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New Clause—(Carry Back Of Losses For Income Tax)

Volume 466: debated on Tuesday 28 June 1949

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Section thirty-four of the Income Tax Act, 1918, shall be amended by the addition to subsection (1) of the following words:

"Provided that if the aggregate amount of his income for the year of assessment is less than the amount of his loss the excess of loss may be carried back to the year preceding the year of assessment and such adjustment of his liability for that preceding year shall be made as if the excess of the loss were a loss sustained in the preceding year, and if the aggregate income of the preceding year is less than the excess of the loss so carried back the balance of the loss may be carried back and deducted from his aggregate income of the next but one year preceding the year of assessment and so on to such further preceding years up to a maximum of six years preceding the year of assessment as may be required to assure that the loss has been deducted from his aggregate income for those seven years."—[Colonel Hutchison.]

Brought up, and read the First time.

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

After the interlude to which we have just listened, it is clear that I can hope for very little help with this Clause on either of the two counts which my right hon. Friend put before the Committee, because it is clear to us that instructions have been left with the Treasury Bench that whatever the validity of our argument, without considering what our case may be, there shall be no concession. We have also seen examples of the Closure on insufficient discussions on proposals and measures we put forward. The Home Secretary and the hon. Member who followed the right hon. Gentleman also showed that they are still going to be obdurate in not even really discussing matters put forward.

On a point of Order. Is the hon. and gallant Member in Order in referring to the Closure on insufficient discussion?

That is a matter of opinion, and I do not think it is a reflection upon the Chair. I think that the Patronage Secretary was probably being criticised, and not the Chair.

Further to that point of Order. I always thought that while the responsibility of moving the Motion might rest with the right hon. Gentleman who moves it, the responsibility for accepting or rejecting that Motion rests with the Chair. Therefore, is not any statement that the Closure was applied on insufficient discussion a reflection upon the Chair?

I do not think that is so. I think the Closure was properly moved, and the hon. Member may disagree with me. I do not think that is a reflection upon the Chair. Any hon. Member may think that a discussion should go on for two or three hours. I do not think that is a reflection upon the Chair.

1.0 a.m.

As the hon. Member for Nelson and Colne (Mr. S. Silverman) has been here long enough to have heard a good many people, and probably he himself, blame the Government for the use—the brutal use—of the Closure, would he, so far as his continual points of Order are concerned, pay attention to what he himself has probably done?

We were told the other day, more jokingly I thought than seriously, that the Government was a partner in industry. Well, no sleeping partner can ever have slept more soundly, because, when profits are made, the Government take their share, but when losses appear the Government return very little to those who have previously made the profits. The position of the taxation law at present is that, where a concern has been making profits in the recent past and then runs into a loss, it is entitled to set that loss against only one year's back profits. It is true that if there is an excess of loss after it has set off the loss against the one year's profit, it can carry this on to the future, but we contend that it is not right that the State, with taxes as high as they are at present, should tax profits and not, on an equal basis—or an approximately equal basis—allow losses.

At the present time, and for a number of years past, concerns have paid taxation on what are not really profits at all. They are items shown in the balance sheet as a fictitious form of profit because of constantly rising prices of the commodities and materials they handle and the stock which they carry. So they have paid to the Treasury for a large number of years large sums of money on figures shown in balance sheets which are not true profits at all. The Government are therefore really piling up a large reserve of money which is, in effect, accruing from taxation on capital. The situation at present is changing ominously, and one of the tragedies for those of us concerned with industry—and I am speaking not only for management but for all sides, for worker as well as for employer and director—has been to have to hear the type of economics spoken by those whom I can only describe as "economic adventurers".

The sort of talk to which we have listened this evening is going to act as a veritable disaster to those whom, the Government are always telling us, they want to benefit—the workers. It will be a veritable disaster if the views to which I refer continue to be held. We are, un- doubtedly, running into a period of loss; not, perhaps, for all concerned; but those firms who have enjoyed "fictitious" profits for the last few years, will struggle with a load into the threatening future which they will not, for a very long time, be able to discharge. It may submerge them completely. If the Government, who always say they have at heart the well-being of industry, wish to help industry, both large and small, to meet an ever darkening future, they will have to accept this proposed new Clause.

There are one or two very short points I should like to raise. I believe we have 22 hours and 55 minutes of the day left to us so that the matters which remain can be very thoroughly and amicably discussed. I do not know whether the hon. and gallant Gentleman really wanted his Clause to be accepted or if he was only trying to score off the Government. Out of 10 minutes of his speech he spent six minutes crying stinking fish. He talked about the depression which was coming with every appearance of joy, and about the ever-darkening atmosphere. It is hardly necessary to say that the proposal is utterly impracticable. The suggestion that one could ante-date claims for loss in a time of high taxation when one can look forward to a period of reduction in taxation—[Interruption]. If the hon. and gallant Member wants to cry more stinking fish, I will let him. I speak as a optimist. I say that this Government is the best Government the country has ever had. I see the town I represent more prosperous than it has ever been, and if it were not for the habit of some hon. Members opposite going round the world and criticising their country and crying it down, we should be in a better position still.

Hon. Members who go abroad are extremely careful. The hon. Member should not fling these accusations about without giving names.

Quotations have frequently been cited, but as the hon. Member previously interrupted me on a matter of deportment, I would point out that he has addressed the Committee not only with his hand in a pocket, which is against the rules of the Committee and a breach of taste, but further with his hand in his own pocket, which is a breach of the rules of his party. Each hon. Member opposite knows something about some subjects particularly, and the hon. Member's speciality is deportment—an accomplishment he shares with the late Mr. Turveydrop.

This proposal is impracticable, and it would put a great strain on the Income Tax officials. It would bring about a position in which mathematically an apparent loss could be made to pay. Hon. Members opposite have evolved a new terminology in which high profits are always referred to as fictitious and losses as real. Everyone knows that there has to be a fictitious loss and that there may be a time when it is convenient to buy goods and charge them up to a year which has not been too prosperous. If this proposal were carried it would mean an increase in that practice.

I want to call attention to a matter of some importance because after all this discussion it is time that someone did. There was a very interesting correspondence in "The Times" which arises by inference on this suggestion. There are many people with what are largely fluctuating income in these times. In the theatrical profession, sport, and most of the arts and sciences, there are many people who do not know from year to year what their income will be, but who find that it varies very substantially. One year they may be making £5,000 to £6,000 a year, and another year only £500. I shall speak a little louder to overcome the cackling from the benches opposite which is more appropriate to a smoking room.

We do find it a little difficult but it is not so much that the hon. Member does not speak loudly enough but that he speaks very fast and it is not always easy, unless one is directly near him, to know always what he is saying.

I am grateful to the right hon. Gentleman. He is, of course, pursuing his previous point of the necessity of spreading out our deliberations a little longer and therefore inviting me to talk a little slower. I shall try to be slower because I am trying to put quite seriously an important point. There are many professions in which fluctuating incomes do make a very real hardship upon the taxpayer. Frequently a man is called upon to pay Surtax in a year when he has had very little income. The suggestion is made that the author is the classic example. Dramatists and artists are also called upon to face a very real burden in this respect.

This Clause does not wholly face up to that situation. It endeavours to meet one particular type of it in a way which is quite impracticable and impossible. There was a way in which this fluctuation was dealt with. In the years which followed the Great War there was a three years' average, and persons belonging to certain professions could take advantage of that average and escape the very real hardship which often occurs, particularly in a small office where the whole prosperity is often dependent upon whether one or two cheques come in today or two or three days later.

I ask the Government to reconsider this matter and see how far it would be practicable to reintroduce a proposal of that kind which is based completely upon equity. It is perfectly fair that if you have a fluctuating income you should be able to spread it over a period and pay tax on average income. I am sorry to have to say this, but that privilege was rather wantonly withdrawn in 1925 by the then Chancellor of the Exchequer, the right hon. Member for Woodford (Mr. Churchill). However, we can still put right the mistakes of the past, and I think there is a case for this. I propose to try and put down on the Report stage, a Clause to meet this particular grievance and I give the Government due warning in the hope that they will consider it favourably in the interim.

I am glad that the hon. Member for Oldham (Mr. Hale) came back in the last part of his speech to the object of this Clause. I first understood from what he said that he was going to oppose it, but he has given it a very great measure of support. Behind it there are two things which will appeal to every member of the Committee. The first is the knowledge that in almost every industrial concern—and also in the many cases that the hon. Member for Oldham has quoted—there are years in which, through no fault of their own, there are very serious losses. That is the first point which I suggest will be accepted as commonplace by every Member of the Committee.

The second is that every Member would be wishful to help an honourable company back on to its feet again, and that is really the object of this new Clause. What it seeks to do is really quite simple. The hon. Member for Oldham said that it would be quite impracticable, but I do not think we should accept that until we have heard what the Economic Secretary, or whoever is answering this case, says. The proposal is quite simple. A company makes a very severe loss in a particular year. That loss is more than it can pay out and it is carried forward on the assumption that the next year it will make sufficient profit to take up that deficit. This Clause seeks not to go forward but to spread backwards, and no matter what the hon. Member for Oldham may say, there are such things as reclaims of Income Tax. I am glad to hear him say that he is going to apply his brain to this matter between now and the Report stage. I look forward to seeing the new Clause when drafted.

1.15 a.m.

The proposed Clause raises the simple question of whether provision should be made in tax legislation for writing losses backward—whether, in other words, there should be one more method of obtaining relief in respect of losses in addition to the three methods provided. Before I address myself to that point, I should like to acknowledge the intimation which my hon. Friend the Member for Oldham (Mr. Hale) has given that he proposes to put down a new Clause. When it is put down it will be studied with great interest by those responsible for making a decision.

There are three ways in which a trader can treat a loss which he makes. He can write it off against his aggregate income in the year in which he makes the loss; he can write it off against profits in that year made by any other business which he might conduct; or he can write it off against future profits which he makes in the six succeeding years. One starts with the position that there are already ample methods to enable him to obtain relief in respect of a bad year's trading. That is a reason which makes it doubtful whether any further method need be provided.

The method suggested in the new Clause of writing off backward would be almost impossible to implement. I shall give a reason. Supposing that in past years a company has paid dividends and that some shareholders in the company are entitled to relief because their total incomes entitled them to some repayment of tax. If the suggested method of treating losses were adopted, it would mean that the Revenue, having given relief to those shareholders, would be under the obligation of trying to get it back—otherwise the Revenue would lose. Administratively, that system would be completely impossible. Apart from that, if losses were written back it would place the Revenue in the difficult position that it would never know what is the national revenue because it may have to give some back. These are the reasons which make such a scheme administratively difficult and undesirable in principle.

I would remind the Committee that there is a committee, to which reference has on many occasions been made, about to investigate all these matters. If there is need for a further method of treating losses, that is the sort of problem with which the committee should concern itself. For the reasons that there are ample opportunities for traders to write off losses, that the new method would be administratively difficult to operate, and undesirable in principle for the reasons I have given—and there are others—and because the whole problem is to be investigated, I believe that the Committee will agree that this new Clause should not be adopted.

It is difficult to see exactly what right the Solicitor-General had to encourage the hon. Member for Oldham (Mr. Hale) to believe that the Clause he is going to put down is likely to receive favourable consideration.

I said nothing of the sort. I said that it would be carefully studied—as are all Clauses put down on the Order Paper.

I agree with the point made by the hon. Member for Oldham, but it seems that the remarks of the Solicitor-General preclude the possibility that any Clause covering, that point will be accepted by the Government. The point that the hon. Member for Oldham made is that a man is liable to pay tax and because of large losses incurred in the current year has not the funds to meet the tax liability, and that that puts the individual or the firm in an extremely embarassing position. I was sorry, if I may say so, that the hon. Member for Oldham should have started his remarks in the way he did because we on this side of the Committee always listen extremely carefully to him, because it is difficult to catch what he says, and also because in fact what he generally says is extremely sensible. It is a great pity if the point he put forward is not considered in due course when his Clause is put down. The remarks of the Solicitor-General would seem to mean that the possibility of any Clause in this form would be precluded from receiving favourable consideration.

Question put, and negatived.