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New Clause—(Charge To Tax In Respect Of Provision For Retirement Or Other Benefits To Directors And Employees Of Bodies Corporate)

Volume 439: debated on Wednesday 9 July 1947

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(1) Subject to the exemptions and provisions contained in the next succeeding section, where pursuant to a scheme for the provision of future retirement or other benefits for persons consisting of or including directors or employees of a body corporate (in this and the next four succeeding sections referred to as a "retirement benefits scheme") the body corporate in any year of assessment pays a sum with a view to the provision of any such benefits for any director or employee thereof, then (whether or not the accrual of the benefits is dependent on any contingency),—

  • (a)the sum paid, if not otherwise chargeable to income tax as income of the director or employee, shall be deemed for all the purposes of the Income Tax Acts to be income of that director or employee for that year of assessment and assessable to income tax under Schedule E; and
  • (b) where the payment is made under such an insurance of contract as is mentioned in section thirty-two of the Income Tax Act. 1918 (which relates to relief for life insurance premiums, etc.). relief, if not otherwise allowable, shall be given to him under that section in respect of the payment to the extent, if any, to which such relief would have been allowable to him if the payment had been made. by him and the insurance or contract under which the payment is made had been made with him.
  • (2) Subject to the exemptions and provisions contained in the next succeeding section. where—

  • (a) an agreement is in force between a' body corporate and a director or employee thereof for the provision for him of any future retirement or other benefits afforded by a retirement benefits scheme, or a person is serving as a director or employee of a body corporate in connection wherewith there is a retirement benefits scheme relating to persons of the class within which he falls under which any such benefits will be provided for him; and
  • (b) the body corporate does not, or does not fully, secure the provision of the benefits by the payment of such sums as are mentioned in the preceding subsection; and
  • (c) the circumstances in which the benefits are to accrue are not such as will render the benefits assessable to income tax under Schedule E as emoluments of his office as a director or of his employment,
  • then (whether or not the accrual of the benefits is dependent on any contingency), in each year of assessment in which the agreement is in force or the director or employee is serving as aforesaid, up to and including the year of assessment in which the benefits accrue or there ceases to be any possibility of the accrual thereof, a sum equal to the annual sum which the body corporate would have had to pay in that year under a contract with a third person which secured the provision by that third person of those benefits or, as the case may be, of those benefits so far as not already secured by the payment of such sums as are mentioned in the preceding subsection, shall be deemed for all the purposes of the Income Tax Acts to be income of the director or employee for that year and assessable to income tax under Schedule E.

    (3) Where the body corporate pays any sum as mentioned in subsection (1) of this section in relation to several directors or employees, the sum so paid shall, for the purpose of that subsection, be apportioned among them by reference to the separate sums which would have had to be paid to secure the separate benefits to be provided for them respectively, and the part of the sum apportioned to each of them shall be deemed for that purpose to have been paid separately in relation to that one of them.—[ The Solicitor-General.]

    Brought up, and read the First time.

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

    This new Clause relates to retirement benefits. This is the first of a series of five Clauses which are designed to replace Clauses 14 to 18 of the Bill as it stands. I do not know whether it would be convenient if the Debate on this Clause were extended so that I could deal with the five Clauses together as they all hang together and form one single scheme.

    If it is the wish of the House that a general discussion should take place on this Clause, it might be the more convenient.

    I am much obliged to the House. What we have sought to do in framing these Clauses is to give effect to the various criticisms which were directed against the Clauses, which I have mentioned, by hon. Members when the Clauses of the present Bill were under discussion. In general terms the major criticism was directed most to Clauses 16 and 17 of the Bill. They were the Clauses which dealt with the voluntary payments, and it was urged that they would bear hardly upon non-whole-time directors and other directors and employees and impose a harsh and severe burden upon them. Only detailed criticism was directed to the first two Clauses, and it was felt during all the discussions that they were apt to remedy what was a serious abuse or potentially serious abuse. Therefore, what we have done in refraining the Clauses is virtually this. We have thrown overboard entirely what there was in Clauses 16 and 17 and we have confined the new Clauses to doing what was done in a slightly different form in Clauses 14 and 15. We have then gone on to deal with certain matters of detail.

    If I may review quite briefly what we have done it is as follows. Clauses 14 and 15 are Clauses which deal with schemes under which a company has paid various sums year by year to insurance companies or trustees to provide benefits. They deal also with conditions of service under which a company has undertaken to provide benefits. In both cases whether these benefits consist either of non-taxable lump sums or of annuities or pensions convertible into non-taxable lump sums, or which are wholly disproportionate and in excess of anything which might be described as a reasonable pension—in respect of those cases, which by common consent were cases which really required to be dealt with, what we have done is done by Clauses 14 and 15.

    We have said that the amount paid by the employer shall be treated as income and if no amount is paid and payment is to be found out of the funds of the company we take a notional figure, which shall be attributed to the employee as taxable income during the years of his employment. That is a principle to which I do not think any exception has been taken. It has been conceded to be fair and reasonable. But again, we have introduced exceptions which were introduced in the previous Bill but in a slightly larger and more generous form. The exceptions apply to statutory superannuation schemes. They apply to schemes approved under Section 32 of the Finance Act of 1921 and they also apply to schemes which are ad hoc approved by the Commissioners for the purposes of this Clause.

    Broadly speaking, the Commissioners are given power to approve, and indeed, it is made obligatory on them to approve certain schemes, provided the amount is paid by the company for an annuity and provided the schemes comply more or less—because there is a measure of discretion left to them—with certain requirements. These requirements, if I may summarise them as briefly as I can, are that the scheme should conform in outline, generally speaking, to what could be considered to be, in ordinary common parlance, a bona fidesuperannuation scheme. Any schemes falling within these three categories are not affected by the new Clauses, they are entirely outside, as they were before, but we have introduced further provisions to deal with points of criticism.

    First of all, we exempt altogether any scheme existing before April, 1944, the main benefit to be provided is a life pension or annuity. That is the first thing we propose.

    Before he leaves that point may I ask the hon. and learned Gentleman why he fixed that date and not a later year than 1944?

    Because by that date, at any rate, all the schemes were known. There is a discretion in regard to later schemes. Any scheme which was pre-April, 1944, is a scheme known to the authorities and its qualities have been assessed and understood. We further do this. A question was asked whether anything could be done in regard to provident schemes designed to provide for lump sum payments. What we have done is to exempt small provident funds and endowment insurance schemes providing for small lump sum payments. We have fixed this limit that the employer must pay not more than 10 per cent. of the employee's remuneration to the fund or not more than £100, whichever is the less. We have accepted this. It was not done in the last Clause but was a point brought up in the discussion What we have also done is that we have made provision for tax to be reclaimable by an individual who can show, for example, that he has been dismissed or for some other reason will not get the benefit in respect of which the tax is paid. That point was also made during the discussion.

    My hon. Friend the Member for North-wich (Mr. J. Foster) raised a subtle and complicated point relating to employees overseas. He instanced the question of an Indian company which is paying pensions in India, and asked whether the Indian company's Indian employees would be covered? We have now exempted these and employees employed abroad who would not have come under Schedule E. We have made it possible for part of the scheme to be approved even if the whole scheme is not approved. It can be dissected and approved in part.

    Finally, we have said that, if a scheme which at present does not qualify for approval is changed, and changed before April, 1948, or any longer time which may be allowed by the Commissioners for that purpose—if it is not reasonably practicable to change it within that time—it can be approved retrospectively to April, 1947. We think that is a fair way to deal with the matter. It gives people an opportunity of adjusting the scheme to comply with the requirements which we have set out, and adjust it in such a way as will qualify for approval, not only from the date of adjustment but from April, 1947. All these Amendments are in the new Clauses which are rather long but which give effect to what I have been saying. We hope the House will agree that in so doing, we have met the criticisms which were advanced against the old Clauses and we hope also, that these are more easily intelligible than the others.

    Before the hon. and learned Gentleman sits down may I ask him this question? He spoke of the reclaiming where no benefit is to be derived. Can he say whether the ordinary six years' limit applies to reclaiming, or will it go back further?

    I speak offhand and subject to correction, but subject to that qualification the six years' limit, I think, would not apply. I think it applies only to claims of tax under the Acts of 1918. I do not think it would apply in this case. I want to make it clear that that is my first-view answer which, however, I believe to be right.

    I am sure the House is indebted to the hon. and learned Gentleman for his clear explanations which we are now getting so used to receiving when he addresses us on technical matters that the Chancellor is putting into this Bill. These points have, of course, all arisen as the result of a promise the Chancellor made. There have been discussions with regard to this Clause and the result is now before us. The original Clauses which have been dropped, occupied no less than eight pages of the Finance Bill as introduced. The new Clauses given to us look as if they will cover as much paper in the next stage as those for which they are being substituted. I am glad the Government have been able to modify the attitude which previously they had taken up, because we on this side of the House were with them at the start, when they said there were certain gross evasions taking place, as indeed we always would be in saying that these evasions must be dealt with.

    11.45 p.m.

    While we did not specify, have not specified and do not intend to specify what the abuses were, we know what they are from discussions which have taken place. As I understand it, three things of real importance now emerge. As the hon. and learned Gentleman has said, first of all, all schemes which are pre-1944 are automatically exempted—obviously, if their main purposes are within the scope of what we are discussing. The second new point is that if a scheme falls within the conditions—and they are fairly hard conditions, if that is the right word—laid down in the third new Clause, then the Commissioners have to approve it: there is no option there. The third important point is that in spite of that, the Commissioners are given by the general effect of this new scheme a very wide discretion. In brief, all pre-1944 schemes are exempted, new schemes which come within the conditions of the third Clause have to be approved, and thirdly the Commissioners are given wide discretion.

    It seems to me—and I am no expert in this—that what one might call genuine schemes, whether existing or future, will really be all right. The genuine scheme will be all right even if lump sum payments—which were the chief cause of the mischief we are dealing with—are involved in schemes hereafter. Even it there are lump sum payments, that does not automatically disallow a scheme if the lump sum payment is in scale with that length of service, or the previous salary or pay of the person concerned. I understand this was really the intention of the previous Clause, although that did not emerge quite clearly at the time.

    I would like to ask the hon. and learned Gentleman one or two questions, the answers to which we would like to have quite definite and clear. I think, first of all, he can give me the assurance that powers under this new Clause would not be used to damnify a person who is given a pension related to his length of service and to the remuneration he has received, if such a pension is in line with schemes which the Revenue would view with favour. There may be cases—and this is the actual point I have in mind=—where, for example, a scheme is drawn up and some man does not fall within its scope for the very reason that the moment the scheme is going into effect, he is too old to take advantage of it, although he has long service, and his company wants to help him in his retirement. Such a person would not be damnified because he was not in the scheme—provided that what is given to him is in general line with what he would have got if he were in the scheme? I think that is the case and I hope when the right hon. Gentleman comes to reply he will give me that assurance because I understand it is for this that the new Clauses have appeared on the Paper. It is a point which has worried' a number of men, and women, too, who might be concerned.

    The second point which I think is clear from what the right hon. Gentleman said is that any penalties under these Clauses in schemes which fall foul of the views of the Commissioners or in favour of which they will not exercise discretion, will not be retrospective. We should like that stated definitely for the purpose of the record. I think it is also quite clear and implicit in what he said—that all these arrangements and plans are only intended to deal with schemes which are clearly designed, in the view of the Commissioners to avoid taxation. I think that is a fact, but if the right hon. Gentleman can put this assurance into words in a favourable sense I shall be very much obliged.

    What is the lesson we are to draw from all this? I think it is regrettably the case that in periods of high taxation there are some people—we need not necessarily admire them—who will go to great lengths to see if there are legal ways of avoiding taxation.

    It seems to me that there is much concern to safeguard directors, but they are all right when it comes to dodging taxation.

    That is a view which may be held by the Communist Party but it is not universally held. There is a high judicial decision that if it is legal to do so, and if taxation can be avoided legally, there is no reason why people should not take advantage of it. That is a decision, I think, of the highest courts: whatever the moral view of it may be is another matter. All I was saying was that there are some people who will try to avoid taxation when it gets to such a high scale, and this and other features will progressively diminish when happier times come and taxation can be reduced. The other point that emerges and to which I would draw the attention of the right hon. Gentleman, and the Financial Secretary, is that when it had been decided, as it was decided, to tackle this problem, there might have been a saving of time and trouble to a great number of people if, granted the intentions of the Government were known, the Government had taken into consultation some of the experts, whom they were good enough to consult between the Committee stage and the Report stage, before they introduced the Bill. If they had been able much earlier to get into contact with certain people who gave them help they might have been saved much trouble and anxiety. It would have been much less trouble, and I had hoped that that course might have been adopted— obviously, under the ban of confidential talks.

    But so long as the Government have found it necessary to embark on this very difficult sphere of law, and the complicated question of taxation on benefits and annuities, might it not be a good thing— again I only put it to the Government— to have all this field explored between now and some future Finance Bill? I did make some reference to this on a previous occasion. It has been explored in Canada and other Dominions because it is such a complicated part of the Income Tax law, and even if we are not going to clear up the whole field it might be well to look at this section of it. I suggest to the hon. and learned Gentleman that that might be a pleasant occupation for him when he has finished with the Finance Bill this year, and while he has leisure— if he is still in office—before the heavy duties which will come to him with the Budget of 1948. Having said that, I again express our gratitude to the hon. and learned Gentleman for having taken so much trouble in this matter. As at present advised, it seems to me that the new Clauses meet the bulk of the criticisms we put forward at an earlier stage, and I hope he will be able to give me formal assurances on the three points I have put to him.

    I am sure I speak for everyone in the House in thanking the Government and the Chancellor of the Exchequer for the reconsideration that has been given to these Clauses, which were originally Clauses 14 to 18. I apologise for making at this late hour what is sure to be a dry and uninteresting contribution to the Debate. The Chancellor of the Exchequer has eliminated the original five Clauses and has substituted these five new ones. Under the original draft, as my right hon. and gallant Friend has said, these Clauses sought to deal with certain known evasions. I think they should be clearly understood. They were principally concerned with the existing law relating to lump sum payments, either by way of endowment assurance or other benefits. I do not want to take up time with a detailed analysis of the law as it applies to such cases, but if we are to know the real significance of the Clauses which have now been introduced we have to understand exactly how the law stands on these matters.

    At present a lump sum payment on retirement, as part of a contract of service, is taxable in full in the year it is received; and as regards insurance policies, if a company takes out an insurance on an employee, which is fully vested in him, that insurance is treated for tax as part of his income. There is an aspect of that which is very important. It was realised by certain people that if contingencies could be imported into the arrangement the existing law could be avoided. I think this is a very important part of the new Clauses which the Chancellor has introduced.

    12 m.

    The most prevalent type has been the purchase by companies of a very large endowment assurance for directors, which they receive on retirement and which is free of tax but the premium of which has been paid out of the trading expenses of the company. The method devised to deal with such cases was to see whether benefits which accrue would or would not depend on a contingency. Unfortunately, in dealing with existing abuses the Clauses were extended to deal with all sorts of situations which might arise and as I read the original five Clauses it seemed to me it was rather like casting a net to take a few pike out of the river and enmeshing all the salmon and trout. But the main changes which the Chancellor has seen fit to make in Clause 16, dealing particularly with part-time directors, which had been dropped altogether, and in the elimination of Clause 17, disposes of a very large number of objectionable aspects that we on this side found in the original Clauses.

    I want to make one or two point which I think are important. The first concerns the provision that has been made that the Commissioners shall look at these things. I think the Chancellor has shown great faith in them—that they will apply their wisdom and judgment to conditions on which a pension or annuity would be allowed. The main objection to the original Clauses has been removed, but I think there is failure to see that all the existing or future pensions funds of a genuine character will escape these Clauses. I do not want to be over-critical because as I say, and as has been said by my right hon. Friend on the Front Bench, we are very grateful for the changes that have been made, but I would like to ask the Solicitor-General to give heed to the third Clause to be moved by the Chancellor on the approval of retirement benefit schemes. If he will turn to Subsection (1), paragraph (c) he will see
    "that the proportion between the value of the pensions…and the value of all other benefits …"
    as are commutable, that is, of course, the capital sum. is to be determined on the basis of what is "reasonably comparable" to "statutory superannuation schemes." I have a great regard for these statutory schemes but I think they are based on the service of the individual concerned. In modern industry, where you get an individual moving from firm to firm, it is quite likely that an operative or executive with good ability moves from one firm to another until at the age of 45 he reaches a firm with which he will serve for the rest of his life. His firm may have no actual scheme. I suggest, with great respect, that the services he has rendered to industry, apart altogether from the years of service he has given, should be taken into account. I think that where the scheme says that it should be reasonably comparable, that fact should be taken into account.

    We have seen that this scheme which we are debating tonight is very intricate; and it is very hard to assess the exact significance of it. It has been subjected in Canada and elsewhere to an inquiry. While I very much appreciate the courtesy of the Chancellor in recommitting this, I think that if we look to Canada, where the authorities were confronted with a similar problem, we shall see that they set up a Royal Commission to inquire into retirement benefits, life assurance and the taxation of annuities. I suggest that this forms a portion of Income Tax law which might well be inquired into without reopening the whole field of Income Tax law. I end by repeating that I very much appreciate the fact that the Chancellor has withdrawn the whole of those Clauses, and that he has introduced five new Clauses which go a very long way to meeting the points that we raised; but I still think that this aspect of Income Tax law should be the subject of an inquiry, and I hope that such an inquiry will be held before this time next year.

    I should like the hon. and learned Gentleman to deal with one or two minor points on these new Clauses that he has drawn up in substitution for those formerly in the Bill. The first is in regard to the second new Clause. In line 4, the words occur

    "(whether in whole or in part).
    I should be grateful if he would say exactly what those words are meant to effect. As this Clause is at present drafted it is not, as I read it, at all clear, and I think he should say something more on that subject. My right hon. and gallant Friend the Member for Gainsborough (Captain Crookshank) has mentioned the question of schemes that were excepted those prior to 1944. But I think the House ought to be told a little more about those schemes that are not going to be automatically excepted. Reference has been made to Subsection (2) of the second new Clause, but I should be grateful to hear from the hon. and learned Gentleman more about Subsection (2) of the fourth new Clause. It does seem to me that that fourth new Clause is very wide, and that it could well mean that, where several schemes are run by a body corporate, a good one, one such as would fall within the exceptions, could be ruled out because the others were bad. If I read it aright, it says that if, in general, the schemes were bad, a good one would fall as well as the bad ones. I think the hon. and learned Gentleman should make clear what the intentions of the Government are. on that point. In regard to the third new Clause I would ask a question about retirement In line 35 the new Clause deals with the case of a person who never expected to get any benefit whatever. The actual words are
    "by repayment or otherwise as may be appropriate."
    I would like to know from the Solicitor-General what is the meaning of the words "or otherwise as may be appropriate." Does it mean that when a person is behind with Income Tax payments sums may be appropriated from him by the Treasury for the payment of other claims? If that is so it is a most dangerous precedent and one in legislation in this House we have always tried to avoid. I hope that we can have an assurance that that is not so. There is another point in line 38 where it deals with repayments in part and where the Commissioners are empowered to repay. I quote the exact words:
    "as may seem to them just and reasonable."
    There should be some method of appeal from what the Commissioners may direct. As I read the Clause, where there is a sum of money due to a person under a scheme and the Commissioners make an allocation, there is no appeal whatsoever. I think that that is a bad thing. There should be a method whereby the person concerned has a right of appeal against the decision of the Commissioners.

    In the third new Clause very considerable discretion is allowed to the Commissioners and with that I agree, but again I would like to ask the hon. and learned Gentleman particularly with regard to this matter, if he would look at that Clause, for one of the main conditions is that none of the benefits can be commuted. Who is to determine in what circumstances the benefit cannot be commuted? It may be that a man wishes to complete the purchase of a house, for example, where an employee has paid on a house certain sums over years and he has to retire early, and wishes to use that benefit to pay off the sum remaining on the house. Would that be an infringement of these provisions, or would it be an infringement to assign part of the benefit for the education of his children or if he was to make a maintenance grant to some near relative, to, say, his sister-in-law or someone of that sort? Would that in fact be an infringement of the regulations? I agree that the Commissioners have wide powers of discretion but we would like to know something of the general principle which lies behind it.

    I would ask the hon. and learned Gentleman, in relation to this Clause, if there is any method whereby an individual can appeal particularly in regard to Subsection (2), which does seem to be very dangerous. Here the Commissioners can at any time withdraw their consent to a scheme for any reason that they decide to be a proper reason. It is perfectly possible that if a body corporate has entered into a scheme and then can be served with a notice, that the scheme is no longer appropriate. There is no appeal from that provision, and as far as I can see it might lead to very considerable trouble.

    Now with regard to the fifth Clause— the definition of a "controlling director". It starts by saying that he is one of the directors who control the company. Now the phraseology here is very different from that in the Companies Bill. Is it intended that this phrase in line 5 of the fifth new Clause is to have the same effect as what is called "a director controlling a company" in the Companies Bill, or if not, what interpretation is to be placed on these words—"a director having a controlling interest therein"? As drafted it might mean anything. Further what is the intention in introducing the words "more than five per cent."? As it reads at the moment, no director who has more than five per cent. beneficial interest in any company can claim that any scheme shall be to his advantage. He is ruled out automatically.

    I would like the hon. and learned Gentleman to think for a moment what that means. Take the thousand and one small businesses in the county towns and country towns of England. There, very often, a young person is offered an interest, but he is usually only offered an interest if he will put up capital for the business. In other words, he buys a partnership. It is not a partnership commercially, yet that is what it comes to. Under this Clause, that will be ruled out because anyone putting up five per cent. by which he takes a share, will, at the same time, be able to take no part in any superannuation, or any other, scheme. It seems to me that that is very bad, particularly for the development of small businesses. I cannot see any practical use in it. Of all the Clauses we have dealt with, this is the worst Clause which has been put before us, the retention of this five per cent. It can only be a great stumbling block to the development of small businesses. I must apologise to the House for putting so many questions.

    12.15 a.m.

    There is only one observation I wish to make on this new Clause. It arises out of some points made by the right hon. and gallant Member for Gainsborough (Captain Crookshank). He pointed the moral that high taxation inevitably leads to attempts to avoid that taxation. He also pointed out that these five Clauses as originally presented to the House, occupied eight pages of the Finance Bill. There is no one in any part of this House who does not share the view that our official tax-gatherers, whether they be in the Treasury or the Inland Revenue, are among the most competent, at that not particularly pleasant job, of any such people in the world. Yet there were presented to this House eight pages which have had to be withdrawn and replaced by new provisions. That suggests to me that the Government should take very serious warning of what this may mean. Are these most competent officials really undergoing such a strain that there is a danger on breakdown? I am very concerned that these men, to whom we have all looked for years to produce the best class of work in this highly technical and difficult field, should have produced, on this occasion, so much which has had to be withdrawn. I think the whole house should know that, and consider whether there are not some serious factors lying behind it. That is all I have to say.

    I will endeavour to meet most, or some of the points raised, but I should perhaps point out that a lot of questions have been addressed to me. With regard to the remarks of the hon. Member for St. George's (Mr. Howard), I was very glad to hear his encomium on those concerned with the imposition of taxes, and if I may respectfully say so—

    I was very glad to hear the hon. Gentleman's remarks about those who have the task of framing legislation of this sort which, in the case of these particular Clauses, is extremely difficult, as hon. Members will realise. With regard to his references to their workmanship, I would point out that the objection to the Clauses raised by the Committee was that they went too far, not that the machinery would not work, but that they were too drastic. That really was the gist of the criticism.

    I will pass from that to other matters, and deal with the questions I was asked. The hon. and gallant Member for New Forest and Christchurch (Colonel S. Crosthwaite-Eyre) asked a number of questions which I tried to get down, and which I will try to deal with—at any rate, the more important ones. Take the question of appeal. I was asked about the question of appeal. That is an important point. A person who is assessed has the ordinary right of appeal, including the person assessed under this Clause. Then the hon. and gallant Gentleman says there is no right of appeal in the case of refusal, but in some cases there are rights of appeal. There is no right of appeal under Section 32 of the Finance Act, 1921. The right of appeal was not thought necessary there. Not only is that the case here, but there is this additional consideration—supposing the scheme does not qualify for exemption it can be altered. Supposing the Commissioners feel that it does not comply adequately with the provisions laid down, and, therefore, decline to accept it as a scheme coming within the scope of the Section, those responsible for the scheme can alter it so that it does comply. I would like to emphasise this point, because it is very important. If the changed scheme is acceptable to the Commissioners it is then made retrospective from April, 1947. So I would submit to the House that although it is true we have not given the right of appeal, any more than the right of appeal was given under the provisions of the analogous Section of the 1921 Act, we have, in point of fact, been very fair— I would almost say generous—in what we have done by making it possible for a scheme not accepted to be altered, and if it is so altered and accepted it comes within the scope of exception and it is retrospective to April, 1947. That I submit is not only ample, but it is more satisfactory because if the hon. and gallant Gentleman will consider the sort of thing that might arise out of an appeal it is much better for perfectly bona fidepeople to present their scheme and for the Commissioners to tell them that in one Section it is not satisfactory, whereupon they can take it back, have it altered, and then when it is accepted have it made retrospective to April, 1947. That is better than submitting something to the adjudication of a third party in an atmosphere of quarrel. We think that here we have adjusted these matters satisfactorily.

    Does the Solicitor-General suggest that the benefit of having the right of appeal is of no consequence at all, and that this decision should rest entirely in the hands of the Commissioners?

    I do not suggest that, but I do suggest that in some matters of dispute it is better that a matter should be adjusted through discussion, and that a loophole be left for adjustment, than that one should have the position of people at arm's length resorting in an atmosphere of hostility to the adjudication of a third person. I agree that in cases where people are at arm's length there should be an appeal, and if a person is assessed for tax under this Clause and desires to appeal he has the ordinary remedies by way of appeal. We feel, following the precedent of the 1921 Act, that we have done the right thing here and we have added a provision to make such a scheme retrospective to 1947.

    I was also asked a question with regard to commutation. It is not what form the commutation takes which is important; it is the quantity. It does not matter how the matter is commuted. A person can commute a pension either by a lump sum payment and, as was suggested by the hon. and gallant Member for New Forest and Christchurch, by acquiring a house. All those facts would come within the scope of commutation. The question is: Is the amount commuted an amount which can be said to bear a fair relationship to the amount which is not commuted? As to whether a debt can be set off against debts due from the taxpayer, the ordinary law would apply. If a creditor has a right against a debtor who owes the debtor money, the ordinary law says those reasonable debts shall be set off. I did not think there is anything unreasonable in that particular respect.

    The hon. and gallant Member also asks about the words "in whole or part" in, I think, the second Clause. I think he will find the answer in Section 32 of the Finance Act of 1921 which deals with the approval of schemes within this Clause. He will see the answer to his question there. If he will allow me to leave that point, I will come to what the hon. and gallant Member for Antrim (Major Haughton) said in the course of his speech, which, if I may say so, shows, as we all knew, that he has taken the very greatest interest in this particular question. We are most interested in the Canadian experience in this particular branch of taxation. Indeed, all systems of taxation have something analogous about them. Any community can always learn from the experience of its neighbours and we do pay the greatest attention to the experience of other communities in this field of legislation.

    The hon. and gallant Member mentioned the question of contingency. He put his finger there on a very important point. It has been a not infrequent form of abuse to make a payment contingent, and if we did so alter the present law the payment to the employee could not be read as payment forming part of the remuneration of the employee and, therefore, taxable. So that one of the things we have done is to endeavour to frustrate that particular device—because I think it is not unfair to say it has really, generally speaking, I will not say always, been a device for the purpose of tax evasion.

    In regard to the employee who moves from firm to firm, we do not affect his position one way or the other. He is covered by the general bona fidescheme and assuming the schemes of the various companies through which he moves are bona fide schemes under the Acts he will be within the exemptions and his rights will depend upon the particular nature of the scheme within which he falls. We do not affect the position in one way or the other. We do not put him in any worse position.

    May I interrupt the hon. and learned Member. I cannot agree with him. I think if he goes from one firm to another, say, at 45 years of age, and they have no pension scheme at all, he is in a worse position and his service in industry should be taken into account.

    12.30 a.m.

    I see my hon. and gallant Friend's point. The point I want to make, in reply, is that we do not in any way affect the position. The man is left as he was. We do not worsen his position: we do not improve it.

    If I may come now to the right hon. and gallant Gentleman, the Member for Gainsborough (Captain Crookshank), I think I can give him the three assurances for which he asked. First of all, I think I can say with emphasis that these Clauses are designed to deal only with attempts at tax evasion. That is their whole scope and purport. The right hon. and gallant Member's second question was whether this legislation did impose any form of retrospective tax liability. As to that I can tell him the answer is, "No liability prior to 1947 48."As to the series of questions he asked as to whether this affects what I might call voluntary payment—it certainly will not. We have been very careful to leave it out of account. Therefore I think I can give him the first assurance for which he asked. I hope I have dealt in reasonable detail with the many questions that have been asked and I hope the Clause will commend itself to the House.

    Clause read a Second time and added to the Bill.