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New Clause—(Amendment Of Finance Act, 1948, S 42)

Volume 466: debated on Tuesday 28 June 1949

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Section forty-two of the Finance Act, 1948, shall have effect as if the words "Commissioners of Inland Revenue," were substituted for the word "surveyor," wherever it appears.—[ Lieut.-Commander Braithwaite.]

Brought up, and read the First time.

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

The Committee has just been discussing a matter of great human and social interest beside which I fear the new Clause entrusted to me makes a somewhat tedious substitute. I hope it will commend itself to hon. Gentlemen opposite because it costs nothing. It is a purely machinery Clause of a technical and I fear a tedious nature. As the Financial Secretary to the Treasury, who helped to pilot it through, will recall, Part IV of the Finance Act of last year dealt, in extenso, with the whole question of expenses and allowances, but did not attempt to alter the substantive law which is to be found in Rules 1 and 9 of Schedule E, and the cases decided with reference to those rules.

The right hon. Gentleman will agree that since 1939 the Revenue authorities have been in the position of being able to get the necessary information to enable them to deal with abuses in connection with taxation allowances. Before the war the subject was increasingly attracting the attention of Chancellors of the Exchequer. Preoccupation with the many problems of the war no doubt meant that the necessary time and attention could not be provided to deal with this matter, since the law on the subject had been clear for a number of years, and Rule 9 was distinctly narrow in scope. As the right hon. Gentleman knows and as has been stated in the House more than once, the inspectors of taxes have received instructions to tighten up their scrutiny of expenses and, in particular, to enforce the provisions of Part IV of last year's Finance Act. There is already evidence that the application of the law as it has existed for many years is causing hardship and impeding the proper conduct of business.

This arises, for example, in the disallowance of expenses incurred by directors in attending board meetings, particularly directors resident in the provinces who have to come up to London for that purpose, and the inverse argument is also true in respect of experienced men in London who may sit on boards of companies situated in provincial areas. For some 60 years it has been the law that these expenses are not chargeable under Rule 9. In the past the practice has been not to tax sums paid to directors in respect of such travelling expenses. I hope the Financial Secretary will agree when I suggest that the new practice has, in some cases, led to directors feeling obliged to resign from some boards and that that has the effect of making such boards less representative in their character.

Do I take it that the hon. and gallant Gentleman is addressing himself to the Clause in the name of the right hon. Gentleman the Member for the City of London (Mr. Assheton) where the proposal is that the words "Commissioners of Inland Revenue" shall be substituted for the word "surveyor"?

That is the Clause with which I am dealing, Mr. Bowles. I hope that my remarks will be addressed to that point, for that will be my intention. As this deals with the whole question of expenses, I hope that you will allow me to review the matter not briefly, but over a somewhat wide field.

I was remarking that it would make the constitution and character of these boards rather less representative than is really desirable. There are many cases where a director is appointed because of his knowledge of business conditions in some part of the country a long way from where the head office is situated. Last year when this matter was discussed at some length during the Committee stage of the Finance Bill, right hon. Gentlemen opposite made considerable play with the dispensation provisions now contained in Section 42, but it should be noted that the person who has to be satisfied on this matter of the expenses allowance is the surveyor—in other words, the local inspector of taxes—and that there is no machinery for appealing against his decision when it is given.

9.15 p.m.

If the taxpayer so appeals against his assessment to the General or Special Commissioners, their duty is to apply the law, which is strict, and cases show that, where the General Commissioners have been sympathetic to a taxpayer's claim under Rule 9, their decision has on occasion been reversed on appeal to the High Court by way of a case being stated. The suggestion behind this new Clause is to try to get the law altered, in particular, by seeking the amendment of Rule 9. Again, the Financial Secretary will recall that unsuccessful attempts were made during the passage of the two Finance Bills previous to this one.

There is one other point which I will submit to the Financial Secretary, and that is the amendment of the machinery provisions of Part IV of last year's Act. I ask the right hon. Gentleman whether it is possible that Section 42 might be amended so as to have the effect of the Commissioners of Inland Revenue being satisfied rather than the surveyor. May I repeat the point? There is appeal machinery there which does not exist in the case of the surveyor. That was the course adopted in relation to the approval of retirement benefit schemes which were covered in that long subsection of Clause 47. Again, the Financial Secretary may remember four Clauses being bodily removed and four entirely new ones inserted after consultation took place between the then Chancellor and certain representatives of industry. Under Section 21, which was inserted then, it is the Commissioners of Inland Revenue and not the surveyor who have to give such proof. All that valuable amendment which took place at that time had the beneficial result of setting up a department at Somerset House which has since administered these matters on practical lines and built up a body of consistent practice in the matter.

In putting forward this new Clause for consideration, we suggest that here is a parallel which might be followed and that the right hon. Gentleman might consider the setting up of machinery of that sort to deal with one grievance in particular, namely, the discrepancy in outlook which we find in practice between one tax district and another. That would render possible the decision of questions arising on a sufficiently high level without placing the taxpayer under his present necessity of appealing to the Commissioners, General or Special, with the doubtful prospect of success which I have endeavoured to indicate.

I thank hon. Members for listening with patience to what is a somewhat complicated argument—

I hope hon. Members will not be sarcastic on those grounds because, when the Financial Secretary himself has to deal with difficult technical matters, he is provided with what is known in this honourable House as "copious notes" with which to make his comments, and it is rather better that the matter should be put correctly, even if it does mean a good deal of reference to information supplied to the hon. Member moving the Clause. Hon. Members would be rather worthier of the House if, instead of engaging in sarcasm, they addressed themselves to the argument. It is in the interests of uniformity that I move this new Clause.

I want to add very little to what my hon. and gallant Friend the Member for Holderness (Lieut.-Commander Braithwaite) has said. The Financial Secretary to the Treasury will remember that during the Third Reading Debates on the Finance Bill last year I raised this question of directors' expenses and forecast, I think, precisely the difficulty which the Clause is designed to resolve. The right hon. Gentleman said then that the administration of these new provisions in Part IV of the Finance Act, 1948, would be carefully watched by the Treasury in the course of the following 12 months to see whether or not any adjustments were necessary.

The general point, as my hon. and gallant Friend has said, is that for 60 years directors of companies have been allowed to deduct travelling expenses in going to board meetings or to treat them as moneys expended wholly, exclusively and necessarily in performing the duties of their office of employment. That has been the practice, I am instructed, for 60 years. They have been allowed to count those travelling expenses as expenses which can be deductible. That proposition had some doubt cast upon it in the course of the discussions of Part IV of the Finance Act, 1948.

I understand the effect has been that in some areas the interpretation has been one way and in other areas in another way. It seems to us, first, that the Treasury should make it quite clear that this practice of 60 years should be maintained; and secondly, that the general methods of computing and allowing these expenses, and giving the certificate referred to in Section 42 of the 1948 Act, should be dealt with by one centralised Department. That is the common sense way of dealing with the matter. I shall not elaborate on the point, but I hope that the right hon. Gentleman will give some indication of the way in which Part IV has been administered during the past year and say whether or not he can accept this proposition.

As the hon. and gallant Member for Holderness (Lieut.-Commander Braithwaite) said, the new Clause relates to a very narrow point. It is concerned simply with the power which the taxation authorities possess in carrying out the provisions of Section 42 of the Finance Act, 1948, to grant dispensations in respect of certain expenses incurred by directors or highly paid employees. The only real issue between us is whether that power of dispensation should be in the hands of the Commissioners of Inland Revenue or in the hands of the surveyor—that is to say, the local tax inspector. The hon. and learned Member for Wirral (Mr. Selwyn Lloyd) asked whether we had considered the working of this provision and were satisfied with it. The answer is that we have watched it and that we are, broadly, satisfied. We do not agree that it is necessary or desirable to substitute the Commissioners in this case for the surveyors. This is, of course, largely a matter of administration and, naturally, the opinion of the Department responsible for it about the best method to employ must carry some weight.

If the hon. Gentlemen were to ask the reasons why we think it is preferable to leave the power in the hands of the surveyor I would mention, briefly, three. First, there really is no difference in kind between this function which we are discussing and the normal job of allowing or disallowing admissible expenses for Income Tax. Therefore, the local inspector is, naturally, qualified to do the job. Secondly, of course, he is, by virtue of his local knowledge and experience, conversant with the taxation affairs of the company in question and, as a normal principle of administration, he should be better able to judge than somebody who is less decentralised and not as close at hand.

Thirdly, as both hon. Members will realise, the Commissioners issue general instructions on general points to local inspectors all over the country for their guidance in exercising this power of dispensation. That, of course, should ensure that similar principles on general points are followed in different areas. Both hon. Members suggested that in the case of travelling expenses in particular that apparently did not happen, according to their information. We are certainly fully prepared to look at that matter, and any evidence of it; and if it is shown that there are different practices being followed we should certainly take steps to see that general instructions were sent out which would correct any anomalies. That would apply equally to anomalies on other points. If that were done it would not be necessary to go so far as this new Clause suggests.

I apologise for intervening, and I admit at once that I am not an expert and do not retain in my memory all the Clauses which the experts know so well. The hon. Gentleman in his reply has put the matter on a very simple basis. We admit that the Clause which we are discussing is of a very narrow and restricted character, although apparently it is a symptom of what appears to be a much bigger grievance, and one which could only be affected by some alteration in the rules.

I do not know what my hon. Friends who are responsible for this new Clause think, but the hon. Gentleman did go some way to meet them in promising that he would look into any evidence which could be provided of different treatment in different areas. That is a matter which all of us, experts or amateurs like myself, must be anxious to avoid. We must always want to ensure that people are treated in the same way in all parts of the country in matters of this kind. We have put forward this new Clause because we believe that differences are arising and that if that is so, this may be the best way of solving them.

There is nothing revolutionary in the proposal which my hon. Friends have made. It was the proposal of the Government themselves for dealing with that part of the 1947 Act which dealt with the whole question of retirement pensions. If the hon. Gentleman is prepared to look into this matter with a genuine desire—as I am sure he will—to see if a grievance exists, and if a grievance is found to exist to remedy it in whichever way is found best from the point of view of administration, I hope that my hon. Friends will be satisfied at having raised this point and at having received some satisfaction at any rate from the Minister.

Will the right hon. Gentleman explain to me why he is anxious to emphasise that there is nothing revolutionary about this proposal? Is he afraid that if there was anything revolutionary, it might frighten the Government Front Bench?

That is precisely the point. We on this side, who belong to a progressive party, always know that our best hope of obtaining any satisfaction from the Front Bench opposite is to be able to cite a precedent. It is for that reason that I have emphasised that a precedent exists for the action here proposed.

9.30 p.m.

There are one or two points of elucidation which I should like to raise. As I understand it, the position today is such that many companies are denied the benefit of very capable directors because of this financial hardship if they accept a position in the capacity of director, whereas, if they became executives, they would be permitted to make this charge. If we take the obvious comparison with Members of Parliament, I think it is right to say that they are permitted the expenses of coming to Parliament as an actual allowance, and yet we have the position in which we are denying private enterprise the considerable benefits of very capable people because of this unfair situation. I understood the Economic Secretary to say that instructions had been sent to inspectors generally on this point. Would he be good enough to tell the Committee what the details of those instructions are? Should we not enjoy the same privilege as he has in that respect?

Hon. Members will recall that one of the principal objects in moving this new Clause was to provide the machinery of appeal, and I was disappointed that the Economic Secretary did not see the force of that line of thought. However, as the hon. Gentleman has said that this matter will be constantly watched, and as it has only operated since the Finance Act of last year, and he has given an assurance that if the procedure works unsatisfactorily and produces unfairness, he will not be too proud to come down here to put down his own Amendment, I beg to ask leave to withdraw the Motion.

Motion, and Clause, by leave withdrawn.

On a point of Order. May I ask whether any of the new Clauses dealing with postwar credits are being called, because the subject is one of great importance and interest in the country?

None is being called, because they are all out of Order since they increase the charge on the Consolidated Fund.