Finance Bill
Considered in Committee [ Progress, 2nd December].
[Major MILNER in the Chair]
Clause 7—(Increase In Profits Tax Rates)
3.40 p.m.
I beg to move, in page 4, line 46, at the end, to insert:
I should mention that I have some private interest in this matter. This is a very modest Amendment. It is designed to secure that sums paid or set aside for the amortisation of leasehold interests in land, or of other wasting assets calculated upon an actuarial basis should be exempted from the increased rate of Profits Tax. I am asking for this modest relief in the hope that the Government may be agreeable to it. In asking for it I must not be taken as abandoning the claims I have pressed before that such sums applied to amortisation should be excluded from all taxation. The Committee decided last night that the 10 per cent. Profits Tax on undistributed profits should stand, and although I voted against that, I should not be permitted now to challenge the wisdom of that decision. For the purposes of this Debate, I must accept the position as it stands as a result of last night's decision. It is my purpose to endeavour to draw a distinction between the rather narrow and more special case which I am about to argue, and the more general case which was argued last night. In my submission, there is a clear distinction between taxing the generality of undistributed profits, and taxing the particular class of appropriations with which this Amendment is designed to deal. My point is this. A company with a wasting asset has no option, in any real sense of the word, but is hound to make some provision for the amortisation of that wasting asset. There are several professional accountants in this Committee, and I see the hon. Member for Blackley (Mr. Diamond), who made a contribution to last night's Debate, sitting opposite. I hope he will agree that if a company refrained from making due provision for the amortisation of wasting assets, it would be the duty of an auditor to comment upon it in his report to the shareholders. In my submission, that portion of the gross income which, according to proper commercial practice, should be applied to a sinking fund, is not really income in the true sense of the word, but is really a return of capital. 3.45 P.m. This is where I am endeavouring to distinguish between this special class and the generality of undistributed profits which we discussed last night. In my contention, such money is not only not distributed, but is undistributable. Take the case of a company requiring to find £100 a year for the amortisation of a wasting asset. It is a fact that, with the Profits Tax at the rate proposed, namely, 10 per cent., and with Income Tax at 9s. in the £ that company would have to earn £202. Therefore, I hope that the Committee will appreciate what a very grave burden it is upon companies which desire to conduct their business in a proper way to have to pay Income Tax and Profits Tax upon the amount they require to set aside for sinking fund purposes. It would appear that the Government have not desired to discourage such a sound business practice until this question of the Profits Tax arose. I should like to refer to the Report of the Central Advisory Committee on Estate Development and Management. This committee reported early this year, and its report contained the following passage:"Provided that in the said subsection (2) where the difference therein referred to or any part thereof represents sums paid or set aside for the amortisation of leasehold interests in land or of other wasting assets calculated upon an actuarial basis the reduction shall instead of being an amount equal to 15 per cent. be an amount equal to 20 per cent. of the said difference or of the part thereof as the case may be."
Apparently the Government approved that recommendation, because the Ministry of Town and Country Planning sent a copy of that report to all local authorities. Throughout the discussions which have taken place both on this Bill and upon the Budget, it has been made abundantly clear by the Government that these taxes are not imposed for revenue purposes. We were told last night by the Financial Secretary that there is an estimated surplus of something like £300 million. It is not for the sake of revenue that these taxes are being imposed; it has been stated over and over again that they are being imposed to check inflation by reduction of purchasing power. No question of inflation can arise over putting money aside for sinking fund purposes, because it is frozen there unless and until it is used for replacement of the wasted asset. I believe that money set aside into a sinking fund fructifies in a far more useful way than it could ever fructify in the hands of the Government. The Chancellor of the Exchequer, on 17th November, in winding up the Budget Debate, said:"The need for periodic redevelopment renders it very desirable that lessees should 'write-off' their buildings over the period of their estimated useful life … We recommend this practice and suggest that local authorities should advise its adoption by all lessees."
That is just what will happen when the money is put into a sinking fund. In nine cases out of ten it will go into Government securities and fructify in a way in which, I am sure, the Financial Secretary would not disapprove. Continually, we are being told that the Government desire that industry should not distribute its profits to shareholders, but should plough them back into the business. The Financial Secretary said last night that it was the desire of the Government to prevent such money being used for "anti-social" purposes. I argue that if this money is put into a sinking fund it cannot possibly be used for any purpose which can be described as inflationary or anti-social. If it should be considered that the words, "sums paid or set aside," do not tie up the money into a sinking fund with sufficient certainty, I should be glad to have any suggestions which the Government would wish to make for ensuring that the money is tied up tightly. But what I want now is to get some acceptance of this principle. What real purpose can the Government have in mind in wishing to tax money which is to be applied, if the business is properly conducted, to a sinking fund? Surely, they cannot wish to penalise sound business methods. I, therefore, hope very much that this Amendment will have a sympathetic reception."Furthermore, the tax on undistributed profits is a good anti-inflationary measure, which will tend to stop people spending so much money at this moment in the capital goods market. They will put it aside, I hope, and invest it in Government securities."—[OFFICIAL REPORT, 17th November, 1947; Vol. 444, c. 941.]
I would like to support this Amendment. I should have thought that if there was one category of business about which there could be no argument, it was in regard to money which has to be set aside for amortisation of leaseholds. I hope no one will deny that leaseholds are a wasting asset or that any prudent landlord must set aside sufficient money each year to meet that wasting asset. The Government must make up their minds about the grounds on which they are justifying this increased tax. Last night, the Financial Secretary said that the main reason was to prevent inflation, and then went on to suggest another reason—that the Government wanted to collect a bit of money. Is it the one, or the other, or both? If it is anti-inflationery there can be nothing inflationary in owners of property setting aside money to meet their amortisation charges. There is certainly nothing anti-social in doing that. Indeed, if they did not do so they would be committing an anti-social act, because a large part of the property of this country, held on leasehold, would gradually become slum property because the money to keep it up and pay for it was not set aside each year. Therefore, whatever the argument of the Government may be on this matter I hope we shall not hear that argument from them.
If the idea is that the Government need more money, and that this is a sort of taxation on property, I would point out two things: first, that this tax applies only to companies, and not to private individuals. Straightaway, there is unfair differentiation between two classes of property owners. It is worth while remembering that of all the sections of the business community in this country which are working at a disadvantage property owners come near the top of the list. They are trying to maintain their property on prewar rents and they are not allowed to make any further charges for the increased cost of repairs. Quite apart from the general principle which we argued last night, when I voted against the Government, I hope we have succeeded in convincing the Government that this is a special case. When it is considered that over £200 must be set aside to earn £100, I should think that that in itself was sufficient argument. We are not asking for this concession in a narrow sense; we are asking for something which is fair and reasonable, which is to the long-term interest of the country, and which is eminently sensible.I would like to deal with the Amendment under two headings. It relates to two separate categories of assets, one wasting assets and the other leasehold interests. May I deal first with the general category of wasting assets? Provision has already been made for that type of asset by special deductions for the purposes of computing tax. I refer to the Income Tax Act, 1945, and also the Finance Act, 1944. The 1945 Act was specifically designed to create a code of deductions in relation to various types of wasting asset and, broadly speaking, provides for initial and annual allowances against tax in respect of various categories of assets. They are industrial buildings—already widely defined—plant and machinery. The 1944 Act deals with scientific research, and the 1945 Act also deals with mineral rights and money expended on the acquisition of patents.
All these assets, which cover a very wide range, are brought within the scope of these two Acts, and special provision is made on what was considered to be a generous scale, for deductions against tax liability in the form of initial and annual allowances. Until the 1947 Finance Act, these allowances were not available against Profits Tax. Section 46 of the 1947 Act is specifically framed to make these Income Tax allowances available also against Profits Tax. The result is that if this Amendment is adopted with regard to wasting assets generally, there will be virtually a double allowance—the allowance provided by the 1945 and 1947 Acts, and the special allowance which would result from the adoption of the Amendment. That is why I hope that the Committee will agree that, with regard to that particular limb of the Amendment, the arguments advanced cannot be accepted. I might say, in passing, that I do not see how the hon. Member for Hornsey (Mr. Gammans) arrived at the figure of £200 upon an expenditure of £100, but possibly he failed to make out the fact that Profits Tax is itself a deduction for Income Tax. I make the figure a good deal less. This is, however, not fundamental to my main argument. 4.0 p.m. The provision of funds for the amortisation of leasehold interests raises a very old controversy. It goes back to the report of the Royal Commission on Income Tax which was prepared and delivered in 1920. The Members of the Commission investigated the question of providing some system whereby an annual or some similar form of allowance could be made to provide for amortisation of sums set aside in respect of leasehold interests. They reported that, in their view, it was not feasible to do so, because if they gave an allowance in respect of wasting leasehold interests, they must recoup the Revenue in some way in respect of the allowance given to the owners of the leasehold interests. If the leasehold interest was disposed of, it was said that the sum paid must be taxable in the hands of the recipient. That was the suggestion made, and on that they tried to work out a system whereby that could be done, and they reported that it was impossible to do so.I agree with what the hon. and learned Gentleman has said about the report of the Royal Commission on Income Tax in 1920, but they were concerned about protecting the Revenue. Is not the distinction now that the Government are not concerned with getting revenue, but concerned with preventing inflation, which was not the problem which confronted the Income Tax Commission in 1918?
I do not want to travel beyond the scope of the argument which I am addressing to the Committee, but I think it should be remembered that all Budgets are to get revenue, and the way we are trying to relieve anti-inflationary pressure is to collect extra revenue to prevent too much purchasing power being available. The Committee may say that 1920 is a long time ago, but the question has since been considered.
The right hon. Member for the Scottish Universities (Sir J. Anderson), who was Chancellor of the Exchequer in 1944, in announcing his proposals for postwar taxation, dealt with this matter of lease- hold interests. In his Budget statement, he contrasted the position of leasehold interests with the position of patents. I will state shortly what he said. He said that a similar issue arose in the case of leaseholds where the land was granted on payment of a premium in addition to the lease rent. The position of leasehold was much more complicated, and while he would like to propose operating the application of a similar principle to that which he had outlined for patent rights, he could say no more than that this subject also would be further considered. The matter which he had in mind was subsequently embodied in the Income Tax Act, 1945, and in relation to patent rights there is a section of the 1945 Act which provides that sums received on the sale of patent rights are in fact themselves taxable. It would not be possible to apply the same principle to leasehold interests. The matter has been further considered since the right hon. Gentleman made his statement, and the result is that it has not been found possible to adopt any similar principle for the purpose of leasehold interests. The net result is that the Income Tax legislation does not provide any system of relief in relation to wasting assets in the nature of leasehold interests. If the Income Tax legislation does not contain such provision, it is not feasible or consistent that the Profits Tax legislation should do so either. Profits Tax is based on the old National Defence Contribution, and both the old tax and the Profits Tax are computed and assessed on Income Tax principles. It has not been possible to do it for one Tax, equally, therefore, as a matter of consistency, it cannot be introduced into the other Tax, even if it were feasible to do so. To sum up: With regard to wasting assets other than leasehold assets, there is already provision made in other Acts—the 1944 and 1945 Act; so if this Amendment were adopted there would be a double relief afforded in respect of them. With regard to leasehold interests, the matter has been frequently considered since as long ago as 1920, and it has not so far been found possible to work out any appropriate system.Would the learned Solicitor-General explain why it is feasible to make this allowance in the case of industrial leaseholds, and not in the case of leaseholds generally?
The question is practicability. In the Income Tax Act, 1945, in relation to expenditure, on industrial buildings and only on industrial buildings, there is contained a system of relief for expenditure on the construction of the buildings themselves. That is scarcely applicable in the case of leaseholds which ex hypothesi are already in existence, and in which there is a diminishing interest on the leasehold building itself. Therefore, the Income Tax Act, 1945, is designed for a different object as regards industrial buildings as against general leasehold buildings, and its scope is not such as to embrace a leasehold building. If relief is granted with regard to leasehold building, and no corresponding provision is made whereby the Revenue recoups itself from somewhere, as the years go by the Revenue is buying the leasehold building for the owner of it, or the leasehold interest for the owner of that interest.
I am sure that the Committee are indebted to the learned Solicitor-General for giving so much data on what is admittedly a somewhat complicated matter. It is clear that amortisation puts a rather different angle on this matter from that which we, were discussing last night. There is one specific point which I would like to put to the hon. and learned Gentleman. This Debate has turned naturally, owing to the framing of the Amendment, on leasehold interests, but it also refers to other wasting assets, and that is one of the matters which I wish to submit to the Government. The hon. and learned Gentleman said that the object of the Budget was twofold: revenue raising and a defence against inflation. I think he would not quarrel if I said that it also seeks to work out general defences for the economic position of the country at the present time.
One weakness in the present situation was explained to us by the hon. and learned Gentleman, who said that the Profits Tax is the heir of the old National Defence Contribution, which was first introduced in 1937 and had the limited objective of providing funds for rearma- ment. Since then, a great deal has happened to the whole economic structure of the country, consequent upon a long, and exhausting war. I suggest that there is one aspect of the matter which ought to be looked at with considerable care between now and April. I do not think it can be dealt with now. I refer to the position with regard to amortisation of gold mines, primarily in South Africa, but registered in London. Surely one of the defences necessary at the present time is to look towards South Africa for the production of the gold which we shall need as we go along, as a backing for our currency. At the moment, our gold reserves are leaving the country at alarming speed and we all look to the time when that process may be reversed and the bullion position can be built up again and strengthened. The hon. and learned Gentleman also told us—he appears now to be examining some book of reference which probably bears upon the point I am making, but I do want him to hear what I have to say—that there were other provisions for amortisation under other Statutes. All that being true, is it not time that we looked carefully at the impact of this kind of taxation upon what is one of the great assets of this country and the Empire, namely the gold mining industry in the Union of South Africa? A number of those companies are registered here. It is a problem. While not pressing this point any further at the moment, I suggest that it might be a matter for cogitation between now and April.4.15 p.m.
The Solicitor-General left the Committee under the impression that the Section of the Income Tax Act, 1945, which deals with mining properties covers all their expenses which may be classed as wasting assets. The hon. Gentleman was not with us when we were discussing that Act. If he had been, he would remember that we had a long argument because the mining industry did not feel that those allowances covered anything like the total expenditure of preparing a mine for production. Therefore, I think the point ought to be made again that sooner or later, if we wish to encourage mining in the British Empire, we shall have to tidy up that Section of the 1945 Act.
Perhaps I may say one or two sentences more. The Solicitor-General dealt with this matter with his usual courtesy and ability, but I regret that he took refuge in technicalities. There is a wider aspect of this matter, which I endeavoured to put forward. I know that he was on fairly safe ground in saying that it is provided that the Profits Tax shall be assessed on Income Tax principles and in referring to what the Royal Commission said, and so on, but he seemed rather careful to avoid the main point which was put to him that this taxation—so we have been told by the Government time and time again—is being imposed not to get revenue but to counter inflation. I am very sorry that he did not deal with my submission that sums put into a sinking fund cannot possibly have any inflationary effect. They are put there in accordance with sound business principles, which should be encouraged and not discouraged by the Government. I confess that I was disappointed with the Solicitor-General's answer.
Amendment negatived.
I beg to move, in page 5, line 6, to leave out from "shall" to the end of the Subsection, and to insert:
The purpose of the Amendment is to alter the date at which the tax comes into operation. If not amended, the Clause will bring the tax into operation as from 1st January last, that is, it will be retrospective. We consider that to be bad in principle and we desire that the date shall be the day on which this increase in the rates of Profits Tax was announced. Some companies closed their books for this year before the Budget was introduced. They held their general meeting, declared their dividends and distributed the dividends. Their shares have been bought and sold on the basis of those accounts and those distributions. Those companies also calculated a large number of commissions and bonuses which are payable in relation to the annual profits, and have made the payments in respect of those calculations. I particularly wish to draw the attention of the Financial Secretary to the Treasury to the fact that a large number of distributions of that kind will have been made to managements. The Chancellor of the Exchequer made a most extraordinary statement when winding up the Debate on the Second Reading of the Bill. He said:"have effect from the thirteenth day of November nineteen hundred and forty-seven."
Of course, that statement is entirely wrong. A very large number of managers are given bonuses based upon the annual net profit. The result of making this tax retrospective to 1st January last is that such calculations as I have mentioned will be upset. One does not know how they will now be treated. It is bad in principle to adopt retrospective taxation. If this practice continues, auditors will have to add the words "subject to future legislation" when they attach their certificate to annual balance sheets. Such a development would be thoroughly bad for the reputation and stability of British business. I feel sure that the Committee will therefore adopt our Amendment, which is fair and is in accordance with sound practice."Management is the technician, who does not share in the profits."—[OFFICIAL REPORT; 25th November, 1947; Vol. 444, C. 1921.]
I support what has just been said by my hon. Friend. I tried to deal with this point on the Second Reading, and I was greatly encouraged at that time by something which the Financial Secretary said earlier in the Debate. I am thinking particularly of companies which close their accounts and publish their balance sheets without qualification of any kind. Only one answer was put forward to the three questions which I put to the right hon. Gentleman during the Second Reading. Those questions were: Have the companies done anything wrong? Have they broken any law or order? Was there any reason why they should not publish their balance sheets, in the light of the Finance Act of 1947? The Chancellor replied very late in the evening that it was quite wrong to say that there had been no precedent for making it retrospective. I do not think that anybody on this side of the House said there had not been a precedent, but certainly there was no precedent in peacetime.
It is true that the Excess Profits Tax was made retrospective during the war, but if retrospection in taxation of this kind is to be established, uncertainty is bound to occur and confidence, which is so important in industry today, will be damaged. I submit to the Financial Secretary that this is not a petty thing but a perfectly reasonable proposal which we are putting forward. The Amendment substantiates what I and my hon. Friends on this side of the Committee said when we argued this point on the Second Reading, and I hope, in view of the fact that many, many companies away back from September to midsummer, have published their balance sheets, that the Financial Secretary will concede this point and make the incidence of this tax date from the passing of the Resolution.May I reinforce what has been said by my two hon. Friends the Members for Chippenham (Mr. Eccles) and for Antrim (Major Haughton), and ask the Government very seriously to look at this again? As was said by my hon. Friend the Member for Chippenham, the various calculations will have to be remade and will have to be re-agreed with, the authorities and the Income Tax assessments will have to be reopened because all are affected by the Profits Tax liability. My hon. Friend also referred to the general unsatisfactory nature of retrospective legislation. Might I also suggest that this Subsection militates against two sound principles in regard to the levying of taxation? Firstly, there is the question of certainty in taxation.
The Solicitor-General will be very well aware of the importance which the courts have accorded to that principle in the past. If I may remind him—though I am certain he will not need reminding—of what Mr. Justice Rowlatt said on this matter in the case of Anderton and Halstead against Birrell in 1932 which was approved by Mr. Justice Lawrence, as he was then, in the case of Dodworth v. Dale in 1936. Both of these learned judges refused to allow the reopening of properly settled taxation assessments because of the principle that there must be certainty in taxation. Now we find the Government coming along and seeking to reopen a large number of properly settled taxation assessments. The second principle against which this offends is that the collection and payment of taxes should be as simple as possible. This provision is going to involve a great deal more work for accountants and tax collectors and for the Inland Revenue authorities. In fact, it almost seems as if the Government's intention is to make the real basic industries of this country accountancy and tax collection. The Financial Secretary and the Chancellor of the Exchequer must be aware of the vast arrears of work which are outstanding in the Inland Revenue Department. An immense amount of calculations have still to be made and agreements still to be given to various matters, and yet they propose to pile on to the already overburdened officials a whole new set of calculations in respect of matters which those officials firmly believe were agreed. The only other matter to which I want to refer is the statement which the Chancellor of the Exchequer made on the Second Reading of the Finance Bill in regard to this matter when he said:That just is not the case. The precedents, so far as I have been able to discover them for this type of provision, are first of all, that with regard to E.P.T. in the Finance (No. 2) Act, 1939. My suggestion is that that was a different kind of tax, levied under different circumstances and made retrospective for quite different reasons. In the first place, the outbreak of war itself constituted a complete break in the economic or financial system, and everybody knew that all accounts would have to be reopened and reconsidered because of that complete break. Then there was also already in existence the Armaments Profits Duty from 1st April of that year which did cover a portion of the field, and, therefore, the fact of making the E.P.T. provision retrospective in the Financial Act (No. 2), 1939, rather simplified matters, because of the existence already of the Armaments Profits Duty. That is the first precedent for this. The other class of precedent is where there has been deliberate avoidance of either actual or anticipated taxation on a large scale. In those cases provision has been made for retrospection, and I think everybody is agreed that that is right if there is a deliberate avoidance beforehand of actual or anticipated taxation. No one disputes in such cases that the taxes should be made retrospective, but that is not the case here. I ask the Government to think again on this matter. It may be in their view that the 13th November is not the right date. At one time I thought 1st January, 1948, would be better, but it might be that 1st October, 1947, would be a better date. However, I ask the Government to look into this matter again and to promise that something will be done to meet our objection."Indeed, it has been quite a common factor that taxes upon profits put on for emergency purposes, as is this one, should be made retrospective. That has been the common practice of this House for that class of tax. I see no reason to depart in this case from that common practice."—[OFFICIAL REPORT, 25th November, 1947; Vol. 444, c. 1921.]
4.30 p.m.
I will not cover the ground already covered by my hon. and learned Friend, but I should like to ask the Financial Secretary to give this matter careful consideration. I am puzzled why 1st January is the date chosen by the Government. It was not the date of the original Budget; it was not the date of the Government's own financial year; and I can only presume that it has been chosen because it was felt it was the beginning of the calendar year, and as the event has taken place during the present calendar year, it would make a tidy arrangement if all accounts finished at the end of December and there was a full year's taxes.
Many industries do not base their financial year on the calendar. The industries with which I am connected very seldom base their year on the calendar. They base their year on when the summer comes to an end and when changes are made at the end of a summer to be ready for the next season. Consequently, the year ends with them at the end of July or August and this tidy arrangement of going back to the 1st January becomes very untidy. Reference has already been made to the fact that several industries take stock, and if they are prompt in doing so they get their balance sheets through and have it all dealt with as quickly as possible. Now they have this charge falling on them which will cause quite a considerable amount of work and a good deal of dislocation. Perhaps I might correct the statement of the Chancellor of the Exchequer that the managements have no interest in this matter. I have just been signing several hundred cheques for bonuses to managements and technicians which are based upon profits. I could produce hundreds of people engaged in management who would say that they had an interest in profits. If there had been no profits they would have had no bonus. The Chancellor is a fair-minded man and I am sure that he would not have said that deliberately. I am, therefore, giving him this evidence in order to prove that he is making a mistake. This only goes to prove the point we are making, that retrospective taxation hurts in many directions. I have no intention of penalising the people who have had bonus cheques, and I am quite sure the Chancellor would not put us in a position where that procedure would be illegal. I appeal to the Financial Secretary to meet us in this and to abide by the well-known British principle that we do not have retrospective taxation. I ask him to fix a date which will obviate the necessity for all these matters to be reopened and gone into again.I wish to reinforce the remarks of the hon. Member for Edgbaston (Sir P. Bennett) in one particular. If there is an increasing doubt in the minds of the business world about retrospective taxation, the result must inevitably be that people will try to produce their balance sheets just after the Budget in order to be able to produce accounts which will have some certainty and will not have to be adjusted. The result of that will be a great concentration of work for the Revenue authorities and for the auditors at one particular time. Nothing could be worse from every point of view. At the moment, industries make up their balance sheets at a time that fits in with their type of business. In order not to have hanging over them this cloud of retrospective taxation they are bound to alter the date and concentrate on a particular time.
Because the Chancellor says that there is a precedent for this case, that does not make the case any better. It is quite wrong to have certified accounts and audited figures and then to have the accounts reopened and commission agreements, reserve accounts and almost all one's closing figures altered. One hon. Member said that the Government seemed to be aiming to give auditors and accountants more work. I see two colleagues on the other side who, with me, should not object to that, but if we take a strictly professional point of view, we are very much against retrospective taxation. It ought not to be done if it can possibly be avoided. The Excess Profits Tax was in a different category. There was an emergency and there had been large contracts before E.P.T. was imposed and some of the tax had come along before the Act. The position today is not quite the same. The fact that there is a precedent for it does not make the bringing in of another item on the same lines any better. I feel that it is a bad thing for the country as a whole to bring in retrospective taxation.
I am sorry, but we feel that we cannot accept the Amendment. I will come straight to what I think is a consideration which will weigh with hon. Members opposite and possibly my hon. Friends. That is the amount that this Amendment would cost. The estimate is that at present profit levels the increase in Profits Tax should, in a full year, bring in ·5 million. But the Profits Tax is a deduction against Income Tax and, allowance being made for the fact that it ranks as such a deduction, the net result will be no less than £47 million in a full year, which is a very substantial amount. The proposal is that the tax should not operate until 13th November, 1947. That means that some 8/9ths of that £47 million will be lost, or £42 million. Unless a very strong case can be made out for losing that amount of revenue, I feel the Committee would agree with me that the Amendment cannot be accepted. It may be said that the principal object of this Budget is to prevent inflationary pressure. A very substantial contribution to that will be to mop up £42 millions of purchasing power.
It is not as if there were not precedents for this type of retrospective legislation—and cogent precedents which come very close to this case. Several hon. Members opposite have mentioned them. Perhaps I might go through them in order to get them strictly in order. The first was the Excess Profits Duty in the first world war which was imposed by the Finance (No. 2) Act, 1915, in September, 1915, and was made to go back for 13 months to August, 1914. Then came the Excess Profits Tax of 1939 which was made to go back from September, 1939, to April, 1939. When the Excess Profits Tax was increased to 100 per cent.—admittedly during wartime—that was made to go back from June, 1940, to April, 1940. It is not the case that retrospective taxation has been confined solely to wartime, because in the case of Income Tax there was an example in 1931—again in an emergency period—and there have been three wartime examples. What was done in those four cases is very much what is being done today. A Finance (No. 2) Act was passed in the autumn and in each case the Act was made retrospective. The hon. Member for Edgbaston (Sir P. Bennett) asked why 1st January had been selected as the date. This is an increase of Profits Tax, and under the Finance Act, 1947, there is a very elaborate provision for starting that Tax as at 1st January, 1947, and cutting off any anterior period of an accounting year before the end of 1946. That is why this increase is made to date from the same time. There is also the consideration to be borne in mind that one of the objects of this tax, as was announced by the predecessor of the present Chancellor of the Exchequer in April this year, was specifically to recoup the Treasury to some extent for the loss which would be incurred as the result of Excess Profits Tax coming to an end as it did at the end of 1946, so that, as it were, this tax follows on logically as from that period. It is said that there would be a great deal of extra work occasioned, and the hon. and learned Member for Wirral (Mr. Selwyn Lloyd) particularly mentioned the Inland Revenue authorities. So far as they are concerned, I can reassure him, because I am told that this particular retrospective effect will not impose any real extra burden on them. In fact, very few computations of the tax have yet been made but there would be a great deal of extra work if the year were broken when it was nearly run, and broken at 13th November. That would involve a great deal of adjustment in relation to the period before and after that year. The position of companies affected by the tax has to be looked at too. A great many companies have to prepare their accounts with their taxation liabilities simply left provisional; the accounts have appeared and the amount of the company's liability to tax has not been assessed at the date when the accounts are closed. So it is not an unusual experience for companies to close their accounts with the knowledge that subsequently, when the tax liability is ultimately assessed, they may possibly have to review certain items which have appeared in the closed accounts. Not only that, but it is not entirely irrelevant to point out that companies which close their accounts, for example, at the end of the year do not know what their Income Tax liability will be until they hear the Budget statement in the succeeding April, so that, in a sense, there is always a certain measure of uncertainty with regard to the tax. Therefore, I seek to justify this tax on these general lines. I say we are not doing something for which there is no precedent. The Income Tax legislation affords ample precedent. It affords precedents in times of emergency and for that reason at this time, when there is urgent need to take up inflationary pressure, we are justified in this case in following those precedents. If we did not, as I pointed out by reference to the figures, we should be losing the effect to some considerable extent of the tax which we seek to impose from the point of view of its effect on inflationary pressure. Roughly speaking, the result would be this: supposing the tax remains retrospective, the yield in the current year will be about £2 million, and in 1948–49 we will get the bulk of the full year's yield of £47 million. Therefore, it will begin to operate with considerable effect. Supposing the higher rates were only made to operate as from 13th November, there would be no yield in 1947–48, there would be only a very small yield in 1948–49, and only a year after that could this increase of the Profits Tax have any appreciable effect to relieve the inflationary pressure. That would be leaving it to a very late stage, and it would be losing a great deal of the advantage which we hope will accrue to the national interest by the imposition of this check on inflationary pressure. It is for that reason we feel we cannot accept this Amendment and postpone the tax in the way suggested. 4.45 p.m. It was suggested by one hon. Gentleman that companies which had closed their accounts before 13th November should pay at the old rate, and companies which closed their accounts after, should pay at the new rate from a certain period. I should have thought that it would be unfair on the companies whose accounting periods closed after 13th November. It would be imposing a burden on them which would not be borne by companies that had the good fortune to close their accounts in March or June. Also, it is only from the 1st of the year that the tax begins, so that taking a company whose accounts closed in March, 1947, it is not as if that company has to bear the increased rate for the whole accounting year to March, 1947; it is only for the apportioned period from 1st January, 1947, to the end of March, 1947, or about a quarter of the year. So the burden of retrospection is not as serious as it might otherwise be. For all those reasons, having regard to the fact that this is an emergency measure and that a great deal of its potency would be lost if we accepted the. Amendment, having regard to the fact that there is ample precedent and also the consideration of recouping revenue which comes to an end with the finish of the Excess Profits Tax, I would ask the Committee to say that we were right in adopting the course we have, and that there is good reason for rejecting this Amendment.I have listened carefully to what the Solicitor-General has had to say, and I do not feel at all convinced by it. My hon. Friend the Member for Chippenham (Mr. Eccles) and many other hon. Members on this side of the Committee have put forward most cogent reasons against this proposal. I have received a number of representations from accountants, and also from company secretaries and others in my constituency, all of whom feel that not only is this proposal an unfair one, but that it is a bad precedent. The Solicitor-General has told us that there have been precedents for the same kind of thing. It really is no good telling us that something which we think is wrong has been done before, and that therefore
Division No. 38.]
| AYES.
| [4.49 p.m.
|
Adams, Richard (Balham) | Awbery, S. S. | Barstow, P. G. |
Allen, Scholefield (Crewe) | Ayles, W. H. | Barton, C. |
Alpass, J H | Ayrton Gould, Mrs. B. | Battley, J, R. |
Anderson, F. (Whitehaven) | Bacon, Miss A. | Bechervaise, A. E |
Attewell, H. C. | Baird, J. | Berry, H. |
Austin, H. Lewis | Balfour, A. | Beswick, F. |
it is right. If there are precedents, they are bad precedents, and the sooner we forget about them, the better.
A large number of companies make up their accounts to 31st March, a great many to 30th June, and some on other dates. All the companies which have made up their accounts, so far as this year is concerned, to 31st March or to 30th June, or since then, would have to reopen those accounts. In every case the profit and loss has been struck, the bonuses have been distributed to the managements, the profits have been divided amongst the shareholders and the dividends have been paid. If there has been an inflationary pressure, it has taken place already. That is in the past. In addition, shares have changed hands on the basis of those accounts and, what is more, amalgamations have been arranged on the basis of those accounts in more cases than one. There are even companies which have gone into liquidation since the beginning of the year, and what it is proposed to do about them, I just do not know.
For all those reasons it is quite clear that it is highly inconvenient that such a proposal as this should have been put forward. It is highly objectionable that retrospective taxation of any sort should be enforced, and although it is said by the hon. and learned Solicitor-General that it will not be any additional trouble to the Inland Revenue, I take leave to challenge that suggestion. We will see in another couple of years whether the Inland Revenue share that view. Of course it is an important point that a considerable amount of revenue will be lost, but the hon. and learned Gentleman pointed out that only a small part of it was in this financial year. Therefore, for all those reasons, I think we have no option on this side but to ask the Committee to divide.
Question put, "That the words proposed to be left out stand part of the Clause."
The Committee divided: Ayes, 243; Noes, 135.
Bins, G. H. C. | Henderson, Joseph (Ardwick) | Peart, T. F. |
Binns, J. | Herbison, Miss M. | Perrins, W. |
Blackburn, A R | Hicks, G. | Poole, Cecil (Lichfield) |
Blenkinsop, A. | Hobson, C. R. | Porter, E. (Warrington) |
Blyton, W. R. | Holman, P. | Porter, G. (Leeds) |
Boardman, H | Holmes, H. E. (Hemsworth) | Price, M. Philips |
Bowden, Fig.-Offr. H. W. | House, G. | Pritt, D. N. |
Bowles, F. G. (Nuneaton) | Hubbard, T. | Pryde, D. J. |
Braddock, T. (Mitcham) | Hudson, J. H. (Ealing, W.) | Randall, H. E |
Brook, D. (Halifax) | Hughes, Hector (Aberdeen, N.) | Ranger, J. |
Brooks, T. J. (Rothwell) | Hughes, H D. (W'lverh'pton, W.) | Reeves, J. |
Bruce, Maj. D. W. T. | Hynd, H. (Hackney, C.) | Reid, T. (Swindon) |
Burden, T. W | Hynd, J. B. (Attercliffe) | Richards, R. |
Byers, Frank | Irvine, A. J. (Liverpool) | Ridealgh, Mrs. M. |
Castle, Mrs. B. A. | Irving, W. J. (Tottenham, N.) | Roberts, Emrys (Merioneth) |
Chamberlain, R. A | Janner, B. | Roberts, W (Cumberland, N.) |
Champion, A. J. | Jay, D. P. T. | Ross, William (Kilmarnock) |
Chater, D. | Jeger, G. (Winchester) | Royle, C |
Chetwynd, G. R | Jeger, Dr. S. W (St. Pancras, S.E.) | Scollan, T. |
Cluse, W. S | John, W. | Scott-Elliot, W. |
Cocks, F. S. | Jones, D. T. (Hartlepools) | Segal, Dr. S. |
Collick, P. | Jones, P. Asterley (Hitchin) | Shackleton, E. A. A. |
Collins, V. J. | Keenan, W. | Sharp, Granville |
Colman, Miss G. M. | Kendall, W. D. | Shurmer, P. |
Cooper, Wing-Comdr, G | Kenyon, C. | Silverman, J. (Erdington) |
Corlett, Dr. J | Kinley, J. | Simmons, C. J. |
Cove, W. G. | Lee, Miss J. (Cannock) | Skeffington-Lodge, T. C. |
Cripps, Rt. Hon. Sir S | Leonard, W. | Skinnard, F W. |
Daggar, G. | Leslie, J. R. | Smith, C. (Colchester) |
Daines, P. | Lever, N. H. | Smith, Ellis (Stoke) |
Davies, Clement (Montgomery) | Levy, B. W. | Smith, S. H. (Hull, S.W.) |
Davies, Edward (Burslem) | Lewis, J. (Bolton) | Sorensen, R. W. |
Davies, Harold (Leek) | Lewis, T. (Southampton) | Soskice, Maj. Sir F. |
Davies, R. J. (Westhoughton) | Lipton, Lt.-Col. M. | Stamford, W. |
Davies, S. O. (Merthyr) | Longden, F | Stewart, Michael (Fulham, E.) |
Deer, G. | Lyne, A. W. | Strachey, Rt. Hon. J. |
Delargy, H. J. | McAdam, W. | Stross, Dr. B. |
Diamond, J. | McAllister, G. | Summerskill, Dr. Edith |
Dobbie, W. | McEntee, V. La T | Sylvester, G. O. |
Dodds, N. N. | McGhee, H. G. | Symonds, A. L. |
Driberg, T. E. N. | Mack, J. D. | Taylor, H. B. (Mansfield) |
Dumpleton, C. W. | McKinlay, A. S. | Taylor, R. J. (Morpeth) |
Dye, S. | Maclean, N. (Govan) | Taylor, Dr. S. (Barnet) |
Ede, Rt. Hon. J. C. | McLeavy, F. | Thomas, D. E (Abordare) |
Edelman, M. | MacMillan, M. K. (Western Isles) | Thomas, Ivor (Keighley) |
Edwards, Rt. Hon. Sir C. (Bedwellty) | Macpherson, T. (Ramford) | Thomas, I. O. (Wrekin) |
Evans, A. (Islington, W.) | Mainwaring, W. H. | Thomas, John R. (Dover) |
Evans, E. (Lowestoft) | Mallalieu, J. P. W. | Thurtle, Ernest |
Evans, John (Ogmore) | Mann, Mrs. J. | Tiffany, S. |
Evans, S. N. (Wednesbury) | Manning, C. (Camberwell, N.) | Titterington, M. F. |
Ewart, R. | Marshall, F. (Brightside) | Tolley, L. |
Fairhurst, F. | Mathers, Rt. Hon. G. | Vernon, Maj. W. F |
Farthing, W. J. | Medland, H. M. | Walker, G. H. |
Fernyhough, E | Mellish, R. J. | Wallace, G. D. (Chislehurst) |
Foot, M. M. | Middleton, Mrs L. | Warbey, W. N. |
Forman, J. C. | Millington, Wing-Comdr. E R | Watkins, T. E. |
Gallacher, W. | Moody, A. S. | Watson, W. M. |
Ganley, Mrs. C. S. | Morley, R. | Webb, M. (Bradford, C.) |
George, Lady M. Lloyd (Anglesey) | Morris, Lt.-Col. H. (Sheffield, C.) | Wells, P. L. (Faversham) |
Gibbins, J | Morris, P. (Swansea, W.) | West, D. G. |
Gibson, C. W | Morrison, Rt. Hon H. (Lewisham, E.) | White, C. F. (Derbyshire, W.) |
Gilzean, A. | Moyle, A. | White, H. (Derbyshire, N.E.) |
Glanville, J. E. (Consett) | Murray, J. D. | Whiteley, Rt. Hon. W. |
Granville, E. (Eye) | Naylor, T. E. | Wilkes, L. |
Greenwood, Rt. Hon. A. (Wakefield) | Neal, H. (Claycross) | Wilkins, W. A. |
Greenwood, A W. J. (Heywood) | Nicholls, H. R. (Stratford) | Willey, O. G. (Cleveland) |
Grey, C. F. | Noel-Baker, Capt. F. E. (Brentford) | Williams, D. J. (Neath) |
Grierson, E. | Noel-Buxton, Lady | Williams, J. L. (Kelvingrove) |
Griffiths, D. (Rother Valley) | Oldfield, W. H. | Williams, W. R. (Heston) |
Gunter, R. J. | Oliver, G. H. | Willis, E. |
Guy, W. H. | Orbach, M. | Wills, Mrs. E. A. |
Haire, John E. (Wycombe) | Paling, Will T. (Dewsbury) | Wise, Major F. J |
Hal | Parker, J. | Woods, G. S |
Hannan, W (Maryhill) | Parkin, B. T. | |
Hardy, E. A. | Paton, Mrs. F. (Rushcliffe) | TELLERS FOR THE AYES: |
Harrison, J | Pearson. A. | Mr. Snow and Mr. Popplewell |
NOES.
| ||
Amory, D. Heathcoat | Baxter, A. B. | Boothby, R |
Anderson, Rt. Hn. Sir J. (Scot. Univ.) | Beamish, Maj. T. V. H. | Bower, N. |
Assheton, Rt. Hon. R. | Bennett, Sir P. | Braithwaite, Lt.-Comdr. J. G. |
Baldwin, A. E. | Birch, Nigel | Bromley-Davenport, Lt.-Col. W. |
Barlow, Sir J. | Boles, Lt.-Col D. C. (Wells) | Buchan-Hepburn, P. G. T. |
Bullock, Capt. M. | Hutchison, Col. J. R. (Glasgow, C.) | Osborne, C. |
Butcher, H W. | Jeffreys, General Sir G. | Peto, Brig. C. H. M. |
Carson, E. | Jennings, R. | Pickthorn, K. |
Challen, C. | Joynson-Hicks, Hon. L. W. | Pitman, I. J. |
Channon, H. | Keeling, E. H. | Ponsonby, Col. C. E |
Clifton-Brown, Lt.-Col. G. | Kerr, Sir J. Graham | Raikes, H. V. |
Cole, T. L. | Kingsmill, Lt.-Col. W. H | Rayner, Brig. R. |
Cooper-Key, E. M. | Lambert, Hon. G. | Reid, Rt. Hon. J. S. C. (Hillhead) |
Crookshank, Capt. Rt. Hon. H. F. C | Langford-Holt, J. | Roberts, H. (Handsworth) |
Crosthwaite-Eyre, Col. O. E. | Legge-Bourke, Maj. E. A. H. | Roberts, Maj. P. G. (Ecclesall) |
Crowder, Capt. John E. | Lloyd, Maj. Guy (Renfrew, E.) | Ropner, Col. L. |
Cuthbert, W. N. | Lloyd, Selywn (Wirral) | Ross, Sir R. D. (Londonderry) |
Darling, Sir W. Y | Low, A. R. W. | Salter, Rt. Hon. Sir J. A |
Digby, S. W. | Lyttelton, Rt. Hon. O | Sanderson, Sir F. |
Dodds-Parker, A. D. | MacAndrew, Col. Sir C. | Shephard, S. (Newark) |
Dower, Lt.-Col. A. V. G. (Penrith) | Macdonald, Sir P. (I. of Wight) | Smiles, Lt.-Col Sir W. |
Drayson, G. B. | Mackeson, Brig. H. R. | Smithers, Sir W. |
Drewe, C. | McKie, J. H. (Galloway) | Snadden, W. M. |
Duthie, W. S. | Maclay, Hon. J. S. | Spearman, A. C. M. |
Eccles, D. M. | MacLeod, J. | Stanley, Rt. Hon. O |
Eden, Rt. Hon, A. | Macmillan, Rt. Hon. Harold (B'mley) | Strauss, H G. (English Universities) |
Elliot, Rt. Hon. Walter | Macpherson, N. (Dumfries) | Studholme, H G. |
Erroll, F. J. | Marlowe, A A H | Sutcliffe, H. |
Fletcher, W. (Bury) | Marples, A. E. | Taylor, C. S. (Eastbourne) |
Fraser, Sir I. (Lonsdale) | Marsden, Capt. A. | Taylor, Vice-Adm. E. A. (P'dd't'n, S.) |
Fyte, Rt. Hon Sir D. P. M | Marshall, D. (Bodmin) | Thorneycroft, G. E. P. (Monmouth) |
Galbraith, Cmdr. T. D | Maude, J. C. | Thorp, Lt.-Col. R. A. F. |
Gammans, L. D. | Medlicott, F. | Touche, G. C. |
Gomme-Duncan, Col. A | Mellor, Sir J | Vane, W M. F. |
Grant, Lady | Molson, A. H. E. | Wakefield, Sir W W. |
Grimston, R. V. | Moore, Lt.-Col. Sir T. | Ward, Hon. G. R. |
Hannon, Sir P (Moseley) | Morris-Jones, Sir H. | Wheatley, Col. M. J. (Dorset, E.) |
Harvey, Air-Comdre. A. V. | Morrison, Rt. Hon, W. S. (Cir'nc'star) | White, Sir D. (Fareham) |
Haughton, S. G. | Mott-Radclyffe, Maj. C. E. | White, J. B. (Canterbury) |
Head, Brig. A. H. | Mullan, Lt. C. H. | Williams, C. (Torquay) |
Headlam, Lieut-Col. Rt. Hon. Sir C. | Neill, W. F. (Belfast, N.) | Willoughby de Eresby, Lord |
Herbert, Sir A. P. | Nicholson, G. | York, C. |
Hollis, M. C. | Nield, B. (Chester) | Young, Sir A. S. L. (Partick) |
Howard, Hon. A. | Noble, Comdr. A. H. P. | |
Hudson, Rt. Hon. R. S. (Southport) | O'Neill, Rt. Hon. Sir H. | TELLERS FOR THE NOES |
Hurd, A. | Orr-Ewing, I. L. | Commander Agnew and |
Major Conant. |
Motion made, and Question proposed, "That the Clause stand part of the Bill."
5.0 p.m.
I wish to make only one small point. There is an aspect of this Profits Tax which has not yet been discussed and which I would like the Financial Secretary and the Inland Revenue authorities to consider carefully. It is that this tax has a distinct bearing on the capitalisation of companies for the future. The way the tax is drawn prejudices the issue of preference shares and encourages the issue of debentures and loan capital. I do not wish to enter upon a discussion of that subject, as it would take a long time, but I urge the Financial Secretary and the Inland Revenue authorities to consider the ultimate implications of that aspect, because it will have the result of creating an entirely unnatural capital structure for companies.
On the Clause in general, I would only say that during the Debates in April we on this side of the Committee exposed fully our objection to the Profits Tax. We have put forward a large number of arguments, which we do not think have been answered in the least. During the con- sideration of this Clause we have objected to two particular points, upon which we have divided the Committee. In view of the circumstances, we do not propose to divide the Committee on the Clause itself.I wish to put one point in connection with this Clause with which I wished to deal yesterday when we were discussing the increase in the tax upon undistributed profits, but I could not develop that argument because of the restricted character of the Amendment which was then before the Committee. There are, in this Clause, great increases in two taxes which are quite recent taxes. We must remember that in addition to the 10 per cent. tax on undistributed profits and the tax of 25 per cent. on distributed profits, there is, in the background, also the ordinary Income Tax and Surtax. If we take these taxes in their cumulative effect—and we are making great additions now to the total—they make a great difference to the kind of calculation which any person who is deciding either upon a new venture or the extension of his enterprise, has to make before he takes his decision.
If private enterprise is to work successfully in the sphere still left to it, it is essential that when those who have the responsibility, acting with their own money and on the best advice they can obtain, come to the conclusion that a proposed course of action has a substantially greater chance of creating wealth than of losing it, the incentive to promote it should be such as to allow and encourage them to take that step. With the cumulative taxation which we now have before us, any person faced with that problem will have to say to himself, "I must remember that, heads I lose all that I lose; tails I gain only a fraction of what I gain." Certainly, it will not be worth his while to take a certain action unless, on the best calculation he can make, there is not only an odds-on chance, but several times as great a chance, of gaining as there is of losing. If private enterprise is to work under these conditions, it is clear that in the case of a large proportion of the kind of extensions and ventures of enterprise that ought to be undertaken, the ordinary operation of that calculation will be to stop them from being undertaken, and undoubtedly the country's economy will suffer greatly. The Government's declared policy, and their practical policy, is to rely, for the greater part of our economy, upon the operation of private enterprise, and it is in regard to the export trade, to rely almost 100 per cent. on private enterprise. It is, therefore, of the utmost importance not only that incentives should be there, but that incentives should be of such a character as to induce the right decision in the bulk of average cases. I realise that in present circumstances full effect cannot be given to what would be ideal from that point of view. I concede the case, in relation to our present financial position, for the increase in the tax on distributed profits so as to prevent the inflationary effect of more money being in the hands of shareholders, thus increasing their purchasing power. But there is to be said, about that 25 per cent. tax, that it is obviously the distributed profits which have an inflationary effect, which is a serious one at the moment. There is also to be said for that part of this Clause that in the nature of things the distinction made between distributed and undistributed profits, with a specially high rate on the distributed profits, is related to a temporary critical situation, and is not likely to remain as a permanent part of our taxation system. That is not at all the case when we turn to the increased tax on undistributed profits. That kind of tax is something which is not, in the nature of the case, similarly temporary; it might remain. As was argued with great force yesterday by my hon. Friend the Member for Chippenham (Mr. Eccles), that tax does not, in its net result, really give us any prospect of reducing the inflationary forces from which we are now suffering. Therefore, while purely from the point of view from which I have been speaking, both these taxes have some disadvantages, they are overborne in the case of distributed profits but are not overborne in the case of the increase in tax on distributed profits. I suggest to the Government that as soon as possible, and in relation to any changes in taxation which they make as soon as the present critical financial position has changed or eased in any way, they should bear in mind the extreme importance of securing that the private enterprise system, in the sphere in which it will operate, has a chance of working efficiently.The tax on distributed and undistributed profits is a very important weapon for a Chancellor. Perhaps it will become the most important, weapon in the whole financial armoury against inflation. In my view, it is a weapon which is still capable of, and indeed urgently requires, a good deal of refining before it is fully effective. But the criticism I make of it is on diametrically opposite lines to the criticisms which have come from the other side of the Committee. These were advanced yesterday, and have been repeated today by the senior Burgess for Oxford University (Sir A. Salter) on lines which seem to me mutually contradictory.
One argument has been that this Profits Tax is a disincentive. It was argued yesterday on an Amendment that the additional 5 per cent. which we were discussing would, in fact, be a disincentive on retained profits. In other words, the view was that the extra 5 per cent., or indeed the whole pa per cent. tax on retained profits, will work as a disincentive, and that, as a result, companies will not retain their profits. That argument ignores altogether the fact that the tax on retained profits is balanced by a bigger tax on distributed profits, so that there will still be, on balance, a tendency to retain profits rather than to distribute them.I think the hon. Member is referring to the argument of my hon. Friend the Member for Chippenham (Mr. Eccles), which was not that the increase in tax on undistributed profits would cause more to be distributed but that it would give companies a strong incentive to try to spend more money than they otherwise would upon current maintenance, or unnecessary painting, etc.
I recall that argument, and I recall also the answer, which, as it happens, the senior Burgess himself inadvertently provided. The answer was and is that all expenditure of that kind was subject to very careful regulation in the way of licences, regulations and the rest of it.
That is just not so. It is so for expenditure on capital account, but the whole point of the hon. Member for Chippenham (Mr. Eccles), and of all of us on this side of the Committee, is that it encourages expenditure on revenue account which expenditure is not subject to any licence whatever.
I will willingly answer that point in its turn. But it was made not by other hon. Members opposite, but by the hon. Member for Bath (Mr. Pitman) alone. In my submission, it was the only point of substance made from that side of the Committee. But I was answering first the points made by the hon. Member for Chippenham. As for the hon. Member for Bath, when he says that the effect of this tax would be to increase expenditure on revenue accounts, what he is really saying is that at some point there comes into operation the law of diminishing returns. It was noticeable that when he used an illustration, the only way in which he found it possible to drive it home was to ask the Committee to imagine that the tax was 17s. 6d. in the £ and not 2s. in the £.
I mentioned 17s. 6d. as a reductio ad absurdum. The tax is not 10 per cent.; it is more than 10 per cent. because it is after Income Tax. The total tax is 10s. 1d. and the amount left with the company is 9s. 11d. In other words, for 9s. 11d. a company can get £1 worth of revenue expenditure.
In fact, the extra tax is 1s. in the £. I know that the hon. Gentleman used the phrase reductio ad absurdum, but the significant thing is that it was necessary to make that illustration to drive his argument home. I do not think that anybody would suggest that this extra 5 per cent. tax is of such a magnitude that it will bring into operation the law of diminishing returns. I agree with the hon. Member who said that every step helps, but I submit that this very mild tax certainly does not push the thing over the border. All it amounts to is another 1s. in the £. So much for the arguments on the grounds of disincentive advanced by hon. Members opposite.
But, surprisingly enough, they also complain that this tax is not disinflationary. That argument has been advanced again and again. It follows, therefore, that if they complain that it is not disinflationary, they agree that it should be disinflationary. They agree that disinflation is desirable. If it is desirable, I do not understand how the senior Burgess for Oxford can say that it is also desirable to maintain incentives, because that is a direct contradiction. If we want more money available for the pursuit of capital goods, then we introduce incentives. If we want less money in pursuit of capital goods, then we introduce disincentives. Hon. Members opposite cannot seriously run both those horses at once, complaining in one breath that they want more incentives and in the next breath that they want disinflation. Hon. Gentlemen must make up their minds.It is a disincentive not to distribute more profit by way of dividend but rather to put it to reserve.
5.15 p.m.
Not necessarily. The important point is that I do not think that hon. Members opposite honestly believe that this tax is not disinflationary. Indeed, the right hon. Gentleman the Member for the City of London (Mr. Assheton) admitted yesterday that he could just conceivably see that it was possible to represent the withdrawal of £23 million from the capital market as a disinflationary measure. If there is £23 million less available for the purchase of capital goods, that is disinflationary.
I admit that if we increase a tax of this kind, it would have certain aspects which would be disinflationary, but there comes a time at which we must weigh the loss of incentive against the disinflationary effect. My argument was that this was a case where, taking the measure as a whole, the disinflationary effect was very small indeed, and in some cases, negligible, whereas the loss of incentive to other persons was very important.
I am afraid that we cannot have a discussion on the rightness or wrongness of the Profits Tax as a whole. The sole question on this Clause is whether there should be an increase in Profits Tax and not whether there should be a Profits Tax or not. I also hope that we are not going to have a repetition of the Debate which we had yesterday and that hon. Members will bear my remarks in mind.
I did not intend to repeat yesterday's Debate. I was going to argue, because it seems to be legitimate on this Clause, that the Profits Tax should be modified in certain forms and respects which I am coming to now. I agree that, partly owing to interruptions, I have been rather a long time in getting to that point, but the point I was trying to establish was that there is a basic difference between us on this matter. I do not dispute for one moment that hon. Members opposite want disinflation, but they do not want it at the expense of profits and capital. We on this side of the Committee also want disinflation, but we do not want it at the expense of food and social services.
There are two rather serious points for consideration. We have at present a differentiation between distributed and non-distributed profits. That differentiation may in fact act as an inflationary influence. If there is a lower rate of taxation on retained profits, for which there is obviously a superficial case, it immediately becomes in the interests of shareholders that trading surpluses should be put into retained profits and not distributed, and that the individual shareholder should derive his profit not in the form of dividends, but in the form of capital appreciation. That is one of the serious defects which can only be remedied if, concurrently, there were introduced a tax on capital appreciation. But to have this differentiation as it is, is inviting inflation——Is not the remedy to step up both taxes as we are doing?
No. That is precisely the point which I am making. Unless it is counter-balanced by a tax on capital gains all that it does is to move money from the distributed profits pocket into the retained profits pocket, so that most trading surpluses are put into the latter and they are distributed really in the form of tax-free capital appreciation. It seems to me, therefore, that, although there should be a differentiation, that differentiation should be, not so much between distributed and undistributed profits, but between different trades and services. I think this solution of the difficulty is one which might recommend itself to the right hon. Gentleman the senior Burgess for Oxford University. It is one which has already been urged in the House on more than one occasion in the past by myself and others, and has been developed elsewhere, and I am perfectly persuaded myself that it is going to be, or ought to be, the main line on which we will have to tackle, not only this inflationary problem, but the whole of our economic planning.
I hope that both the Chancellor and the Financial Secretary will look again very seriously at this matter, which has been considered very carefully both by hon. Members here and by economists elsewhere. There are, in fact, no real practical objections against a differentiation between three classifications of industry; unnecessary industries, normal industries and essential industries. There would be no tax on the latter, a tax at a moderate rate, such as exists at present, on the middle group, and a tax of perhaps 75 per cent. on the other, and I very strongly recommend this course to my right hon. and learned Friend for his sympathetic consideration.I am sorry that it has not been possible to pass an Amendment to double the tax. I will not go any further than saying that on that aspect of the question. I am very interested in some of the arguments which have been put forward in connection with various Amendments. It has been argued that this tax, somehow or other, would militate against production. All of us on this side of the Committee are for disinflation, but the very best method of securing disinflation and beating inflation is more and more production. I happen to be a Member of the House who has had the responsibility of talking to shop stewards and workers on this question of working harder and getting greater production. It is to the workers that we have to go for greater production, not the employers or the management, and the one thing that will keep the workers from putting their backs into the job is big profits, and the one thing which the workers are now demanding everywhere is that the Chancellor should cut into the profits of the employer. I know that from experience. I will take any hon. Member on the other side to a meeting of shop stewards—except the right hon. Gentleman the senior Burgess for Oxford University (Sir A. Salter). The Committee can imagine what would be the effect on the workers of a speech of the kind made by the right hon. Gentleman. By the time he finished they would be as muddled as he is himself.
I wish to say, in answer to the right hon. Gentleman the Member for the City of London (Mr. Assheton) that I have not had a letter from an accountant or any of my business associates against this tax, and I have a whole lot of associates who are very definitely interested in the question of production and upon whom depends the fate of this country. Not one of them has sent me a letter protesting against this tax, but I have had any amount of letters suggesting that the tax should be heavier. The right hon. Gentleman sneers at the Financial Secretary for talking about this money fructifying. I can quite understand that, when the right hon. Gentleman was in the Treasury, it did not fructify, but it is different today, and it is fructifying. I remember discussions in the House before the war on the terrible position of the population of this country, but did any hon. Member listen to the radio the other night and hear about the big increase in the birth-rate and the great decrease in the death-rate? Is it not fructifying there through the influence of the Chancellor of the Exchequer? I suggest that hon. Members opposite should stop this foolish practice of trying to save money with rotten arguments.On this Clause, the sole question is whether there should be an increase in the tax or not.
Any increase that is put on will receive the support of the workers of this country, and if it was doubled, it would receive double support. Hon. Members opposite have been moaning and groaning about this tax. I say to the Chancellor, "For heaven's sake, put them out of their pain and make it 100 per cent."
We have listened to a lot of talk from hon. Members opposite in which there has been great use of the word "disinflation." The opposite of inflation is deflation. Hon. Members opposite are so very fond of talking about the evils of deflation that they do not like to use the word now, and therefore use the polite term "disinflation" for the same thing.
I rise to call the attention of the Committee to a point which I think is quite undefined but which is implicit in this Bill, and was, in fact, latent in the earlier Act. To raise the tax to 25 per cent. may be serious, as it seems to me that, in the liquidation of companies, there will be a capital levy of 25 per cent. imposed upon capital assets, and I do not think that is intended. I have read in HANSARD the Debate on 15th July, when the operative Clause was before the House, and I think its purpose was to deal with recently-earned profits which had not had time to fructify in dividends. I understand that the advice given from Somerset House was that, in the liquidation of assets, above 100 per cent. all capital put in was to be regarded as profits, and that will lead to some rather remarkable results. It would apply to capital appreciation and to a reserve fund built up over many years and fully taxed and which may have borne Surtax under the appropriate Statute, but which may now be treated as capital and again be taxed at 25 per cent.Perhaps the hon. Gentleman will give us some reference to where that directive is contained, as I am quite sure that many Members of the Committee are quite ignorant of it?
I am afraid the hon. Gentleman and I are at cross purposes. The position is that if a company is not thought to be distributing enough in dividends, it is the practice to make a direction, and to assess the company for Surtax.
Only a one-man company.
In point of fact, that interruption is really incorrect. That act is not confined to one-man companies, or anything like it, either in law or in practice. It extends, in law, to all companies, and, in practice, it applies to companies with a very considerable number of members. Profits accumulated over the years, and which may, in fact, have borne not only Income Tax but Surtax, will now be subjected to a levy of 25 per cent. on distribution.
I asked the hon. Member for the information which he has. In answering my question, he referred to Surtax. I am not concerned with Surtax. He states that there will be a Surtax equal to 25 per cent. on companies going into liquidation. I ask him to give us the regulation, and not the understanding. A Government official cannot impose a tax by an understanding. Will he give us that regulation?
I am afraid that the hon. Gentleman did not pay me the compliment of listening to me with care. What I said—and I will repeat it—was that I understand that Somerset House have directed the Inspectors of Taxes that that is a true construction of the law. I do not suppose the hon. Gentleman will say that they cannot do that. In my view, if they do so, they are correct. It is what the letter of the law says, and I commend it to the Treasury for consideration. Even though it cannot be dealt with now, it is an anomaly which ought to be dealt with, and I think the point should be brought to the attention of the public and of this Committee as soon as possible.
I have deliberately taken no part in the Debate on the various Amendments to the Clause. I feel that we, as a Committee, have suffered during the discussion of this Clause, which proposes an increase of taxation, from the fact that we have been unfortunate enough not to attract very much attention from the Chancellor himself. I am among those who have, from time to time, been attracted by appeals from a Chancellor to produce more, and things of that kind. I agree that, as far as this Clause is concerned, the doubling of the tax on undistributed profits will serve to absorb money which might otherwise be distributed in buying goods, but I do not think it is going to do very much to counter inflation, because the Treasury will no doubt proceed to expend it. However, I have no wish to enter into a complicated argument on that matter.
Many of us are very deeply disappointed at the way in which the Treasury have refused in any way to meet the position as far as undistributed profits put to reserve are concerned. That is a vital matter, and I ask the Financial Secretary to the Treasury to remember that in this case, we are not dealing with some great and wonderful individual, such as the particular Minister who issues many more permits for high priority steel than there is steel available. We are not dealing with that type of brilliant individual, but with ordinary individuals who have built up British trade and brought work to the people of this country. 5.45 P.m. I propose to emphasise three points in connection with the reason why I think, particularly at the present time, we should allow profits to be put to reserve and to be held for the time being. In many businesses today, as, for instance, in agriculture—and there is no reason why agriculture should not be considered in this connection when it is run on a considerable scale—the people concerned cannot buy new things which they want. They cannot develop or build. Surely, therefore, it is a practical thing for them to buy Government Stock, and wait until the time arrives when they can buy the necessary materials? That is one example of a business putting its income to reserve. That is a wise thing to do, and would help in the long run. There is another example. Very often a business is unable, at the present time, to develop because of the shortage of labour and materials, and because it is not able, by this or that permit, to get and do what is wanted. I am not quarrelling with any of those facts, but I do say, that being the position with which we are faced at the present time, it is grossly unwise of the Chancellor, after all the appeals he has made for the development of the export trade, to do anything which, although it does not affect exports at the moment, will affect exports over a long period of time. I ask that this relief should be given purely from the point of view that it is absolutely essential not to take the short view of what is wanted at the moment, but to endeavour to enable British business today to lay aside adequate funds so as to be able to take the long-term view with regard to the development of trade and export in the future. I maintain that it is the long view which is essential. I am disappointed that the Chancellor has not been here very much to help us in this Debate. If he had been, I believe that the whole position of this Clause would have been changed. I have nothing to say about the right hon. Gentleman the Financial Secretary to the Treasury, but I think that even he will admit that his right hon. and learned Friend has a slightly bigger grasp of the matter than he has himself. In those circumstances, I think it is a tragedy to be asked to pass this Clause which can do nothing but hinder the development of trade and industry, and which is a direct discouragement to the better employers in the country to try to build up their industry for the future benefit of both the country and those engaged in industry.May I begin by saying how sorry I am that my right hon. and learned Friend the Chancellor of the Exchequer could not be here for this Debate? He desired to be here, and he sent a message to say that he was delayed at another meeting. He means no disrespect to the Committee. On the contrary, he would like to have taken part in these proceedings.
I must, in any reply that I make, stick close to what is in the Clause. Quite a lot that has been said has roamed a little wide of it. This Clause does one simple thing. It doubles the tax which, up to now, has been levied on rates of profit. Many of the points about whether a Profits Tax is right or wrong, or whether it helps or hinders industry, are, in my submission, quite out of Order in this Debate. [HON. MEMBERS: "No."] Therefore, I will not, except incidentally, touch on some of the points and arguments used—interesting or plausible though some of them were. The main criticism levelled against these proposals of my right hon. and learned Friend is that, in doubling the tax on undistributed profits, he was doing something which he should not have done. If I read the mind of the Committee aright, there was a general feeling that the Profits Tax should be raised. Hon. Members on both sides agreed that it should be raised on distributed profits on the ground that fresh inflationary pressure would be prevented. Hon. Members opposite can see no reason why any increase should be levied on that part of profits which are undistributed, on the single ground that those profits were kept, as it were, in the family, and put in reserve. Therefore, they did no harm, because they could not escape and become purchasing power in the ordinary sense. Let me remind the Committee that a differentiation between distributed and undistributed profits was originally made in order to help industry. It was felt that at this juncture, after six years of war, when much of the equipment in industry was worn out, something should be done to help the managements to recondition their factories, workshops, and mills. I mention that because it has been implicit in much that has been said that the fact that there was a division does make a difference between the two forms of tax, as taxes. I want to underline, point out, and emphasise that the division was for that single purpose, and, in spite of that division, profits are profits. Therefore, whether distributed or undistributed, they are liable to taxation.Would my right hon. Friend agree that the greater the difference between the distributed and undistributed profits the greater inducement there would be to put profits to reserve?
I will come to that. At the moment I am making the point that we are dealing here with profits. Therefore, my right hon. and learned Friend has every right, when he is increasing taxation in various directions, to tax profits, as profits. The fact that, in order to help industry, profits have been divided, and a differential rate introduced is, in one sense, immaterial. All profits at this time in our history should bear some increase of taxation. My hon. Friend the Member for Eton and Slough (Mr. Levy) had some very interesting things to say. He thought this tax should be selective and profits divided into groups. Those from essentials should be, as it were, herded off from those from unessentials, and so on. He could not have thought very deeply about this matter because, in my view, it would be extremely difficult to differentiate between one industry and another in the way he suggested. He also asked my right hon. and learned Friend to consider, between now and next April, a capital gains tax. My right hon. and learned Friend is willing to consider any suggestion, even the one made by the hon. Member for Eton and Slough.
5.45 P.m. May I say finally that, in doubling this tax, my right hon. and learned Friend has three things in mind and three objects in view. By doubling the tax we double the gap between the rate which is levied on what is distributed and what is not distributed. Where, before, the incentive not to distribute was seven and a half per cent., it is now 15 per cent.Would the right hon. Gentleman say what it would be if he did not double the tax on undistributed profits?
It would, of course, be——
Bigger still.
It would be bigger still. But I am trying to show that, in doing what has been done, we have struck a fair and proper balance in this matter. In doubling the tax on both types of profits we have doubled the gap between what is distributed and what is not distributed. In that sense, therefore, there is a greater incentive now than there was before to leave profits undistributed and put them to reserve. My right hon. Friend has, moreover, lessened the temptation to spend, on capital goods, at a time when we want to damp down expenditure of that type. Finally, it would be unfair, if we are increasing the taxation on beer, and on the Purchase Tax—and on almost every type of goods—to leave profits out. The workers, who are today working hard to help the export drive, would feel that this Government had not played fair by the great mass of the people, and both the management and technicians, as well as the workers, might have something to say.
The workers look upon these profits as open disclosed profits or hidden and crypto-profits. They do not make any difference.
I know that my hon. Friend the Member for West Fife (Mr. Gallacher), is an authority on anything "crypto." I am not so versed in these matters as he is, but there is no doubt a great deal in what he says. At any rate, I have given the reasons why it has been found proper to increase the tax by the percentages by which it has been increased. I hope that the Committee as a whole will realise that my right hon. and learned Friend has done the right thing.
Although it may be advanced that the argument put forward by the Financial Secretary to the Treasury has made a case, From his point of view, that the Purchase Tax should remain as it does in the Bill, I cannot understand how it comes about that, with his high principles and integrity, the Chancellor of the Exchequer should deem it wise and expedient to make this tax retrospective. I know of no argument which could be advanced in favour of making the tax retrospective, that is, to 1st January, 1947, and I can think of many reasons why it should not be. Has the Chancellor considered the position of those industrial companies which balance their books on 31st March, 31st June or, perhaps, 30th September?
They would have to be very clever to do it on 31st June.
I thought I said 30th June. All those accounts are inaccurate.
rose——
I shall not detain the Committee for more than a few minutes. If a firm of accountants knowingly drew up a company's accounts incorrectly, they would be subject to the severest penalties, but due to the incidence of this tax being retrospective, all the accounts which have been drawn up and audited after 1st January last are incorrect in fact. What is the position of companies which have allocated their profits and made provision for reserves, taxation and dividends and have already paid their dividends out of the profits earned up to 30th June last? Surely, it means that during the present financial year they will be required to make special allocations for increased taxation in order to meet the retrospective portion of this Clause.
On a point of Order. Is the hon. Gentleman in Order in discussing the retrospective effect of this tax, which, as I understand it, has already been dealt with on an Amendment on which a Division was taken?
If it has already been discussed, it cannot be discussed again.
It has been discussed.
It was discussed on an Amendment, but I understand we are now discussing the Question that the Clause stand part of the Bill.
I beg the hon. Member's pardon. I thought the Amendment in question referred to another Clause. In fact, it related to this Clause which the Committee is discussing.
I shall not detain the Committee long——
I hope the hon. Member will not repeat what has already been said on the Amendment.
No, Sir. I have no intention of repeating anything which has been said. I hope the Chancellor will give this matter his very serious consideration. I am sure he appreciates that to place a company's accounts in jeopardy and to put a heavy responsibility upon the accountants is a very serious matter.
I want to raise one other point to which reference has not been made. Take the case of a company which is financed primarily by the issuing of debentures and preference shares, and which has a very small nominal amount of ordinary share capital. The debenture holders receive a prior claim of interest. The preference shareholders have a second claim, and the ordinary shareholders, namely, the equity holders take the balance of profits, subject, of course, to reserves. In a case of that kind it must be obvious that the whole weight of this retrospective Clause will fall upon the equity holder. I could enumerate companies which are in this position. They find that after meeting their debenture interest and preference dividend, they will not have sufficient to pay anything in respect of the ordinary shares, because of the special provision necessary to make in order to meet the charge of the retrospective taxation for the previous year. I ask the Chancellor to consider whether, if he cannot go the whole way, he can at least make the tax operative as from 31st March last. I cannot see how the operation of this tax as from 1st January last can be justified on any grounds, and I ask the Chancellor to consider this matter very seriously between now and the Report stage.I believe there are only one or two major issues which can be raised on this Clause. My hon. Friend the Member for Chippenham (Mr. Eccles) last night raised what I consider to be a fundamental issue with regard to the part of this Clause which seeks to increase the tax on undistributed profits. I think we are all at one with the Chancellor in his desire to mop up all inflationary money, and we agree that it is right he should do so. On the question of undistributed profits, however, we are getting on to rather dangerous ground. My hon. Friend the Member for Chippenham asked whether this tax would interfere with production. The hon. Member for West Fife (Mr. Gallacher) said that production was only done by the people employed in industry. A very important side of industry is to maintain up-to-date and efficient machinery, and if any burden is placed on companies' reserves, they are unable to buy up-to-date machinery and maintain production.
6.0 p.m. I am inclined to agree with my hon. Friend the Member for Chippenham that export production may be seriously affected. The Financial Secretary said a little time ago that the difference in the tax on the undistributed profits and on the distributed profits was for the purpose of allowing industry to get some benefit in order that it could equip itself. I think that the time for that has not been long enough, and that there is still a lot of re-equipment to be done in industry. It is not the right time at the present moment; but if we deplete the reserves by doubling this tax on undistributed profits, obviously we shall affect the reserves of companies. A great deal has been said about what reserves are for and how companies use them. There are thousands of companies—and I am not speaking of the huge concerns, but small limited companies, small concerns—which put away their earnings and have been in the habit of putting away money, in order to be able to keep themselves up to date. When one considers that a machine that cost, perhaps, £1,000 before the war, the written down value of which may be £250 today, would cost £2,000 today, one sees how necessary are reserves for re-equipment. I am sure that the Chancellor will keep his eye on the deterrent effects this tax will have on export production. I know that he will keep his mind on the effect the tax will have on the ability of firms to buy what they need in the interests of the export trade. I am sure he will give due consideration to that side of the picture. There is the other side of the picture to which attention was drawn by my hon. Friend the Member for Bath (Mr. Pitman). It is a very important matter. If this tax is doubled on undistributed profits we shall have rather a temptation to make as much expenditure on the revenue side as concerns can possibly carry out. The hon. Member opposite may laugh, but there is a good deal to be done in industry.I certainly did laugh, because the hon. Member must know full well that companies are not allowed to put any sort of expenditure in their revenue accounts. Revenue accounts are subject to inspection by tax inspectors. They will be watched.
The hon. Member and I happen to belong to the same profession, and I hope that he prepares his accounts in the same way as I do. I charge to profit and loss accounts only perfectly legitimate renewals. I am not alluding to any other expenditure outside that scope. So I hope that the hon. Member will grant that I am right in my argument that there is a lot of expenditure that cannot be undertaken today but which is, nevertheless, needed to be undertaken. People may seek an opportunity to increase expenditure on revenue accounts. These are very important matters. It must not be forgotten that if we deplete reserves—and the Clause is only the thin edge of the wedge—by this tax on undistributed profits, we shall deplete the strength of companies which they will sorely need in order to maintain employment and to equip themselves in the future. It is a short-sighted policy, in my opinion, to strip a company of its reserves. These concerns are not, as has been suggested, all badly balanced, badly run companies. They are like the family company of which my hon. Friend the Member for Lonsdale (Sir I. Fraser) spoke yesterday that had been going for 150 years and had built up reserves in order to be able to maintain their trade. This tax on undistributed profits is a backward step.
The hon. Member for Blackley (Mr. Diamond) said that Socialism was the very foundation of the development of efficiency for the benefit of industry. If that is Socialism, and if that is what it stands for, one of the worst things we can do is to starve companies of reserves and make them unable to equip themselves when the time comes for re-equipment, and to render them unable to maintain their position in the industrial world. The immediate anxiety is the export trade, and I ask the Chancellor to keep his eye clearly on that matter. I am sure he will do so.I want to put one point to the Chancellor. I have the advantage of knowing that the Financial Secretary to the Treasury and the learned Solicitor-General were on the Committee which dealt with this point. It is the question of how this 25 per cent. distributed profits tax is going to affect the interim income paid under the Coal Industry Nationalisation Act. This is a very important point. It deals, as the Financial Secretary knows, and, I do not doubt, as the Chancellor also knows, with a great deal of money which was allotted for valuation under that Act. It seems that a very unfair thing has happened—that this interim income, which was allotted on the basis of a cut of 50 per cent., is going to attract this tax also.
Let me remind the Committee of the basis on which this arises. The interim income was to be paid to the holders of colliery shares on behalf of their valuation units. It was considered by the Government, who took over the collieries, that it would take at least two years for the valuation to take place; and, therefore, they said they would give some interim income over the two years. However, in finding out what that income was they cut, by half, the standard income for one year; or, in other words, a 50 per cent. tax was levied upon that income. This devise was used to assist the Government in getting through their valuation proceedings. The then Chancellor, when he brought this point up on the Second Reading of the Coal Industry Nationalisation Act, made it clear that in assessing this interim income he was taking into account all the facts with regard to the stopping of the trading of the companies. He said, in other words, that the proper income was 100 per cent. in a datum year, but that he was going to cut that down by half and give only 50 per cent. of that income over these years for various reasons. One was that there was not any risk; the companies had ceased to trade. Another very interesting reason was that the companies had no need to put any money to reserves of any kind, and would pay the whole amount straight through their accounts to the shareholders. This money which has to be—it most likely will have to be—paid to the shareholders, has already been docked 50 per cent., and is now to attract another 25 per cent. tax. I am raising this point at this stage in order to get some idea of what the mind of the Government is on it. I appreciate that, without proper warning, it is impossible for them to answer it now, but by the time we reach the Report stage, I hope it will be possible to bring this matter forward again and for the Government to answer it fully. I want to ask the Financial Secretary if he can assist me at this stage by telling us what the Government's reactions are now to this matter, because there is going to be great hardship to the stockholders who are relying on this interim income which is to be cut another 25 per cent. If the Government can give some information now it will assist the discussion we may have on the Report stage.
I think there is a double justification for our speaking on this Clause. We have a new Chancellor with a keen and a fresh mind, and, therefore, we are right in calling attention to what we consider to be a bad tax because, not only may he act on it now, but there is the further possibility that he will think between now and the next Budget of what is the right way of taxing profits. Hon. Members opposite must get it into their heads that we on this side of the Committee do not object at all to a tax on profits at this time. It is the way in which it is done that we consider inequitable. It is inequitable in two ways—in degree and in incidence.
First, let me deal with the inequality of degree. Is the Chancellor really aware of the fact that the Profits Tax paid by a company depends, not on the quantity of its profits but on the capital structure which it happens to have? If it has a capital structure which consists solely of ordinary or other shares, then it will pay a very considerable Profits Tax. But if its capital structure is largely debentures——I do not know if I follow the argument of the hon. Member correctly, but I think he is going outside the limits of undistributed profits.
This is not a Clause on undistributed profits at all. This deals with a Profits Tax. It is doubling the Profits Tax; it is on both; and the essence of my remarks is that this is a particularly inequitable manner of taxing profits, by doubling the Profits Tax. It is a bad double. The betting tax may be a good double, but this is a bad double, and I am arguing that it is inequitable in degree because it depends, not on the amount of profit that a company makes, but on how the company happens to have its capital structure set up. If there are a lot of debentures, or if it borrows money from the bank on overdraft, or if it has notes and quite a small capital structure—it may be only £100—then all it pays on its Profits Tax at the higher rate on distributed profits is very small because the capital is very small—and the lower rate on its undistributed profits. That seems to me to be a grave inequality in this tax.
This tax is also unequal in its incidence. We on this side feel that if debenture holders are to get a large slice out of the profits, then they, too, ought to pay their share to the nation at the present time. But this tax falls solely on one class, of capital, and that is on what the hon. Member for Chippenham (Mr. Eccles) called "venture" capital. I call it entrepreneur capital. The Chancellor—in many ways quite rightly—gave us a lecture on the partners in industry the other day, when he mentioned labour, management and capital. He really ought to have said labour management, loan capital and entrepreneur capital. The incidence of this tax is particularly inequitable in that it falls solely on the entrepreneur capital. Whether the entrepreneur capitalist is a man who had the enterprise to launch it, or whether it is the man to whom that capital is later assigned, it ought still to be regarded as "entrepreneur" rather than "sleeping partner" capital. If whenever the entrepreneur sells his shares for the price which he considers right, it is then to be regarded as non-entrepreneur capital and treated accordingly, he will find great difficulty in realising the fruits of his enterprise. Surely, there is a much better way of taxing profits. If Income Tax were raised, it would fall on debenture holders and note holders, on the banks if they are lending at interest, or whatever it is, and on ordinary capital. What is needed, however, is a bigger discrimination in favour of earned income and a bigger discrimination in favour of undistributed profits. The hon. Member for Eton and Slough (Mr. Levy) was very unfair to me in saying that I quoted 17s. 6d. and 2s. 6d. because my case was not made unless I did so. The trouble is that 9s. 11d. and 10s. 1d., which are the real figures, are rather harder to put over than round sums. But even getting £1 worth of revenue expenditure for only 9s. 11d., one has already entered the field of inflationary pressure. For that reason, as well as for the other two reasons—that is to say, because this tax is inequitable in degree and in incidence—it is inflationary in that particular sense. I have consistently made it clear that I regard this tax as on balance deflationary; but everybody can produce cases where the whole £47 million, for instance, might be left in cash at the bank, in which case it would be deflationary. I agree that, on balance, it is deflationary, but the effect of the high rate of taxation on undistributed profits goes a long way and unnecessarily to cancel out the deflationary value, because by itself it is inflationary.Question put, and agreed to.
Clause ordered to stand part of the Bill.
Clause 8—(Interest On Unpaid Income Tax, Profits Tax And Excess Profits Tax)
6.15 p.m.
I beg to move, in page 5, line 16, to leave out from "date," to the end of line, and to insert:
This Clause deals with the provision for the application of interest at the rate of 3 per cent. on unpaid Income Tax, Profits Tax and Excess Profits Tax. There are a great many people who think that these Income Tax matters are complex, very difficult to understand and highly technical. I hope and believe that this Amendment can be explained simply. It seeks to limit the claim of the Crown for interest to the date when the appeal is determined, as opposed to the wording of Subsection (1), which says:"when the assessment or direction becomes final and conclusive."
There are many appeals, and it seems reasonable that interest should apply only when a final settlement has been reached, and after the appeal has been threshed out to a conclusion. I have been long enough a Member of this Committee to realise that it is very dangerous to prophesy on matters which one regards as principles, but when it comes to a question of fair play, I hope the Chancellor will see his way to making this concession. I do not need to labour the point. We all know that there are different dates on which the different forms of tax fall due. Put briefly, where there is a dispute, at present the interest would be applied to the tax, but the Crown can claim interest on unpaid arrears, whereas the taxpayer cannot claim interest on overpayments. That indicates that the dice are weighted very heavily in favour of the Treasury." … when the tax becomes due and payable until payment."
I wish to support what my hon. and gallant Friend the Member for Antrim (Major Haughton) has said. It is clear that some misunderstanding has been created in the minds of many people on this question of arrears of Income Tax. The business world feels very sore about it, and we hope that this Amendment will help to clear up the position. The previous Chancellor of the Exchequer made great play with the fact that in the good old days a mere £700 million was outstanding, whereas today there is some £700 million. It was not fair to suggest that the business world has suddenly become immoral, and has deliberately kept this money which ought to be paid into the Exchequer. It is also an insult to the Inland Revenue to suggest they have been so slack that they have allowed the outstanding contributions to multiply ten-fold without doing anything about it.
That is not the case at all. The position is totally different. Settlements have not been made because of the difficulties due to shortage of staff in the Inland Revenue and shortage of staff among accountants. The money has not been left outstanding, because many millions of pounds have been paid in under the system of tax reserve certificates. The taxation authorities have deliberately left settlements, knowing that the money was there, because it was more convenient to do so, owing to the difficulties connected with Excess Profits repayments, deferred repairs, and the whole complicated machinery arising out of wartime finance. We are entitled to ask the Chancellor of the Exchequer to make it clear that the business world has not been doing wrong, and some statement of the net amount overdue, after outstanding settlements have been made and the whole thing has been cleared up, should be made. We should know what is outstanding after the tax reserve certificates have been deducted. The misapprehension created in the minds of the public should be removed. We feel that an injustice has been done to us, and I have enough Irish blood in my veins to make me boil when I think I am suffering under an injustice. When I first came to this House, the Government were being harassed because they were not paying their accounts. Time after time, Questions were put and statements made on behalf of companies who could not get their money out of the Government. We did not then say that the Government were keeping the industrialists waiting out of pure cussedness. We knew that the war had created difficulties, and that when the system was working properly, the payments would be brought up to date.I think we can clear up this matter fairly simply, and without too much trouble or delay. I agree with the hon. Member for Edgbaston (Sir P. Bennett) that the facts should be made public, because they reflect no discredit on the Inland Revenue or on those who have anything to do with the collection of these taxes. The reports of the Public Accounts Committee and of the Comptroller and Auditor-General make it quite clear that the figures given are not the net but the gross figures of the actual tax due. A great deal of that money, as was made clear, was money which might or might not be due, because some assessments were open to query, and some were subject to an appeal, which might easily be successful.
Can the right hon. Gentleman give the correct figures of the amount of money due and in arrears?
So far as I have them, they are the figures which appear in the reports. The gross figure given for Income Tax, Surtax, National Defence Contributions and Excess Profits Tax is something like £780 million. That, of course, is staggering, and that is the figure which people have concentrated upon, because they thought that it was the total amount outstanding. Actually, as is made clear to those who have read the reports, the Excess Profits Tax arrears which were then collectable amounted to only £107 million, which puts an entirely different complexion on the matter.
Were there not capital reserve certificates to cover much of that amount?
If I had known that this was to be raised, I would have given the details.
Will the right hon. Gentleman give the figures on Third Reading?
Yes.
Can the right hon. Gentleman go so far as to say that the amount of tax reserve certificates is in excess of the amount of tax outstanding?
I would not like to commit myself, because I have not the figures with me, but I agree that the figure was fairly substantial.
Will the right hon. Gentleman give the figures on Third Reading so that publicity can be given to the correct figures?
I will take what steps I can. It may be out of Order to do that on Third Reading, but we will do what we can to call the attention of the public to the actual figures.
I will now come to the Amendment. As I understand it, the Amendment seeks to take out the words "due and payable" and to insert the words "final and conclusive." The effect is that the date at which interest on unpaid tax becomes chargeable would be that at which the assessment of tax becomes final and conclusive. I believe that hon. Members opposite are labouring under a misapprehension. This is how it works. A notice of assessment is issued, and the individual then has a right of appeal. Normally, he must appeal within 21 days, and if he does not appeal, the tax is fixed and becomes due and payable, but not necessarily at that time. The amount is fixed at that moment, but it is due and payable on certain later dates. In the case of Schedule D, these dates are in the following year. A man might receive an assessment in October of this year, and after the 21 days have elapsed, the assessment becomes final in November, 1947. If this Amendment were accepted, the interest would begin to run three months after that date, providing that the amount was over 3,000, whereas the due and payable date is not until 1st January, and, if there are two instalments, not until 1st January and 1st July. Hon. Members opposite are therefore doing a disservice by this Amendment to those who become subject to this provision when it becomes law. We are proposing something very different, which we think is more reasonable; it certainly helps the individual concerned more than this Amendment. Therefore, we ask the Committee to reject the Amendment. I can give the assurance that if an appeal is lodged, the time will not begin to run until that appeal has been settled and agreement has been reached between the Inland Revenue authorities and the individual concerned.I was a little disturbed until the right hon. Gentleman got to his final sentence. It was not until then that he gave us exactly what we were trying to obtain, perhaps wrongly, by this Amendment. We were not sure, and it certainly has not been said clearly before that this only ran from the time when final agreement had been reached between the Inland, Revenue and the taxpayer. Now we have the right hon. Gentleman's assurance that this is so, it would seem that the point raised in the Amendment has been covered.
6.30 p.m.
I agree with what my right hon. Friend has just said, but I would impress upon the Financial Secretary that his interpretation of "due and payable" might not necessarily be the interpretation which the Inland Revenue or the law courts would put upon those words. I believe that the Solicitor-General would support me in this, and I ask the Government to look at these words again to make certain that their intention is carried out in such a way that it cannot be challenged by the courts.
I beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
I beg to move, in page 5, line 24, to leave out "unless."
This Amendment is related to the later Amendment on line 27, to insert:The point of the Amendment is this: money is paid into the Treasury, and it seems unfair that when the Treasury holds money against an amount which may become due in taxation, interest should become payable over the period during which that assessment is subject to an appeal. The Crown already has the money by reason of the purchase of these tax certificates."(c) if the taxpayer holds tax reserve certificates issued under a date prior to the date on which the tax became due and payable to an amount equal to the amount of the tax."
The answer given by my right hon. Friend the Financial Secretary also covers this point. Either the matter is under appeal, in which case no interest runs, or it has been finally decided, in which case the tax reserve certificates can be surrendered in payment. Therefore, no question of interest will arise.
I agree that this point is covered by the statement which the right hon. Gentleman made earlier, but I take this opportunity of repeating the fears expressed on this side of the Committee. We hope that the Solicitor-General will take the opportunity, between now and the Report stage, of making certain that the legal import of these words is the same as the wholly satisfactory statement made by the Financial Secretary.
I beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
I beg to move, in page 5, line 26, to leave out "one thousand," and to insert "three hundred."
There is no doubt that where cases occur of non-payment of tax due, it is a severe crime against the State. That non-payment may be either deliberate or due to carelessness, and in each of those cases it is right that the parties should be brought into the open and pressure put on for payment. I cannot see why an arbitrary line should be drawn at the £1,000 level. The lower income groups are already well protected, but between £300 and £1,000 there must lie a large number of businesses which are not so small, and which are making between £1,000 and £2,000 per annum. Those businesses, for their own protection, should come into this category. There is no doubt that it is helpful to them that they should be more or less compelled, under penalty, to carry on their business in such a way that their accounts are well kept, that they are ready to pay tax after it has been settled and where it is due. The protection of small businesses is a matter to which we on this side of the Committee pay a good deal of attention, and it is for their protection that they should be included in this category. If it is wrong that there should be undue tax delays, either intentionally or through carelessness, the Chancellor, if he has devoted his attention to this question, should lower the figure. Incidentally, by doing so he might get a little more money. We have heard many times the statement that new taxation should not harm those in the lower income groups, such as workers in industry. These workers are fully protected in this Amendment, but I beg the Chancellor to see whether the line has not been drawn in such a way as to give the impression that it is only people above that line who commit these offences. It is difficult to get accurate figures, but we can see the amount coming in above the £1,000 mark and between £300 and £1,000. I cannot vouch for the accuracy of the figures, but it would appear that the amount between £300 and £1,000 is fully equal to, if not rather more than, the total amount above that line. I hope the Government are thinking of this matter on reciprocal lines. There are many people who have claims against the Government, and who have not been able, for many reasons, to get them settled in good time. Are they to be treated in the same way? Do the Government intend to impose upon themselves the same strictures and penalties as they do on firms and individuals? The Government protect themselves occasionally by a moratorium, or something similar, and claims which have been outstanding for five or six years should have full consideration.I rise to support the Amendment, and to ask the hon. and learned Gentleman a question. The point I wish to make applies whether the amount is £1,000 or £300. It is by no means difficult to visualise a case in which a series of assessments has been made over a period of years. Assessments may have been made on a sum of £200 over five years, making a total of £1,000, dating back to 1940. Will the hon. and learned Gentleman tell me whether that complete series of assessments, totalling in all over £1,000 and being over three months in arrears from the date when they became due and payable, will become liable to interest, and if so, whether the whole £1,000 will become liable to interest? If they are paid off severally, as is generally the case, when the total falls below £1,000 will the balance cease to be liable for interest?
If the hon. Member for Chichester (Mr. Joynson-Hicks) will look at the wording of the Clause, he will find the answer that he seeks. Before making any charge for interest, one has to have an individual assessment under which assessment a sum of over £1,000 is made payable. If the amount due is not paid within the specified time of three months, interest begins to run. With regard to the arguments adduced by the hon. Member for Bury (Mr. W. Fletcher), we have been obliged by purely practical considerations to adopt a limit—a margin—below which we will not seek to impose interest. The reason we have been obliged to adopt a margin is that with the present shortage of staff the Inland Revenue Department cannot undertake all the extra work which would be involved if interest were sought to be levied on smaller sums. We have selected the figure of £1,000, having carefully estimated the sort of work which that would entail. The hon. Gentleman's Amendment suggests that we should substitute the figure of £300. The result of that would be, so far as we can estimate—it is difficult to do so with any degree of accuracy—100,000 extra cases; that is to say, the number of cases within the charge would be increased by 100,000 if we substituted the figure of £300 for £1,000.
I have made a considerable study of this with chartered accountants. The final notice has to be sent out in any case to these taxpayers, and so the added work would in reality be quite small. It needs only a notice on the final note that is sent out.
The sending out of notices is not the only matter entailed. The amount has to be computed and collected. We have to compute and collect in all these extra cases the amount of interest, which may in individual cases be quite small, which would be involved by the extra number of cases brought within the sphere of the charge. We have appreciated the position, and having estimated what is within the limits of capacity of the present staff of the Inland Revenue Department, we have come to the conclusion that it would be quite impossible to undertake this extra work. It would mean that the work would fall seriously into arrears, and members of the Department would be hopelessly overburdened. Therefore, although I see the object behind the Amendment, I feel that I must ask the Committee to reject it because it would lead to an impasse.
Is not a question of principle involved? If interest is to be charged on £1,000 and upwards, and presuming that is justifiable, surely it is right that justice should not be subjugated to administrative convenience. I cannot see why one lot of persons should be let off and not another lot. If a fellow is not paying Income Tax on £250, he is just as guilty as the man who is not paying on £1,000.
This is not only a question of administrative convenience. To put this extra work on the shoulders of the Inland Revenue Department simply cannot be done.
Then the other chap should be let off, too.
Urgent national necessity requires that there should be a charge of interest imposed in some cases. Bearing in mind all sorts of considerations that have been advanced, we have tried to find a reasonable limit beyond which we cannot go. We think that we can manage the imposition of this interest with a limit of £1,000, but we do not think that we can go further than that.
I can only say that the Solicitor-General's answer, although it may be justified on the grounds of administrative convenience, goes a long way towards reducing the whole of this Clause to a farce. This was put to us in the original stages of the Budget as a matter of great importance. It was not so much the money that was to be collected as a result of this Clause, but the speeding-up that was to result. From that time on, every speech which has been made from the benches opposite has whittled down the importance of these arrears. The original figure of £700 million has been brought down. I overheard the hon. and learned Gentleman ask whether it had been stated in the Chancellor's speech that £700 million was the figure. I do not think that he recollects the statement that the Chancellor made last April on the same subject, when he made no such qualification as he made in November.
I have had the privilege perhaps of listening more to the ex-Chancellor on financial matters than the hon. and learned Gentleman has. Today that figure has been brought down to at least £100 million. We are told that with research into the amount of Tax Reserve Certificates available, the amount of arrears will fall still further. Now we are told that the amount of the arrears represented by no fewer than 100,000 individuals is not to be touched by this Clause. We are left wondering how much this Clause can accomplish. I have no desire to favour in any way those whose liability for tax has been established and who are, therefore, liable for payments, but I wonder whether the great hammer of this Clause is not going to be applied to crack very small nuts, remembering, of course, that nuts today, under the administration of the Minister of Food, have a value which they never had before.Amendment negatived.
I beg to move, in page 5, line 27, to leave out "one," and to insert "five."
I can put the argument in favour of the Amendment very shortly, because it follows directly on what has just been said. It never occurred to me, when studying this Clause, that administrative convenience could possibly have anything to do with its drafting in view of the complications to which we will come later on. No one could have thought that administrative inconvenience was the theme note of this Clause. My simple Amendment is solely in aid of administrative convenience to increase the total of interest owing from £1 to £5. What is the use of expending the time of valuably employed officials and an overburdened Department on collecting sums of interest which may be between £1 and £5? Would it not be very much better to fix the limit at £5? Really, everything that the Solicitor-General said on the last Amendment is in support of my Amendment.I can answer the hon. and learned Gentleman quite shortly on that. The £1 he knows is a de minimis provision and we feel that if we increase it to£5 the Clause would not afford sufficient spur. After all, if one looks at the figures and takes an imaginary set of circumstances, one gets this picture. Suppose a taxpayer owes over £1,000, it would be well worth his while to leave £500 unpaid for as much as four months, because by so doing that £500 would attract interest of not more than £5. If that were possible the requisite inducement to payment would not be forthcoming. Therefore we feel that the figure must be placed lower than that. However, if it were placed lower than £1 a great deal of time would be spent in collecting minute sums. We think that £1 is the right, fair and sufficient limit, and, therefore, we ask the Committee to reject the Amendment.
Amendment negatived.
I beg to move, in page 6, line 2, to leave out from "direction," to the end of the line.
In moving two previous Amendments, I said that they could be explained quite simply and that there was no need to elaborate them a great deal, but in this case it would be a very great stretch of the imagination to say that the application of this Clause is likely to arise in any simple case of taxation. On the contrary, it arises in cases of great complexity and the litigation is spread over a number of years and concerns a number of accounts. Certainly it concerns Income Tax as well as Excess Profits Tax, and the Income Tax people may be withholding a final settlement until the Excess Profits Tax appeal has been settled. Be that as it may, my Amendment is really based on two broad principles, the first being that where an appeal is spread over a number of years and where there are likely to be pluses and minuses, they shall be taken into account and there shall be a single final assessment. Otherwise, there could be the fantastic position of an overpayment of tax by the taxpayer at the end of the whale investigation, and yet there could have been a claim for interest by the Crown because in one year there was an underpayment. Leading on from that general principle, it is accepted that the Inland Revenue is one indivisible debtor to the taxpayer. My Amendment, to put it as simply as I can, seeks to ensure that when an appeal is at an end, whatever interest there may be shall be taken into account and that the various forms of taxation—Income Tax and Excess Profits Tax and also any minuses and pluses—shall be applied to the net amount.As I listened to the arguments of the hon. and gallant Member for Antrim (Major Haughton), I felt he was supporting the Amendment which follows this one rather than that to Clause 8, page 6, line 2. If hon. Members will look at the present Amendment, they will see it is one which seeks to exclude the limitation to a single year in relation to this interest on repayment charges. The argument which the hon. and gallant Gentleman has adduced makes out a case for excluding the limitations referred to in the next Amendment, which would leave out lines 14 to 31, that is, a limitation to single taxes. I think I am right in saying that his arguments are really relevant to both Amendments, and can be taken entirely in the light of the same considerations. Therefore, I propose to address my remarks on this Amendment to cover both cases.
We feel apprehensive as to what the consequences might be of doing away with the two limitations—the limit to a single year and the limit to a single tax. We have in mind the sort of situation that might arise if there was, for example, an interest charge on Schedule D tax for 1948, and, say, in 1953 repayment of Income Tax was made in respect of Income Tax charges made in 1952. Supposing that set of circumstances did arise, if the Amendments are accepted and if there is no limitation, then the taxpayer could say, in respect of the interest which he paid as long ago as 1948, that he should have some repayment of interest because four or five or even more years afterwards he was found to be entitled to repayment in respect of a subsequent period. What we feel is that that would lead to an enormous amount of confusion, and, instead of getting some sort of finality, the taxpayer would never know where he stood with regard to the matter. That is one consideration that presses on us about this. At a later stage I shall give the Committee an assurance which I hope will satisfy hon. Members opposite, and particularly the hon. and gallant Member for Antrim. Meanwhile, may I urge this situation. If one is trying to equate the position between the taxpayer and the Crown, and one says "If you charge interest on the taxpayer you should equally charge interest against the Crown and you should have a general setting-off on the basis of equality," then one is, in effect, saying that the Crown should pay interest, once the final amount of tax settled is agreed upon, if the Crown does not make payment of the amount at the end and any delay occurs. But once the amount is agreed upon the Crown would make payment almost immediately, so that that particular consideration would not have practical import as far as the Crown is concerned. If, however, we are saying that, no matter what interval of time may have elapsed between the date when the tax becomes due and the date when the repayment becomes due, the taxpayer shall be entitled to set off against his interest on the tax the amount due to him and an equivalent amount of interest upon the repayment, then hon. Members are proposing to charge interest against the Crown by virtue of the fact that there has been a delay by the taxpayer to claim his repayment. That is really what one would have. That is a position which I do not think the Committee would regard as equitable.7.0 p.m.
That does not necessarily arise. The hon. and learned Gentleman presupposes that those Acts deliberately deal with repayment of taxation, but in cases of appeal the grounds for appeal may be perfectly reasonable. All that my Amendment seeks to do is to say that the plusses and minuses shall be taken into account, and that the different forms of taxation shall also be taken into account, in the final amount of the settlement.
I entirely understand the suggestion of the hon. and gallant Gentleman, and I appreciate the point. I venture to offer a practical solution of the problem which has been advanced. While an assessment is under appeal, no interest charge accrues. But the situation might arise that an amount can be owed by way of Income Tax in circumstances in which interest begins to accrue, while there was a claim to repayment with regard to some other form of tax, for example, Profits Tax. The taxpayer may go to the Revenue authorities and say: "You owe me so much." The Revenue authorities may, in those circumstances, say: "Having regard to the fact that repayment has been claimed, the taxpayer may defer payment of the amount which he owes by way of Income Tax." That is the sort of situation which may arise, and it is a practical situation which requires to be met.
That being so, I would offer this undertaking to the Committee, which I think meets the arguments advanced by the hon. and gallant Gentleman. I say this, and I phrase it carefully and deliberately: If some tax has been assessed and is due and payable to the Crown, and collection of the tax or part of the tax is, by agreement with the Inland Revenue, held over pending settlement of a claim to repayment of tax to which the taxpayer may be entitled, the amount held over for the period for which it is agreed to be held over can be treated for the interest charge as though the amount had been provisionally repaid and credited against the tax due and payable. In other words, if it has been agreed between the taxpayer and the Revenue authorities that the taxpayer has a claim and that he may therefore defer payment of some other form of tax, which payment he owes, then, if it is subsequently found that he is entitled to the repayment, it shall be treated as if it had been paid, with the result that to that extent interest on the other payment will not accrue. I suggest that that is a practical and reasonable way of dealing with the points which have been made. I would ask the hon. and gallant Gentleman, upon the undertaking which I have given and have carefully phrased, to withdraw his Amendment. I would point out, by way of supplementation what I have said, that it operates not only as between years, so as to bridge the gap between years, but also as between taxes. Supposing there was one sort of tax which was due and there was a claim to repayment in respect of a different sort of tax, that would come within the scope of the undertaking. That is an undertaking which I can give as to the form of this Clause. I think it would be permissible to treat that as a provisional repayment.The hon. and learned Gentleman is an expert in these matters, and certainly the assurance given to my hon. and gallant Friend seems satisfactory, but when I was listening I found some difficulty in seeing how the hon. and learned Gentleman could give that assurance in view of the very express terms of the Clause in lines 14 to 31. Those words would appear expressly to forbid the very thing——
Perhaps the right hon. Gentleman will allow me to add something. I will add this, that I will make certain that the undertaking can be implemented. I will look at the wording of the Clause and see that it does so.
Of course, the easy way to make it certain would be by accepting the Amendment to leave out line 14 to 31.
I will look into the matter.
On the understanding that the hon. and learned Gentleman will look into this point between now and the Report stage, and will make certain that he can carry out his undertaking, perhaps my hon. and gallant Friend will withdraw his Amendment.
I appreciate very much the way in which the point in my Amendment has been met by the Solicitor-General, and, therefore, I beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
I beg to move, in page 6, line 37, to leave out from "section," to "shall," in line 38.
The purpose of the Amendment is to provide that anyone who has to pay interest shall be able to charge that interest against his profit and loss account. Why should not such interest payments be treated as charges against profits? If the taxpayer goes to the bank to borrow money to discharge his tax liabilities he has to pay interest on his overdraft. He can then charge that interest against his profit and loss account. If it is not convenient or profitable for him to go to the bank or to borrow the money in some way, the Inland Revenue may decide to give him time to pay. In those circumstances, why should not the interest which he will have to pay under the Clause be chargeable against his profit and loss account? Is it the idea that this interest provision should be a penalty or a fine? That would be a most unfair attitude to take up. In a time of trade recession or if a business suffers some temporary disaster, it may be impossible for the taxpayer to meet his tax liabilities promptly. That happens in hundreds of cases. The Revenue in such cases is usually extremely reasonable about settling terms of payment. Under the Clause, those arrangements would carry with them an interest charge. If they do, why should not the taxpayer be entitled to treat them as he would the interest paid to his banker or to someone else? The right hon. and learned Gentleman is not supposed to be a great gambler. That can be readily understood because in this case he seems to be saying, "Heads, I win, tails you lose." If we look at the situation under war damage claims where the Government is the embarrassed debtor asking for time to pay, and pays interest upon the amount outstanding, the Government is careful to deduct Income Tax from the interest payment. That may not be an exact analogy but it is not very far wide of the mark.One point not brought out by my hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) is that this proposal is discriminatory. I am not using that word in a derogatory sense. The proposal is 6 per cent. or rather more than 6 per cent. when a company is making a profit. If it is not making a profit, the interest drops to 3 per cent. That is the reverse of what usually happens in the commercial world, where the greater the risk, the greater is the rate of interest. Companies who have made profit in the past and who are not making a profit now are just those who are likely to give trouble to the Chancellor over their payments. It seems bad to demand from one type of company twice the rate which is demanded from another type of company.
There is a precedent for this in the old Excess Profits Duty of the 1914–18 war in which there was provision for the payment of interest at, I think, 4½ per cent. which was not allowed to rank as a deduction against Income Tax. The same could be said, I rather think, with regard to the interest on Death Duties. In this case, however, I do not rely upon precedent but upon the object of the Clause, which is to induce payment of arrears. If this interest charge were allowed to rank as a deduction, the inducement would practically disappear.
The interest charged is £3 on £100. The Amendment proposes first that that should rank as a deduction for purposes of Profits Tax, so that in any particular sum of £3 we should first have to deduct 6s. It is then said that it should rank as a deduction for the purposes of Income Tax, so that makes a further deduction of £1 4s. 4d. Therefore, if it ranks for deduction for those two taxes we have to deduct from £3 the sum of those two figures, namely, £1 10s. 4d. Persons liable to Profits Tax and Income Tax would therefore only be paying interest at the net rate £1 9s. 8d. If a person paid Surtax and this ranked as a further deduction against Surtax, the net rate would be still further reduced according to the scale of Surtax paid. We feel that to impose an interest charge on a non Surtax payer at the rate of £1 9s. 8d. per £100 is not a sufficient stimulus to him to pay up arrears. We must have a rate of interest which will be sufficient to afford a real spur and incentive to him to get the arrears cleared up or the Clause will not achieve its object. For those reasons we feel that this 3 per cent, interest should not be allowable as a deduction for the purpose of either of the two taxes.To follow to its logical conclusion the point made by the hon. Member for Bath (Mr. Pitman) and the reply to it by the Solicitor-General, on companies making a profit the real rate of interest would be something like 6 per cent. and the real rate of interest on the highest Surtax payers would be 120 per cent. If it is all allowed, as the Solicitor-General pointed out, it becomes a very small actual charge, but if it is charged in a way it is proposed in Clause 6, it becomes an extremely heavy tax in the case of the higher Surtax payers, possibly higher than was originally intended.
Amendment negatived.
I beg to move, in page 6, line 40, to leave out from "payable," to end of Subsection.
Amendment negatived.
7.15 p.m.
I beg to move, in page 7, line 1, to leave out Subsection (7).
I ask the Solicitor-General to undertake to have another look at this Subsection, which provides that a collector's certificate shall be sufficient evidence of the amount due by way of interest and also of nonpayment. No one would object to a collector's certificate being evidence of non-payment, but as to its being treated as evidence of the amount due by way of interest, I suggest that something has gone wrong somewhere. I admit that in the wording of the Subsection there is a saving proviso that if the contrary is proved then the certificate shall be overridden, but the position of the collector is that he is not a judicial or even a quasi-judicial person like the assessing Commissioners or, in some circumstances, an inspector. The computations of interest due may be complicated and controversial. As is apparent from the discussion on previous Amendments, we may have various counterbalancing factors. Is the collector the right man to give the certificate as to the amount of interest that is due? According to the earlier part of this Clause, the Crown can go into any court to recover the interest, basing their case on the certificate. Presumably, the taxpayer will then have to open up the matter in front of the county court or high court judge. The elaborate procedure of the commissioners for dealing with appeals and arriving at the proper liability would be bypassed by going to a county court on a collector's certificate. In many cases the collector is not the person who really knows. He does not carry on his business or occupation in the same building even as the inspector, and he is simply a sort of post-office or a banker with regard to the actual handling of the money. I do not think it needs elaborating very much because all I ask the Chancellor to do is to reconsider the matter and decide whether he has got the certificate of the right person and whether he should in some way bring the Commissioners into this matter. If he were to do that he would remove certain apprehensions which have been aroused by these provisions. I am certain that he will agree with me that it is unsatisfactory as a general principle to allow this principle of subordinate officials certifying as to the amount of the taxpayer's liability.I will certainly consider very carefully what the hon. and learned Member for Wirral (Mr. Selwyn Lloyd) has said and see whether any change is necessary in consequence of the arguments he has used, but I do not think any change is required. He may be under a slight misapprehension. The interest charge has first to be assessed in the ordinary way and only when it has been assessed and charged to the taxpayer does the question of court proceedings to enforce it arise. In other words, the figure has to be computed and notice has to be given saying that that is the figure assessed by way of interest on the tax- payer. If the taxpayer does not then pay what is requisite, there must he some form of process to compel him to pay in the courts in the ordinary way.
Paragraph 7 (5) of Part I of the Tenth Schedule to the Finance Act, 1942, already contains a very similar provision—I do not say it is an identical provision—with regard to Income Tax. It contains the provision that a certificate of the surveyor—I quite follow the definition given by the hon. and learned Member for Wirral—together with a certificate of the collector that the tax has not been paid and that the amount mentioned in the certificate is due, shall be prima facie evidence that that sum is actually due from the taxpayer from whom it is sought to be recovered. We are seeking to adapt that procedure to what is after all a much smaller payment, simply an interest payment. The hon. and learned Member for Wirral will agree that it would be quite impossible to have a case like that formally proved affirmatively in each single instance. All this does is to. say that when a collector—who is defined in the Subsection as a person authorised by the Commissioners of Inland Revenue to act as a collector of taxes—comes to the court armed with that certificate it is prima facie evidence, and only prima facie evidence, that the amount is due. If the taxpayer disputes it, it has to be proved formally, and established contrary to such evidence as the taxpayer can adduce in the ordinary way of proceedings in court. All this certificate will be used for is where the taxpayer does not dispute the amount due. This simply provides for formal proof, which proof can be displaced by anything the taxpayer himself advances on his own behalf, and if he disputes it the matter must be properly proved at trial.Do I understand that the hon. and learned Gentleman envisages that the certificate shall include particulars of the assessment, by whom it was made, when it was made, and in respect of what it was made? If that were to be the practice, I think it would meet my point. Otherwise, the collector would be under no obligation to say any thing in the certificate except that so much interest was payable under the Finance Act.
I do not know if the precise form of the certificate has been worked out, but I apprehend that it would contain the ordinary particulars showing when it became due. I cannot commit myself as to the form, but I apprehend that in the ordinary way it would contain the usual particulars.
If the hon. and learned Gentleman will undertake to consider this question between now and the Report stage, I beg to ask leave to withdraw my Amendment.
Amendment, by leave, withdrawn.
I beg to move, in page 7, line 12, at the end to add:
In these days, when, as we all know, there is great congestion of work in the Inland Revenue, it seems reasonable that there should be some discretion and, this Amendment merely seeks to suggest that discretion shall be vested in the Commissioners to waive interest in cases where the taxpayer can show that he could not prevent the arrears arising." (8) The Commissioners of Inland Revenue may withdraw any claim in respect of interest on proof by the person by whom the tax is payable that non-payment of the tax or delay in payment of the tax was due to delays in computing the tax which were beyond the control of that person."
I think the answer to the case made by the hon. and gallant Gentleman is that, beyond doubt, in the circumstances he envisages, no interest would be chargeable. No interest arises unless there has been a final assessment, or, as to any part of an assessment which is being disputed, until the appeal is disposed of. In those circumstances, I think the hon. and gallant Gentleman will agree that his Amendment would serve no purpose.
I am not sure that the hon. and learned Gentleman is entirely correct. Supposing a well-intentioned taxpayer had actually sent a cheque in payment for the tax due, and that cheque happened to be in the mailbag which interested somebody, and was extracted. There could then have been a non-payment of tax due, over which the person concerned would have no control.
The Amendment simply deals with delays in computing the tax, and would not cover the point raised by the hon. Member for Bath (Mr. Pitman).
I beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Motion made, and Question proposed, "That the Clause stand part of the Bill."
If the principle contained in this Clause is correct, why is it limited to Schedule D?
The short answer is that under Schedule E arrears hardly arise because tax is deducted at the time when wages are paid. Schedule A is a different thing altogether, and the amounts chargeable are very much less. It is under Schedule D that the largest arrears occur, and that is why it has been confined to Schedule D.
I may be wrong, but I do not think I am, in feeling that in this Clause we are up against a flagrant injustice. If I am wrong, I hope the Solicitor-General will tell me so. I cannot see that a man who owes a lot of Income Tax is any less or more guilty than a man who owes a little. He should be treated on exactly the same footing. If it is a question of convenience, the matter should be dealt with so that neither party suffers. I think we are going to put on to the Statute Book something which is flagrantly unjust, and I would like to be assured that I am wrong.
Question put, and agreed to.
Clause ordered to stand part of the Bill.
Clause 9—(Advertising Expenses)
It might be convenient to the Committee if I were allowed to make a statement before Amendments to this Clause are moved.
It would obviously be convenient if the right hon. and learned Gentleman made a statement, but, on the other hand, it may be that hon. Members may wish to discuss the statement. Would it not, therefore, be better to put the matter in Order by moving to report Progress and then making the statement?
I was under the impression that if hon. Members wished to debate the statement, that could take place on the Motion that the Clause stand part of the Bill.
indicated dissent.
I beg to move, "That the Chairman do report Progress and ask leave to sit again."
When the Second Reading of the Finance Bill took place, I stated that it was my desire, if possible, to avoid imposing any difficulties upon industry or commerce at this already very difficult time and that if some voluntary method could be devised of achieving the same end which I have in view, that of economising in materials and effort in advertising, I would be very glad to consider it and, if necessary, to substitute it for the provisions of the Bill. Since that time, I have had the advantage of a large number of discussions with a number of people who are very expert in this matter, and a fairly full correspondence with a good many people who are, or consider themselves to be, experts in this matter. As a result of these conversations, I have had a communication from the Federation of British Industries, which I would like to read to the House, in which they say:"We have already acquainted you with the very strong objections we feel to the advertising provisions in the present Finance Bill. We were very pleased to notice your remarks in the House, when you offered to consider any voluntary scheme which might be put to you.
I have now been charged by a group, which together covers all the interests concerned, to give you an undertaking that, if the provisions now incorporated in the Bill are withdrawn, the Federation of British Industries will take the lead in setting up a Working Committee to work out methods of achieving the results you wish by voluntary means, as soon as practicable. The organisations concerned, are the following: Association of British Chambers of Commerce, The National Union of Manufacturers, The Advertising Association, The Incorporated Society of British Advertisers, The Institute of Incorporated Practitioners in Advertising, The Newspaper Society, The Newspaper Proprietors' Association, The Periodical Trade Press & Weekly Newspaper Proprietors' Association, The British Poster Advertising Association.
I am sure you will not fail to be impressed, as I have been myself, by the unanimity that exists in favour of the voluntary method. It is not possible for a scheme involving so many complexities to be worked out in time to anticipate the Committee, or even the Report Stage, of the present Bill, but I have no hesitation in assuring you that the encouragement you would give to the work of the proposed Working Committee by the withdrawal now of the provisions would go a very long way to assuring the successful outcome to that work.
(Signed)
FREDERICK BAIN:"
7.30 p.m.
Under those circumstances, I am quite prepared to try that voluntary method and to withdraw this Clause, and I hope very much that there will be success in these efforts that are being made. We shall have another opportunity of considering this matter in April next to see what progress we have been able to make.
I am sure the whole Committee——
The right hon. Gentleman can speak for himself.
I am sure all of us on this side, and perhaps those on the other side of the Committee who are not geographically situated with the hon. Member for West Fife (Mr. Gallacher), will congratulate the Chancellor of the Exchequer on the decision he has taken. We thank him for the infanticide which has been carried out so painlessly and with so much decision. Of course, the right hon. and learned Member had the advantage that it was not his own infant. It was just laid on his doorstep, and it is only fair to him to say that since he assumed office he has never omitted to show his aversion to this unwanted pledge of someone else's affection. [HON. MEMBERS: "No."] Well, it may be somebody else's dislike. When he withdrew it, I was reminded of the old epitaph in the church on an infant who suffered demise at just about the same age as this proposal:
"If so soon I was to be done for,
With all our gratitude at the end of this proposal, we are entitled to ask, why was it ever begun?I wonder what I was begun for."
Why has it been dropped?
The hon. Member can ask that question. I will ask mine. I want to know why it was ever begun because, immediately this proposal was made, the inequality, the unfairness and the impracticability of it emerged more and more strongly. In all the chorus of criticism of the Clause, I only heard one still, small voice raised in its defence, and that was the voice of the Financial Secretary to the Treasury who, on the Second Reading of the Finance Bill, made a gallant effort. The right hon. Gentleman has very high political courage. He has the particularly British type of courage, the type of courage which has brought to our armies some of their most glorious disasters. His not to reason why—he just had to read out the Treasury brief, if not with conviction, at least with concentration. However, I must confess that when the right hon. Gentleman brought out his culminating argument, which was that this Clause might mean less wood for hoardings, and that might contribute to solving the problem of shortage of timber, I felt that defeat was very imminent.
Now we are glad that this Chancellor has turned to the voluntary method to try to correct some evil which he sees, but we regret that that method was not adopted by the previous Chancellor. If as a result of some over-expenditure on advertising there was wasteful expenditure of men or material, and if thereby our inflationary position was more difficult, there seems to be no reason why such an appeal as is now being made by this Chancellor could not have been made months ago by his predecessor. The only result has been that, for the last three or four weeks, great sections of industry have been disturbed and distressed, and much time has been spent on deputations and correspondence, all of which might have been avoided by taking some weeks ago, the step which the Chancellor has announced tonight. I am sure he is right to trust industry to provide him in this instance with the savings he thinks essential. All of us will wish success to the committee which is being set up, and we trust that, as a result of their efforts, anything which can be done in this line to assist us in our economic crisis will be done. One final word to the right hon. and learned Gentleman. This is a first step in reversing the proposals of his predecessor. I hope it will not be the last, and that what is on this occasion a courageous precedent will end by becoming a comfortable habit.I would have supported the Amendment in regard to such things as art exhibitions and entertainment, but I cannot see why there should be any hesitation about excluding from expenses advertising carried on by big business in this country. It is unbelievable from my point of view. The advertisements which are seen all over the place are simply a means of inducing people to set money chasing goods in short supply, and for bringing in profit to big business. I cannot see why that should not be subject to taxation.
However, I do not want to go into that in detail; I want to raise an important point in connection with this matter. What would have been the attitude on the part of hon. Members opposite if there had been some tax directed against the working class and the Chancellor had come to the House of Commons and said, "As a result of representations from the Trades Union Congress, I have decided to drop this tax"? There would have been accusations from the other side of outside interference, outside influence. Yet this gang of robbers, the Federation of British Industries—[Laughter.] Hon. Members may laugh but I was in this movement 45 years ago and at street corner after street corner, at conference after conference, we demonstrated to the workers that they were robbed and exploited by the capitalists of this country. Then there came into existence this central body that represented all the worst and most vicious power of capitalism directed against the working class, the Federation of British Industries. Now we are confronted in the House of Commons with a statement that the Federation of British Industries, who represent the enemies of the working class of this country, have written a letter——The discussion is getting much too wide. We are at present discussing a Motion to report Progress. There will be the opportunity for those who wish to speak on the Clause to do so when the Question is put, "That the Clause stand part of the Bill."
I do not want to come into conflict with you, Mr. Diamond, but register my strong protest against the action proposed about a tax of this kind. I would welcome a message or proposal from the Trades Union Congress, which is part of the great working class movement, an ally, I but I protest strongly that these advertisements which are part of the machinery of big business should be included as expenses because of something in the nature of a request, or dictation from the Federation of British Industries.
Before withdrawing this Motion, I would like to make one or two observations on the unhelpful speech which was made by the right hon. Member for West Bristol (Mr. Stanley). He will appreciate that under the stress of speeches of that kind, I shall not be prepared to make accommodating offers to the House of Commons. Let me first point out to him that the responsibility for a Budget lies in the Cabinet and not in individuals, and that I have just as much responsibility for the putting forward of this taxation proposal as my right hon. Friend the Member for Bishop Auckland (Mr. Dalton), and I was in agreement with it. The position that arose on the proposal was that certain hon. Members—I think the hon. Member for Bath (Mr. Pitman) was one of them—suggested in the course of the Debate that the aim which I had in mind, and expressed, could be more easily attained by a voluntary method.
There were undoubtedly very difficult matters involved in the implementation of this taxation, so that if the aim could be achieved more easily by voluntary effort it was to everyone's benefit, including the Administration, to arrive at the result that way. After that, a deputation, which included Members from both sides of the House, came to see me and asked me to withdraw the proposal for one on some other basis. Subsequently, due largely to the activities of the hon. Member for Bath, the Federation of British Industries collected together this group of people, and gave the undertaking which I have read to the Committee. If the right hon. Gentleman asks why the proposal was introduced, I venture to suggest that this undertaking and this offer would never have been produced had it not been for this Clause in the Finance Bill. It will be an entirely satisfactory solution so far as I am concerned, if the undertaking is duly carried out, as I am sure it will be. If it is not, we shall have plenty of time to review the circum- stances. I beg to ask leave to withdraw the Motion.Motion, by leave, withdrawn.
7.45 P.m.
I take it that the right hon. Member for West Bristol (Mr. Stanley) does not wish to move his Amendment, in page 7, line 13, to leave out Subsection (1).
No.
There is an Amendment in my name and the name of hon. Friends of mine, to leave out Clause 9. Would it not be the correct procedure for that to be called?
No.
Motion made, and Question proposed, "That the Clause stand part of the Bill."
I, too, am very grateful to the Chancellor of the Exchequer, and I would emphasise that my right hon. Friend the Member for West Bristol (Mr. Stanley) began by warmly thanking him for deciding on the withdrawal of this Clause. I want to thank him particularly warmly for the ample way in which he met the suggestion, which I made in an interview, that we should reach this objective by an agreed approach, a voluntary method. I thank the right hon. and learned Gentleman for the open mind with which he approached the matter. I also believe that this action has been very statesmanlike. I am in a position to speak with knowledge of the genuineness of the offer which has been made to the right hon. and learned Gentleman to seek voluntary methods of reaching the objective. As he has told the Committee, the Federation of British Industries were responsible for bringing together that wide range of national organisations covering all the interests involved. As he said, a working committee is to be set up on their initiative. I have been asked to act as chairman of this Committee, and I have agreed to do so. It is on those grounds——
All arranged beforehand.
—and on grounds upon which the hon. Member for Blackley (Mr. Diamond) could assure you, Mr. Diamond, from his own observations in delegations, that I can assure the Committee of the genuine nature of the offer that has been made. It is my opinion that with this goodwill all round there is every likelihood of a successful outcome.
I would like to join with those who have added their thanks to those of the right hon. Member for West Bristol (Mr. Stanley) to the Chancellor for the wise and statesmanlike action he has taken in withdrawing this tax on advertising. I had a feeling during the Chancellor's observations that he had rather lost his sense of humour. That was doubtless due to the heavy pressure of work which further Business which is on the Order Paper tonight will go some way to alleviate and ease. The more this tax was considered the more thoroughly unworkable it was found. I could have wished the Chancellor, in making his wise and statesmanlike statement of his intention to withdraw the Clause, had stressed some of the practical difficulties with which he found himself confronted in all the advice which he received from accountants, advertising consultants, Income Tax experts, business men, and, I do not doubt, from his own experts at the Treasury. We are grateful to him for his wise and statesmanlike statement, and I hope it will do him no harm with his party.
I should like to join in thanking my right hon. and learned Friend for what I think is an extremely wise decision. I will not go into what "our movement" is, but it is certainly not represented by the hon. Member for West Fife (Mr. Gallacher).
The hon. Member is interested in advertising. Why does he not declare it?
I very properly declared my interest in the Second Reading Debate on the Finance Bill. I have always taken a great deal of interest in taxation as it affects the arts, even before I became a Member of this House, and I took part in the fight to have the Purchase Tax removed from books when that proposal was made by the late Sir Kingsley Wood. There was a universal feeling that a tax on books was an unjust tax, and he withdrew his proposal. In the same way, a similar issue is involved here, and if the hon. Member for West Fife will look at the case from other than a purely ideological point of view, he will see that this tax, as proposed, would have affected the book industry. I imagine that even the Communist Party is interested in books, and every book advertisement would have been subject to tax. Similarly, the entertainment industry already pays, on the whole of the box office proceeds, 40 per cent. to the Exchequer in the form of Entertainments Duty. To have added this tax would indeed have been a very grievous additional burden. It is a matter for all-party congratulations to the Chancellor that he has come to this decision.
I wish to add a word of praise to the Chancellor for his statesmanship and wisdom in taking this action. It pleases us on these benches very much. We had an Amendment on the Order Paper to leave out the whole of the Clause. We thought that we could not tinker with it and that the only thing to do was to leave it out altogether. Although we are suspicious when the Chancellor makes a deal with the Federation of British Industries, in this case we hope that it will have good results. I would like to make the point that it is desirable that the objects of a Clause of this description should be stated more specifically. The former Chancellor of the Exchequer said that the object was to save labour and materials, but it was quite clear when the Finance Bill was published that, so far as newspapers were concerned, that object was not secured in any way. Newspapers are already cut and any arrangement of this nature would merely result in money being switched from advertisements in the newspapers, where it does no harm, to the printing industry, where it might do a lot of harm.
I would like to say a word in protection of the smaller interests who may not be represented in the Federation of British Industries. A Clause of this description might easily do great harm to local weekly newspapers. In Wales our main newspapers are weekly newspapers. They form a large part of our culture and help to maintain our language. Already they have suffered severe difficulties from high costs and cuts in newsprint, and the loss of advertising revenue would be a very serious blow to them. I hope those considerations will be kept in mind when the control of advertising is inquired into.
During the last two days the Chancellor has shown an accommodating spirit. This is not the first concession which he has made. I thought that the right hon. Gentleman the Member for West Bristol (Mr. Stanley) was a little ungracious in the manner in which he accepted this concession. The right hon. and learned Gentleman was pressed by hon. Members on both sides of the Committee. When he tries to meet opinion in a spirit of united effort, I think he ought to be encouraged. I accept this concession in the spirit in which it was given.
I was sorry to hear the hon. Member for West Fife (Mr. Gallacher) refer to this as a concession to the F.B.I. and big business. This would not have hit big business. Big business could have carried this tax either as a trading expense or otherwise. This would have hit the little man, the small enterprise man with new ideas. It would have hit the man producing something which he was trying to sell against the big combines and businesses which may have had a product advertised and established over 20 or 30 years. For that reason, I reinforce what my hon. Friend the Member for Merioneth (Mr. Emrys Roberts) has said. I hope that by this the interests of the little men with small businesses will be safeguarded. We know that they are not represented in the Federation of British Industries, but we hope that their interests will be protected.Question, "That the Clause stand part of the Bill," put, and negatived.
Clause 10 ordered to stand part of the Bill.
Schedules agreed to.
Bill reported, with an Amendment; as amended to be considered upon Monday next.