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New Clause—(Profits Tax: Wholetime Working Director)

Volume 466: debated on Tuesday 28 June 1949

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Sub-paragraph ( c) of paragraph 13 of the Fourth Schedule to the Finance Act, 1937, as amended by paragraph 2 of Part III of the Eighth Schedule to the Finance Act, 1947 (which defines the expression "whole time service director" for the purpose of the Profits Tax) shall be amended by the omission of the words "five per cent." and the insertion of the words "ten per cent."—[ Colonel Haughton.]

Brought up and read the First time.

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

The new Clause deals with the case of a man who works his way up and finds his place on the board of a company. I think it is wholly desirable to encourage the practice of employees working their way up and also investing their savings in the business in which they are engaged. I think that is an argument that has been used by the Government over and over again, so that the Government are, in fact, in agreement with the principle of this new Clause.

I do not suppose it was ever thought that other limitations would impinge on this particular aspect of an employee working his way up and taking his place on the board of directors. As we know, he would only be allowed to invest 5 per cent. in that company, after which any of the remuneration which was paid to him would, of course, be subject to profits tax. I am suggesting in this new Clause that that limitation of 5 per cent. should be increased to 10 per cent. I think it is altogether desirable, and I think it is in accordance with the principles that we have heard over and over again in this House. I do not suppose it is necessary at this late hour to overemphasise the limitation which makes this expansion to 10 per cent. necessary.

This matter was considered in 1947. We had considerable debates on this and ancillary matters and it was then decided—I think quite rightly—that the figure of five per cent. was reasonable. It is true that certain old employees do qualify for directorships in companies and no one wants to prevent that at all. In fact, the more people who rise from the bottom to the top within the industry to which they have devoted their lives, the more pleased most of us are. But we believe that a dividing line has to be drawn somewhere although I do not for a moment object to what the hon. and gallant Gentleman has said or to the fact that he has brought this proposal forward. We have examined it in a most sympathetic spirit, but think on reflection that the five per cent. limitation achieves the best result. I hope the hon. and gallant Member will agree and let it go at that.

I regard the hon. Gentleman's answer as wholly unsatisfactory. Obviously he has given no consideration whatever to this point. He just read out what has been provided for him.

I did not say we had not given this consideration. In saying he does not believe me, is the right hon. Gentleman branding me before the Committee as a liar?

I should certainly never think of branding the right hon. Gentleman as a liar. I will admit at once he has given every possible consideration to the Clause and go on to say that quite obviously he has not appreciated the point. The fact is that this is a perfectly simple point. Everybody agrees that we want to encourage working whole time executives being put on boards of companies and nobody wants to do anything which can stop that process, unless it is going to result in a serious loss of revenue. We have had no word from the right hon. Gentleman as to the loss of revenue the acceptance of this Clause would imply. Surely in the serious consideration he has given to this, he has gone into that point. Can he tell us now?

The loss of revenue does not come into it at all. If this would lead to a widespread movement whereby workers were appointed working directors because of the increase from five per cent. to ten per cent., obviously the tax limit of 1947 might make some small difference of revenue, but that was not the point on which I objected. The objection I made was that within the last year the House has gone into this question and accepted the figure of five per cent. as reasonable. I do not want to argue it any further than that.

The argument now is that because the House did something two years ago, it must now inevitably do the same thing. It may well be that during the two years which have elapsed, a certain amount of experience has been gained and cases may have arisen where five per cent. has acted as a deterrent. The right hon. Gentleman had told us that so far as he knows there is likely to be no appreciable loss to the Revenue in this proposal. If that is so, what earthly objection has he to accepting it? Why do we not make certain that no one deserving of becoming a wholetime executive will be stopped from becoming a member of a board? Up to now the right hon. Gentleman has confined his acceptance of Amendments to those which entail no loss of revenue. Here is one which at the same time achieves an object which all sides have in common. We cannot accept that the only reason he will not accept the Amendment is that this was decided in 1947 and because of that, any subsequent experience must be ignored.

Here we have a peculiar situation. The law as it stands today is really a practical deterrent to people who wish to get on and become directors of their companies. A five per cent. interest in a business today, of whatever size it may be, is a very small holding. Ten per cent. is something which is much more practicable and I think is something which does give encouragement and the desire to go ahead and invest money in companies with which people desire to work. As it stands at the moment, the idea behind the law is that any extra money people might have has to be put into some business in which they are not actually working.

1.30 a.m.

That seems most extraordinary to me. Surely if a man is prospering sufficiently in a business for the company to recognise his abilities by making him a director, it is ridiculous to say that because of the present provisions the man may not put into the business any little extra savings he may have or else he cannot be made, a director, and that he must put the money in some other business. Surely the Government's policy is that people should plough back into their business any little extra money which they can make. The Financial Secretary has made it clear that at the present stage anyhow it is not a question of cost. In those circumstances, the Government should be able to give encouragement to a man who reaches the happy position of being a director by allowing him a holding of 10 per cent. The present position is crazy. The proposal is worthy of sound consideration for the practical benefit of many people.

I well remember the Debates we had on kindred subjects on the Finance Bills of last year and the year before, and I have most pleasant recollections of the Chancellor of the Exchequer and the Financial Secretary making slight alterations which were very fair and did a lot of good in relation to things like director-controlled companies. They did not cost the Treasury anything, and they provided an incentive and did good all round. Every Finance Bill gives an opportunity of bringing forward the matter of the investment which an employee may have in a company when he goes forward to the board, without making a surcharge on the company in so far as his remuneration is concerned. The Financial Secretary will bear me out that concessions were made in 1947 and 1948, and I hope that before we part he will concede this point.

I do not apologise for raising this matter at this stage because it is a subject about which I feel particularly strongly and one which affects me directly. I want to tell the Financial Secretary of the predicament in which I find myself about these provisions. When the matter was raised in 1947, I took part in the Debates, and, like my hon. and gallant Friend the Member for Antrim (Colonel Haughton), I am grateful for the concessions made. I am concerned with a family business over 150 years old. It has been the tradition for at least four or five generations that the vast majority of the directors shall be people who began in the business as office boys or junior clerks and have worked their way up.

We want energetic young men, who join the company as juniors, to become perhaps members of a board at between 30 and 40, when they can give many years' service. All the partners in my firm, with the exception of myself, started as office boys. It has been not only my desire, but that of my partners, to give these people when they become directors a considerable shareholding and participation in the profits of the company. I believe that is extremely desirable. I know that I represent everything which hon. Gentlemen opposite dislike, being a person who has inherited a business which has been in the family for long generations, but I believe the small family businesses and firms, with long family tradition and association, play a real part in the life of this country. It is because firms like ours have permitted people from lowest level consistently for a 100 years to rise in the firm that they have prospered over that time.

The effect of these restrictions on the number of shares that can be held, and the share of participation that we can give to those who serve a company, must be appreciated. I said this in 1947, and I make no apology for repeating it now. I do not believe that my business is an isolated case. I believe that there are many hundreds all over the country, and I consider the Government should do everything they can to encourage them. Every possible restriction should be done away with. In our case, and the Financial Secretary can argue this against me, we consider that people should participate in the profits. We have allowed them to do so, and the fact that this has been an embarrassment and not a deterrent, does not alter the fact that I do not think it right that this deterrent should exist. This is not a matter which will cost the Exchequer much, if anything at all, and I seriously urge the point of view I have put forward for it is typical I believe of hundreds and possibly thousands of firms. This is not a party point. It is a matter of general principle. It is agreed on both sides of the Committee that everyone should be given a chance of working their way up, and nothing should be done to discourage them.

I support this Clause for reasons associated with those put forward by the hon. Gentleman the Member for Oswestry (Mr. O. Poole). Surely we ought to encourage a man financially in the business he directs. When an able member of a business, who has risen by sheer ability and is earning a handsome salary, comes to the crucial moment when he is intimately associated with the direction of that business, we ought to suggest that more financial inducement should be given to him to put his earnings and his salary into that business, to acquire a shareholding and have a stake in the business in which it may be difficult for him to sell out easily if he should want to do so. We have seen the general shareholder eliminated in the control of great businesses. We have seen the managerial class come into existence. There is a suggestion that the managerial class are beginning to develop techniques of administration which enable them to switch themselves and their ability in and out of businesses. We do not want that. We want the principle of unlimited liability to operate much more often than it has before, and the whole principle of absentee landlordism to disappear.

The reply given by the Financial Secretary has been one of the most distressing in a distressing series throughout these Debates. This is a thing that does not cost anything, so that argument has disappeared; but all the Financial Secretary could say was that two years ago the House of Commons decided to make this 5 per cent., that he has looked at our proposal sympathetically but on the whole favours 5 per cent., because it was decided two years ago. No attempt has been made to look into the pros and cons of raising it from 5 to 10 per cent., and giving the reasons to the Committee. It is distressing to find the right hon. Gentleman, a most agreeable and most able man—if he were not so able he would not have kept his post for four years—giving us that kind of advice. I beg him to look

Division No. 192.]

AYES

[1.45 a.m.

Amory, D. HeathcoatGage, C.Noble, Comdr. A. H. P.
Assheton, Rt. Hon. R.Galbraith, Cmdr. T. D. (Pollok)Nutting, Anthony
Astor, Hon. M.Galbraith, T. G. D. (Hillhead)Odey, G. W.
Baldwin, A. E.Gates, Maj. E. E.Pickthorn, K.
Beamish, Maj. T. V. H.Gomme-Duncan, Col. A.Poole, O. B. S. (Oswestry)
Birch, NigelGrimston, R. V.Raikes, H. V.
Boles, Lt.-Col. D. C. (Wells)Hare, Hon. J. H. (Woodbridge)Rayner, Brig. R.
Bowen, R.Harris, F. W. (Croydon, N.)Renton, D.
Bower, N.Haughton, S. G.Roberts, Emrys (Merioneth)
Boyd-Carpenter, J. A.Henderson, John (Cathcart)Ropner, Col. L.
Braithwaite, Lt.-Comdr. J. G.Hinchingbrooke, ViscountRoss, Sir R. D. (Londonderry)
Buchan-Hepburn, P. G. T.Hollis, M. C.Spearman, A. C. M.
Carson, E.Hope, Lord J.Stanley, Rt. Hon. O.
Challen, C.Howard, Hon. A.Strauss, Henry (English Universities)
Channon, H.Hudson, Rt. Hon. R. S. (Southport)Stuart, Rt. Hon. J. (Moray)
Clarke, Col. R. S.Hurd, A.Taylor, C. S. (Eastbourne)
Conant, Maj. R. J. E.Hutchison, Lt.-Cm. Clark (E'b'rgh W.)Teeling, William
Corbett, Lieut.-Col. U. (Ludlow)Hutchison, Col. J. R. (Glasgow, C.)Thomas, J. P. L. (Hereford)
Crookshank, Capt. Rt. Hon. H. F. C.Langford-Holt, J.Thornton-Kemsley, C. N.
Crosthwaite-Eyre, Col. O. E.Legge-Bourke, Maj. E. A. H.Thorp, Brigadier R. A. F.
Crowder, Capt. John E.Linstead, H. N.Turton, R. H.
Cuthbert, W. N.Lloyd, Selwyn (Wirral)Wadsworth, G.
Digby, Simon WingfieldLucas, Major Sir J.Wakefield, Sir W. W.
Dodds-Parker, A. D.Lucas-Tooth, Sir H.Ward, Hon. G. R.
Drewe, C.McFariane, C. S.Wheatley, Colonel M. J. (Dorset, E.)
Dugdale, Maj. Sir T. (Richmond)Macmillan, Rt. Hn. Harold (Bromley)Williams, C. (Torquay)
Eccles, D. M.Macpherson, N. (Dumfries)York, C.
Foster, J. G. (Northwich)Maitland, Comdr. J. W.TELLERS FOR THE AYES:
Fox, Sir G.Maude, J. C.Commander Agnew and
Fraser, H. C. P. (Stone)Mellor, Sir J.Brigadier Mackeson.
Fraser, Sir I. (Lonsdale)Neven-Spence, Sir B.
Fyfe, Rt. Hon. Sir D. P. M.Nicholson, G.

NOES

Adams, Richard (Balham)Comyns, Dr. L.Freeman, J. (Watford)
Albu, A. H.Cook, T. F.Freeman, Peter (Newport)
Alexander, Rt. Hon. A. V.Corbet, Mrs. F. K. (Camb'well, N. W.)Gaitskell, Rt. Hon. H. T. N.
Attewell, H. C.Crawley, A.Ganley, Mrs. C. S.
Awbery, S. S.Crossman, R. H. S.Gibson, C. W.
Bacon, Miss A.Cullen, Mrs. A.Gilzean, A.
Barton, C.Daines, P.Glanville, J. E. (Consett)
Bechervaise, A. E.Dalton, Rt. Hon. H.Gordon-Walker, P. C.
Berry, H.Davies, Edward (Burslem)Griffiths, D. (Rother Valley)
Beswick, F.Davies, Ernest (Enfield)Guest, Dr. L. Haden
Bing, G. H. C.Davies, Harold (Leek)Gunter, R. J.
Binns, J.Davies, Haydn (St. Pancras, S. W.)Guy, W. H.
Blackburn, A. R.Deer, G.Haire, John E. (Wycombe)
Blyton, W. R.Delargy, H. J.Hale, Leslie
Braddock, Mrs. E. M. (L'pl. Exch'ge)Diamond, J.Hall, Rt. Hon. Glenvil
Braddock, T. (Mitcham)Dobbie, W.Hamilton, Lieut.-Col. R.
Brook, D. (Halifax)Dodds, N. N.Hannan, W. (Maryhill)
Broughton, Dr. A. D. D.Driberg, T. E. N.Haworth, J.
Brown, George (Belper)Dugdale, J. (W. Bromwich)Henderson, Joseph (Ardwick)
Brown, T. J. (Ince)Dye, S.Herbison, Miss M.
Bruce, Maj. D. W. T.Ede, Rt. Hon. J. C.Hewitson, Capt. M.
Burden, T. W.Edwards, W. J. (Whitechapel)Hobson, C. R.
Burke, W. A.Evans, Albert (Islington, W.)Holman, P.
Butler, H. W. (Hackney, S.)Evans, John (Ogmore)Horabin, T. L.
Callaghan, JamesEvans, S. N. (Wednesbury)Houghton, A. L. N. D.
Carmichael, JamesEwart, R.Hoy, J.
Castle, Mrs. B. A.Fairhurst, F.Hubbard, T.
Chamberlain, R. A.Farthing, W. J.Hudson, J. H. (Ealing, W.)
Champion, A. J.Fernyhough, E.Hughes, Emrys (S. Ayr)
Chetwynd, G. R.Fletcher, E. G. M. (Islington, E.)Hughes, Hector (Aberdeen, N.)
Cocks, F. S.Foot, M. M.Hughes, H. D. (W'lverh'ton, W.)
Collindridge, F.Forman, J. C.Hynd, H. (Hackney, C.)
Collins, V. J.Fraser, T. (Hamilton)Hynd, J. B. (Attercliffe)

at some of these proposals more seriously, and to be prepared with replies that are adapted to the cases we put.

Question put, "That the Clause be read a second time."

The Committee divided: Ayes, 91; Noes, 211.

Irving, W. J. (Tottenham, N.)Paget, R. T.Stross, Dr. B.
Jay, D. P. T.Paling, Will T. (Dewsbury)Stubbs, A. E.
Jones, D. T. (Hartlepool)Palmer, A. M. F.Symonds, A. L.
Jones, Elwyn (Plaistow)Pargiter, G. A.Taylor, R. J. (Morpeth)
Jones, J. H. (Bolton)Parkin, B. T.Thomas, D. E. (Aberdare)
Keenan, W.Paton, J. (Norwich)Thomas, I. O. (Wrekin)
Kinley, J.Peart, T. F.Thomas, George (Cardiff)
Lang, G.Popplewell, E.Timmons, J.
Lavers, S.Price, M. PhilipsTolley, L.
Lee, Miss J. (Cannock)Proctor, W. T.Ungoed-Thomas, L.
Leonard, W.Pryde, D. J.Vernon, Maj. W. F.
Levy, B. W.Randall, H. E.Wallace, G. D. (Chislehurst)
Lewis, J. (Bolton)Ranger, J.Wallace, H. W. (Walthamstow, E.)
Logan, D. G.Rankin, J.Warbey, W. N.
Longden, F.Reid, T. (Swindon)Watkins, T. E.
McGhee, H. G.Rhodes, H.Webb, M. (Bradford, C.)
Mack, J. D.Ridealgh, Mrs. M.Weitzman, D.
McKay, J. (Wallsend)Robens, A.Wells, P. L. (Faversham)
Mackay, R. W. G. (Hull, N. W.)Robinson, Kenneth (St. Pancras, N.)West, D. G.
McKinlay, A. S.Rogers, G. H. R.Wheatley, Rt. Hon. John (Edinb'gh, E.)
McLeavy, F.Ross, William (Kilmarnock)Whiteley, Rt. Hon. W.
Macpherson, T. (Romford)Royle, C.Wigg, George
Mallalieu, J. P. W. (Huddersfield)Sargood, R.Wilcock, Group-Capt. C. A. B.
Mann, Mrs. J.Shackleton, E. A. A.Wilkes, L.
Manning, C. (Camberwell, N.)Sharp, GranvilleWilkins, W. A.
Mellish, R. J.Shawcross, C. N. (Widnes)Willey, F. T. (Sunderland)
Middleton, Mrs. L.Shurmer, P.Willey, O. G. (Cleveland)
Mikardo, Ian.Silkin, Rt. Hon. L.Williams, J. L. (Kelvingrove)
Millington, Wing-Comdr. E. R.Silverman, J. (Erdington)Williams, Ronald (Wigan)
Mitchison, G. R.Silverman, S. S. (Nelson)Williams, W. T. (Hammersmith, S.)
Monslow, W.Simmons, C. J.Williams, W. R. (Heston)
Morris, Lt.-Col. H. (Sheffield, C.)Skinnard, F. W.Willis, E.
Morris, P. (Swansea, W.)Smith, C. (Colchester)Wills, Mrs. E. A.
Nally, W.Smith, S. H. (Hull, S. W.)Wyatt, W.
Neal, H. (Claycross)Snow, J. W.Yates, V. F.
Nicholls, H. R. (Stratford)Sorensen, R. W.Younger, Hon. Kenneth
Noel-Baker, Capt. F. E. (Brentford)Soskice, Rt. Hon. Sir FrankTELLERS FOR THE NOES:
Orbach, M.Stokes, R. R.Mr. Pearson and Mr. Bowden.