit has to be measured by the extent of the price received over the price that would have been received if the stock had been sold by the company without an avoidance scheme. If the Committee pause for a moment and appreciate that, it is a fair way of dealing with the original shareholder to take the difference between the price received and the price that would have been received had the avoidance scheme not been carried out. The second answer is that often where there is a joint and several liability the liability of the people between themselves has to be proportionate to the benefit they have received. That is, if someone has to pay, he can recover from the others according to the amount of booty which each of them have got. The third answer is, and I would ask the hon. and gallant Member to note it, as I think it is the one which will assuage the doubts he had in mind, is that the proviso of Sub-section (I) enables the Commissioners to distinguish between the various persons liable to pay. This is to enable them to distinguish between the original shareholders and to treat them apart from other persons who have engineered the avoidance. Thus they can apportion between the original shareholders, who may have made a profit of £50,000, and the perpetrators of the scheme who have made, say, a profit of £150,000. I suggest to the Committee that that is a completely fair way of doing it.

In a matter of this kind one has to leave it to the Commissioners to make apportionments, as the Commissioners are familiar with it in many fields. Here we are saying that they will distinguish between the classes of people who are connected with the scheme. I hope that I have given the Committee a general idea of how this scheme is worked and how we propose to deal with it. Now I only want to answer the specific objections that were made. My hon. Friend the Member for The Wrekin (Mr. Colegate) objects to Subsection (5) because it says that
"a direction under this section may be given notwithstanding that a direction in relation to the transactions in question or some of them has been given or might have been given under section thirty-five of the Finance Act, 1941."
I see nothing wrong in that. I have explained that that Finance Act did not go far enough to catch this scheme. As my right hon. Friend has said, there are certain persons sitting thinking all the time of ways of getting through the Finance Act. They have found this way, and we are now taking the necessary weapon to counter-attack their attack on that Finance Act. In my submission, there is no harm when, because you have tried the only weapon you had, and that has not proved sufficient, you take another weapon into your hand and try that. With regard to Sub-section (7), my hon. Friend objects to its retrospective character. I do not know whether he was in the House when my right hon. Friend the Chancellor dealt with this matter. I will spare the Committee from hearing me read the whole of it, but on 10th November last year a Question was put to my right hon. Friend. My right hon. Friend said that he would take the powers, and that the powers would be retrospective. Everyone who goes in for a tax-dodging scheme does so with his eyes open to the possibility that Parliament will take retrospective powers. Retrospective powers have been taken in at least four Finance Acts to my knowledge, and it is a perfectly proper way.

On Sub-section (8), my hon. Friend objected to the Commissioners being entitled, by notice in writing, to ask for particulars. Why should they not be entitled to ask people for particulars? If the people are doing something which is not wrong, the particulars will come, and nobody will suffer any harm. My hon. Friend raised the question of solicitors' privilege. I am not going at this stage of the day to give the Committee a lecture on solicitors' privilege, but my hon. Friend knows perfectly the limits that are laid down. If he wishes to be reminded, he has only to look at The Queen versus Cox when he leaves the House, and the position will be made perfectly clear. On the question of penalty, I should have thought that the word "judgment" made that clear. I have endeavoured to deal with the points that have been made and to give a picture of this matter. I want to assure the Committee that no question of the serious character of the mischief would ever prevent me from looking carefully at a penal provision. But that we should in any way treat actions of this kind in a sentimental or soft way is something which, I submit, would not appeal to the Committee, and, if I may say so, it does not appeal to me.

The Solicitor-General has explained with very great lucidity and convincingly the reasons for the inclusion of this Clause. It was difficult for him to explain the complicated transactions through which various people go in order to make money in these rather devious ways, but he explained the position and went through practically all the letters of the alphabet only leaving out "X," the unknown quantity, which presumably is the man who drank the whisky. I and some of my hon. Friends are a little alarmed as to whether the Government have not drawn the net rather widely so that it will include possibly a number of innocent people. There is the possibility that at the end of this long chain through which the goods or shares pass the final person who buys the goods or shares may be a perfectly innocent person.

The final person cannot be an innocent person because he is the person acquiring both the whisky and the shares, acquiring whisky at the pre-war cost and selling it through the company at the war-time cost. Therefore on no view of the facts can he be innocent.

I am talking about the person who buys it at the war-time cost. Surely he can be included in this. I understand that the final person who bought the whisky may have bought it in good faith, and will perforce be brought in.

That last person is not making a profit, therefore there is no question of his being brought in.

I am not at all sure that that is the governing factor, and perhaps my hon. and learned Friend, will look into that particular point. There is also the case of the banker, who, some time during the transaction, may advance money in good faith to one of the persons concerned against whisky in bond. Supposing action is taken under this Clause and all the rest of the men have tidied away the fortunes they have got, is there not a possibility that the banker may be brought in although he acted in good faith and was perfectly just? The main argument which hon. Friends and myself put forward is whether in fact the Clause has not been rather too widely drawn We are all agreed, I am sure, that we do not want to include innocent people with the guilty. Then there is the question of retrospective legislation. I can see that in cases such as a Finance Bill you have to a certain extent sometimes to indulge in it in order to catch cases of obvious evasion. That is another thing. I hope that Parliament will avoid, in all cases other than these difficult ones, the practice of retrospective penalties, because it is completely foreign to our general ideas.

I listened with great interest to the hon. and learned Gentleman and I agree that the Chancellor of the Exchequer has the right to stop these improper transactions, but it is a pity that the Solicitor-General did not direct himself to the purposes of the Amendments. His subject had not the remotest relationship to the Amendments, which are designed to protect people who are entirely innocent against an abuse of executive power. My hon. and gallant Friend has just mentioned a case in connection with an improper transaction in whisky. The whisky was placed in bond in the custody of the Chancellor of the Exchequer. The bonded warehouse is ultimately under his control. The Chancellor in his official capacity was getting some profit out of it. In the course of normal business a banker was asked, to provide money on loan on normal commercial terms. He did so and obtained financial advantage out of the fact that one of the racketeers had arranged with the warehouse under the control of the Chancellor, which, also, I assume, obtained some profit and, therefore, the Customs and Excise jointly and severally come into the business. It is a normal transaction of financing a commodity. The whole of the speech of the Solicitor-General was directed to a particular transaction, and in dealing with that he invented a gigantic instrument of oppression which may hurt masses of the people.

Oh, yes. The noble Lord has not read the Clause; he does not understand it, or he would not interrupt. He is full of enthusiasm about a subject of which he knows nothing, and perhaps he may learn a little shortly. If the Commissioners do not give a direction with regard to apportionment, all sorts of people who are absolutely innocent are caught. The Solicitor-General has not devoted one word to the text of the Amendment—

My hon. and gallant Friend was kind enough, as I had a constituency engagement, to move the first Amendment for me. Let me take the case of Sub-section (4). When rich people die they sometimes have very large holdings of shares in an individual company. What do they do? The Chancellor wants his Death Duties. If a large block of shares is thrown on to the market it crashes the market, and that, in the long run, would not be of advantage to the Chancellor or anyone else. What is the customary and sensible procedure? The executors approach trust companies and institutions of that kind and say, "Will you take this block of shares over?" Naturally, it is at a price below the market value, because they have to take the risk of fluctuations in the meantime and they have to peddle them out over a substantial period of time so that they do not crash the market. That is a perfectly legitimate transaction which is undertaken by trust companies and institutions definitely in the public interest. They make a profit if they handle them intelligently and slowly. The shares may be standing at 22s., and they made decide that 20s. 6d. is a fair price to give to the executors, the 1s. 6d. representing the payment to them for the work they have to do and the risk they have to carry. As I have said, if they are intelligent, they finish with a profit. That transaction is to be made, I understand, an illegal transaction by the Chancellor, by this Clause as it stands, all because a racketeer has been holding whisky off the market. That is why we have been very short of whisky. The Excess Profits Tax makes it scarce, not the absence of it. People holding it have said that it would be to their advantage to hold it until E.P.T. has gone and then make a profit. Somebody said to me recently, "Do you want to buy 300,000 gallons of whisky?" and I replied that it was rather more than I anticipated consuming during the rest of my life and that I was not interested. But what about the man who is drawn into this transaction through performing a normal or professional function, who gets paid for it, makes a profit out of it and has no knowledge of tax avoidance or any improper motive?

It is all very well for people to get excited and say we have to stamp out the black market. I agree, but I see no reason why innocent people should be punished because inadvertently they played some part in a transaction which they had not the faintest idea was an improper one. I earnestly ask the Solicitor-General to apply his mind afresh to the problem and make a speech which has some conceivable relationship to the Amendment.

My hon. Friend always approaches these problems in a most disarming way by addressing the Committee as though no one had any sense except himself, telling the Government that they are half witted and telling those who do not agree with him that they have not read the Clause. I do not accept any of his propositions. The Solicitor-General made a convincing case for the Government, and, so far from its being true that we have not read the Clause, many of us have come across experiences in our own business life of people who should not only be punished but should be imprisoned for the type of offence that is being dealt with under this Clause. What are the arguments, apart from my hon. Friend's complimentary references to the mental deficiencies of the Solicitor- General and myself, which we all accept, because my hon. Friend is sui generis in this respect? I have never known anyone so confident of his own ability, though certainly none of us resent it.

What is the case which the Government put forward and which we support? The hon. and learned Gentleman, in a convincing and lucid statement, referred to a transaction which is a disgrace to the country. He pointed out that the people who were engaged in this particular form of transaction had been engaged in it for some time but, by inadvertence—because even the Treasury cannot catch every potential criminal—it was not possible so to frame the previous Act as to catch these people. Therefore the Chancellor very properly says, "Not only are we going to fine these people for what they have done, but we are going to recover the money that they have improperly made at the expense of the public and of everyone fighting for the country." My hon. Friend the Member for The Wrekin (Mr. Colegate) says, "That is all very well. We agree that it should be retroactive, but are you sure that, in making it retroactive, you will not catch any innocent person?" and he asks for an assurance that innocent persons will not be caught under this severe penal Clause. You do not batch many birds with that sort of salt. People who are engaged in equivocal operations of this kind do it with their eyes open. No banker of any importance would be such a fool as to lend money on whisky which had gone through the black market.

The sort of argument used by my hon. Friend would prevent not only the Chancellor but any other Minister of the Crown from dealing with black marketeers. The associates of people who are working in this sort of market, the solicitors who work for them and counsel whose opinion they seek, know perfectly well the type of client they are dealing with. It is no use the hon. Gentleman opposite shaking his head. There are people who are whole-time engaged in the City of London, counsel and solicitors, in giving advice to people on how to evade taxation. It is their business. Everybody knows it, and nobody can deny it. Therefore, if people of that type find themselves involved, it is right that they should pay the tax. I will give a bit of advice to my hon. Friends. While I am sure their intentions are innocent—it would be a gross abuse of the Rules of the House to suggest otherwise—I would not show undue tenderness to people within or on the verge of the black market. It is laid down clearly in the Clause that only those who financially benefit from these transaction will have to suffer. There might be an odd case here and there of people who do not benefit, and the Government might deal with them by an Amendment.

The Committee has had a grand opportunity of weighing up the merits of this Clause. I did not know anything about the Clause or the Amendments until I heard the discussion. The statement made by the Solicitor-General has convinced everyone of the necessity of the Clause. He made a damning indictment of the methods of business that are being carried on.

That one case showed that £100,000 was made out of certain things, and the people got away with it. When statements of that kind go out to the country the country will want to know what the House of Commons is doing to watch these people. If this Clause will protect the State against that kind of thing, it is a proper Clause to pass. The hon. Member who defends this kind of thing—[HON. MEMBERS: "No."] He usually seems to be at this end of the stick when this kind of thing comes up. When I see Amendments in his name on such subjects as this I am always suspicious. There are two sides here—those who protect big business and those Who try to defend the workers. When those of us who defend the workers hear of this kind of thing going on it makes us suspect the tremendous amount of trickery and dodging that is going on in high finance. I hope that the country will read the statement of the Solicitor-General and that they will demand from Parliament that there should be stricter control over this kind of thing. While we are asking the workers to save and do this, that arid the other for the war effort, we find that profits are being wrongly made, and when we endeavour to get hold of the people responsible Members get up and object, saying that we will get hold of innocent people.

I want to make it clear that we are not defending anyone, but we deplore a method which tries to catch hundreds of innocent people in order to catch one guilty person. Hard cases make bad law.

If a person is innocent, he has nothing to fear, and nothing can be done to him. Those who undertake prosecutions have to be very careful. They do not go forward with a case unless they feel pretty sure of their gound. We all know, as the Noble Lord has said, that it is going on, going on pretty strongly, and if this is the way to deal with it, I say "God speed," and the Government will have all the support they want from this side of the Committee.

There are one or two points which I should like to have cleared up. There is a difference of opinion in the Committee as to what is the meaning of the words "after judgment has been given." It is possible that the Solicitor-General made it clear to some Members of the Committee, but I did not hear him, and I think it is very necessary that we should understand what those words mean. Judgment by whom? Judgment by the Commissioners, judgment by the Special Commissioners, or judgment by a court of law?

I am much obliged. That is very important, and it should be made perfectly clear that there is an appeal from the Commissioners. Another point I should like to put before the Committee is that this Debate has arisen from the first two lines of the Clause:

"Where any of the stock in trade of a company is disposed of otherwise than for at least its full market value."
For the first time, I believe, in the history of Finance Bills we have introduced the term "full market value." We are well aware that when the Inland Revenue are going through the accounts of a company and looking at the stock as it has been valued there are two valuations that may be taken. One is the, cost of the goods and the other is the market value of them. Here for the first time we have "full market value" introduced. I am not going into the question of the whisky trade and the example which was given by the hon. and learned Gentleman, because we are all agreed about that, but there are other businesses beside the whisky trade. The cotton industry, the linen industry, the steel industry are all brought in, because it simply says "stock in trade of a company." It may be any company. They are all lumped in the same category as the whisky trade. The difficulty which may be experienced in arriving at what is "full market value" is one which has been appreciated for years with regard to values at the time of stock-taking. This is a matter which the Treasury ought to look into again. It is a very serious matter and is worthy of extra consideration. I do not want an answer now, but the Chancellor ought to give us some explanation of it before we finally part with the Bill.

The hon. and gallant Member for Penryn and Falmouth (Major Petherick) and the hon. Member for South Croydon (Sir H. Williams) have drawn a red herring across this trail. I hope it will not deter the right honourable hounds opposite. As I read the words of the Clause, it is quite plain that a banker could not be penalised.

Because he has lent his money for a banking operation and has received interest on it. The Clause says that the direction shall be given against

"the persons who, in the opinion of the Commissioners, obtained (but for this section) financial benefits as a result of the transactions aforesaid,"
It appears plain that a banker has obtained his interest, not as a result of the "transaction aforesaid" but as a result of a simple banking operation, and will not therefore come under the direction.

Would the hon. Gentleman object to an Amendment which would aim at making the matter clear?

I think there has been a certain amount of misunderstanding in regard to the question of cost. All goods sold go to the books of a company at their full market value. This provision refers only to goods which are disposed of. In the normal way they would become sales and not stock-in-trade.

We had from the Noble Lord one of the most extraordinary statements I have ever heard in this House, when he said that no bank or innocent person could be engaged in a criminal transaction without being aware of that fact. I need only remind the Committee of the Hatry case in which banks, corporations, and hundreds of innocent people were involved. To allege that such organisations could not be engaged in such transactions without knowing that the transactions were criminal, is to make a mockery of things.

I can only say that I had not the remotest idea about the story that has been told as to whisky. I was simply dealing with the Clause as it stands and I would still ask hon. Members to read it in the way that I read it. I still say that it is not a Clause to which we ought to agree; but, in the circumstances, I have no alternative but to beg to ask leave to withdraw my Amendment.

Amendment, by leave, withdrawn.

Motion made, and Question proposed, "That the Clause stand part of the Bill."

I should like to ask a question. If a Motion is put down on the Report stage that the Clause should be left out, does the Chancellor of the Exchequer think that by that time he would be able to reconsider the drafting? The Solicitor-General did not deal with the Amendment but only drew attention to a matter which muddled the minds of the Committee. [HON. MEMBERS: "Not at all."] Oh, yes. He drew attention to a discreditable transaction. If the object of the Clause is to deal with a specific transaction, that is one thing. But it goes far beyond that object. Any trader who, in order to close up a business, sells off his stock at less than he might have sold it at, if he had continued trading, will be caught under this Clause. [HON. MEMBERS: "No."] Certainly, and it is no good Ministers shaking their heads and saying "That is not our intention." Once a thing becomes an Act of Parliament it is the duty of certain people to administer it. If anybody sells below cost and somebody else buys the stock cheaper than the normal wholesale price, and subsequently sells it and makes a larger profit, he is brought under this Clause. It is no good the Solicitor-General shaking his head. A vast number of wholly innocent people may be brought under this provision. The case put against the drafting of this Clause has been blurred by the discreditable transaction described by the Solicitor-General, and the Committee have not applied their minds to the aspect of the Clause about which some of us are perturbed. Therefore, I would ask the Chancellor to give us an assurance before we part with the Clause that he will examine the arguments put forward. All the Amendments were designed to secure that innocent persons shall not suffer injury because evil people, with whom they do an innocent transaction, have done evil transactions.

I would also press the Chancellor or the Solicitor-General to examine the Bill in order that it may be made clear that the Commissioners, who are civil servants, should not have sole power and that if they find against a subject, then the subject should have the right of appeal to the courts. The final word should rest, as always, with His Majesty's judges. We should make it perfectly clear in the Bill that the Commissioners are not to be armed with final power.

I say at once that, of course, I will examine any matter that is put forward in the Committee. It is my practice when a Bill has been through the House in Committee to go through all the observations made in conjunction with my advisers, and in such a case as this with the Financial Secretary, and carefully to weigh those observations to see whether a case has been made for anything further being done. I shall do that with this Bill and with this Clause. But I am bound to say that I hope these observations of mine will not foster any hopes that I may deal with this Clause in such a way as to show any weakening in the Government's attitude. This concerns not only one transaction. I regret to say there have been a number of transactions of this kind. It is, I think, a disgrace that people should, at this time of all others, lend themselves to transactions of this character. I am surprised that more Members of the Committee have not got up to suggest that instead of a civil penalty some criminal penalty should be imposed. There is a great deal to be said for that, because this is very much akin to a black market offence. It is an endeavour to make money in a way that I think must be abhorrent to all. Equally we must not be led away by our feelings to do anything unfair or anything calculated to bring misfortune on innocent people. I must say I have looked with great care at all details of these cases and I find it very difficult to imagine anyone connected in any way with these cases being able for a moment to pretend that there is anything innocent about any of them. Take the case of the banker. Any banker must be an awful fool not to be, at any rate, put on his guard to make proper inquiries.

Anybody who has seen any of these transactions must have the greatest difficulty in finding any appearance of innocence. It is only fair to the country and everyone concerned that we should not in this House of Commons treat with the slightest leniency any transaction of this kind.

There is just one point. The Chancellor said that the banker must be a fool? May I explain—

If I might remind the hon. Member of it there is an understanding, and we have had the discussion on the first Amendment.

This is only a point of correction. The Chancellor said the banker must be a fool. The banker's authority for loaning money was a warrant on a certain amount of excisable liquor which had not paid duty and which was in a bonded warehouse authorised by the Chancellor. The stuff was there and a normal transaction like that does not make the banker a fool.

Question, "That the Clause stand part of the Bill," put, and agreed to.

Clauses 24 to 30 ordered to stand part of the Bill.

Ordered, "That the Chairman do report Progress, and ask leave to sit again."—[ Major Sir James Edmondson.]

Committee report Progress; to sit again upon the next Sitting Day.