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Relief For Increase In Stock Values In Financial Year 1973

Volume 884: debated on Tuesday 21 January 1975

The text on this page has been created from Hansard archive content, it may contain typographical errors.

I beg to move Amendment No. 13, in page 12, line 5, after 'excess', insert:

'or such part thereof as the company shall claim'.

With this, we may discuss the following:

Amendment No. 79, in page 12, line 5, after 'excess', insert:
'or such smaller amount as claimed;'.
Amendment No. 14, in page 12, line 6, leave out 'excess' and insert 'claim'.

Amendment No. 80, in page 12, line 39, after 'period', insert:
'or such smaller amount if so claimed'.
Amendment No. 75, in page 14, line 32, at end add:
'(11) A company shall be entitled to claim any part of the relief available under this section.'.

I am sorry that we are starting the debate on this very important clause with a fairly narrow group of amendments, and I join my right hon. Friend the Member for Finchley (Mrs. Thatcher) in protesting about the way in which our discussions are having to take place.

When I thought about how to begin my remarks, my mind went back to a headline in Accountancy Age of 26th April, which read:
"Barnett slams the Budget alarmists."
The Chief Secretary went on to say that the Budget would have only a very small effect on company liquidity. I quote briefly from that speech. He was reported to have said:
"Some companies take the view that tax should be reserved early in the year and that once reserved is no longer available for investment or any other general use. If that point of view is accepted—and it is certainly applied by a large number of companies—the surcharge on ACT does not affect net liquidity as it was in any event part of the fund reserved for corporation tax."
In fairness, the Chief Secretary went on to say that other companies took a different point of view and regarded their tax reserves as being available for more general use. But we must assume that the right hon. Gentleman believed what he was saying, and the fact is that he said that tax reserves, by implication, were not available for general use and, therefore, that the alarm which went up about ACT and the additional corporation tax was misconceived. As he said, he "slammed" the alarmists.

I do not think that the right hon. Gentleman was right, but one must assume that he thought that he was right. If so, by the same token, a deferment tax, which is really what the Government offer in Clause 16, is of very limited benefit. It is interesting to note that the general accountancy bodies have recommended that the sum released should be set aside in a special deferred tax account and regarded as a sum which, at some time in the future—it might not be this year—will be clawed back. It will not be available as the company's general funds. It will be available, according to the right hon. Gentleman's earlier arguments, only for a very limited time or as a major source of investment in the company's business.

The fact that Clause 16 is in the Bill suggests that those who were alarmed last March and whom the right hon. Gentleman accused of being alarmist were justified in their actions, because the clause is evidence that the right hon. Gentleman has changed his mind and now accepts that the Budget last March, which, in his typically loyal way, he defended, did company liquidity considerable damage. Clause 16 is an admission that the right hon. Gentleman's remarks then were wrong. To paraphrase the Leader of the Liberal Party on another occasion, we are all alarmists now.

Secondly, in the run-up to the February election the Labour Party attacked the Conservative Government by implication for the high level of company profits then being declared in annual accounts. It was a constant theme of the Labour Party's campaign. Labour spokesmen attacked what they described as appalling profits, saying that they were a scandal.

By implication the Bill reveals once again that the Labour Party was making an entirely spurious and badly-based attack. The very profits then supposed to be so scandalous and unacceptable and evidence of all sorts of terrible motives in the Conservative Government are the profits which are now to be relieved by Clause 16. Far from these profits being scandalous, we are told now that they are deserving of relief, must be relieved, and that company profitability, far from being excessive at that time, was barely enough to finance the additional strains on stock and so on. Thus, once more, one of the sticks used by the Labour Party to beat the Conservative Government is revealed as having been based more on a figment of the Labour Party's imagination than on reality.

Clause 16, if anything, is the Chancellor of the Exchequer's rather complicated way of admitting that the reasoning behind the increase in corporation tax and the surcharge on advance corporation tax has been totally abandoned. It is rather typical of the Chancellor that he has chosen to make this admission by way of an extremely complicated provision. However, many of us believe that the clause, while giving a welcome relief, is slightly unfair. For example, it takes no account of the company that ran down its stock through efficiency and used the money to invest in buildings. That company gets 40 per cent. relief, but it is at a disadvantage against the possibly inefficient company which built up its stocks to a level which was unnecessary at the time. It is an arbitrary relief.

4.15 p.m.

It would have been a much cleaner way of giving the relief, and perhaps would not have prejudiced the findings of the Sandilands Committee, if the Government had simply abandoned the ACT surcharge and possibly cut corporation tax, thus reversing some of the Chancellor's measures of 24th March.

Many problems arise from the rather peculiar way in which the relief is being given—for example, the fact that it really is a deferral and not a relief. As the Chief Secretary to the Treasury will know from his great practical experience, a number of companies could well find themselves at a disadvantage as a result of Clause 16 rather than at an advantage, unless Amendment No. 13 and others associated with it are accepted. These amendments have the simple basis that the company should be allowed to take as much of the relief as will benefit it, that it should have a choice about the amount of relief it claims.

There is no need for me to recite the various other reliefs which are open to companies which might be adversely affected if they were forced to take the whole of this relief. My hon. Friends who have put their names to the associated amendments will deal with such aspects. But I want to refer briefly to three—group relief, liability to shortfall, and relief from double taxation.

A company could well be at a disadvantage if it were forced to take the whole of this relief. We do not see that, in accepting the amendments and making the tax a little more flexible, the Government would be doing anything to prejudice their objectives. We accept that the Chief Secretary is sincere in wanting to give relief to companies, that he wants to give a benefit to them or relieve their cash problems. He would give a greater relief if he allowed apportionment.

I suggest that many of the old standard Treasury answers about cost and so on are not available to the right hon. Gentleman today, although I am sure that someone somewhere will have managed to put a cost on a highly improbable set of circumstances, with all the variables involved.

We accept that the right hon. Gentleman has now admitted that he made a mistake last March and that he is sincere in wanting to give relief. We think that the relief could be more effectively given, at no greatly increased cost to the Treasury, if this small group of amendments were accepted.

I am obliged to the hon. Member for Hertfordshire, South (Mr. Parkinson) for the very agreeable way in which he moved the amendment and for his kind quotations from my speeches, which I found interesting to hear again.

The hon. Gentleman pointed out that this is a deferral of tax. That is right. We have never hidden from the House of Commons that that is the intention of the tax, for a variety of reasons, some of which we shall come to on other amendments.

The hon. Gentleman made the point that the joint accountancy bodies to which we both owe some allegiance would have liked us to go much further. I know that they would like us to go much further on this and other issues, but we have to disagree with them.

The hon. Gentleman said that this is a short-term method of dealing with the problem. That is precisely what we have made clear. It is a short-term method of dealing with it, because we are giving what is, in effect, certainly not a complicated form of relief, as the hon. Gentleman suggested, but a rough and ready form of relief. We have admitted that, because we are awaiting the report of the Sandilands Committee, which we hope will be available for us for the spring Bill, when we would hope to bring in a form of relief which will be more suitable and which will meet many of the points the hon. Gentleman made.

For example, we accept that there will be companies which will not obtain relief under this clause, not necessarily because they are not limited companies or because they have less than £25,000 worth of stock but for a variety of other reasons, but would be, we hope, helped in the following years' relief that we intend to give and we have committed ourselves to giving.

I do not dispute that what we are doing in the clause is an arbitrary reform of relief. I do not propose on this narrow amendment to get involved in the argument about whether the March 1974 Budget was right or wrong. I am talking now about the substantial relief that we are giving under the clause. Because of the very nature of the representations we have received from many quarters and the fact that we recognised that many companies were having liquidity problems, we sought to help them in the short term with the tax that they would otherwise have had to pay in January of this year.

Because of that, and because of the administrative problems there would otherwise have been, given the short time span until January to enable the Revenue to make the necessary repayments where appropriate or not to collect the tax, it was crucial that the relief would be rough and ready and that by the nature of things some companies will not be helped which otherwise we would have wanted to, as the hon. Gentleman wants to.

The question of the ACT surcharge is a totally different matter. The hon. Gentleman said that he would have preferred action to have been taken there. That will be repayable to companies anyway, whereas this form of relief is a positive reduction in taxation in this year just at the time when there is a liquidity problem.

I hope that the hon. Gentleman will recognise that we have tried to meet an immediate problem. We will meet the later issues in the spring Budget.

It is true, as the hon. Gentleman said, that in certain instances there will be companies which will not be able to use the relief this year. The hon. Gentleman cited companies which would have been able to take group relief, some shortfall problems, and the question of double taxation relief. The hon. Gentleman is right in one sense. On the other hand, any surplus losses created by the relief given under the clause will be available to carry forward against future profits, and in that sense I do not think that it is particularly ungenerous.

Indeed, I submit that what the hon. Gentleman proposes would make the situation more complicated rather than less complicated. It would add refinements that would make it more complicated for the Revenue in dealing with the very large number of claims which will be submitted despite the fact that we have limited it.

Further, if the Committee were to allow this right of disclaimer in order to carry forward some of the relief to another year, it would go right against the whole purpose of the clause. The purpose of the clause is just to give some help for this year. What will be done in the second and later years the House of Commons will have an opportunity to decide when we have the spring Finance Bill. If we start using some of the relief which would otherwise have been available for certain companies this year and allow it to be carried forward, it will get very confused with the relief, which may be different—we do not yet know what it will be—which we propose to introduce in the spring Finance Bill.

I therefore hope that it is clear to the Committee that this clause is by no means the final version of the form of inflation-accounting relief that we shall eventually have in mind and that to add this further refinement and complication would not improve the situation but worsen it. I hope that the Committee will feel able to agree with me that it would be better to accept this admittedly rough and ready relief and come to the more refined form of relief when we have the spring Finance Bill.

When Chancellors of the Exchequer are preparing their Budgets it is one of the functions of their permanent advisers to remind them of certain well-tried principles of public finance of which they are in a sense the custodians. I imagine that when the Chancellor of the Exchequer was contemplating the proposal embodied in Clause 16 one such principle was brought to his attention—that is, that taxation should not be used for the purpose either of lending or of borrowing, that lending and borrowing is a separate relationship between Government and the citizen from that of taxation, and that the endeavour to confuse the one with the other always leads to more trouble than it is worth.

In the opposite sense of borrowing by taxation, we have all lived through the long and dreary experience of post-war credits which were the converse form of the use of taxation for a borrowing-lending purpose. Here, instead of offering a relief from taxation, instead of dealing with a problem directly fiscally, the Chancellor of the Exchequer has framed provisions which are a form of lending by the Government to corporations under the guise of taxation.

I predict not only that this will, as this and the succeeeding series of amendments show, cause inequities, irritations and difficulties in the short run but that the object of recouping the money and clawing it back in due course will be frustrated. That is one of those things which never happen in real life when one gets to them next year or the year after.

The circumstances of each Finance Bill ought to be looked at as they stand, and they should be looked at fiscally. In framing instead a form of loan, the Chancellor of the Exchequer has created inequities between one taxpayer and another taxpayer. The present series of amendments draws attention to one inequity. It forces upon one group of taxpayers a loan which they may not want, a loan which may be disadvantageous to them. We shall come later on in the clause to other inequities.

I therefore believe that the principle which the Chancellor of the Exchequer has attempted to follow is wrong, and my hon. Friends and I will support the Opposition in marking their disapproval of that principle and of its consequences by this and subsequent amendments.

I had not proposed to intervene in the debate, but I am bound to tell the Chief Secretary that after having listened to his speech I was left in such a state of perplexity that I was ready to conclude that possibly he had not understood the full scope and measure of relief which he is attempting to introduce by the clause.

It is not perhaps appropriate or necessary to debate the context in which we find the clause, although I would observe that, as I understand it, the Chancellor of the Exchequer is now endeavouring to redress the wrongs which he did to the corporate sector in his March Budget.

4.30 p.m.

I believe that if the clause were looked at with a clear eye, it is possibly all that the Chancellor could hope to pilot through with the support of his own party. If he had gone to his party and said "I did wrong in March. I deprived companies of cash resources which they could ill spare. I wish to make amends and reduce the rate of corporation tax", that would have been the simple and honourable way of dealing with the problem. However, he would never have got the support which he badly needs from the 60 or 70 Left-wing members in his party for such a measure, so he searched for a more dubious way of giving relief.

One can see the apparent lack of interest on the Government benches. The Chancellor no doubt said to himself that 90 per cent. of his party would not understand it and only the remaining 10 per cent. might understand, sympathise and approve. The Chief Secretary appears to nod his head or dissent—I do not know which. I do not know whether he was party to these tactical thoughts of the Chancellor, but it is against that background that I judge the clause.

The Chief Secretary told us that this is a rough and ready clause. The measure of relief that it gives is haphazard in the extreme. The more efficient company which has a close measure of stock control and has limited stocks at the end of the appropriate accounting period will get little benefit from this measure of relief. The less effective company may get a considerable and perhaps unjustified measure of relief. This is inevitable when relief is dished out on this rough-and-ready basis in order apparently to obscure the issues underlying it. I hope that the Chief Secretary will come to this point later in this evening's proceedings.

Why is there to be no relief for debtors? The number of debtors at the year's end is considerably increased by the impact of inflation. Again, why exclude services? This shows that it is a crude measure of relief. Because it is a crude measure of relief I believe that the Committee should endeavour, so far as it can, to refine it. I believe that my hon. Friend the Member for Hertfordshire, South (Mr. Parkinson), with his keen accountant's mind, has hit on one simple expedient which could be accepted by the Government, and that is to allow companies to select how much of the relief they wish to take up. My hon. Friend has demonstrated situations in which it would not be advantageous for a company to take up the full measure of relief to which it is entitled under the clause.

As has been pointed out, to refer to this as relief is a misnomer. I do not know whether I would call it a loan. At any rate, for the advantage gained in the present accounting period there will be comparable disadvantages in later accounting periods. It is very much a case of "timeo Danaos". I look upon any purported gifts from the Chief Secretary in this context with suspicion. This is a doubtful gift, and if it is a doubtful gift at least one should give the taxpayer the opportunity to reject it in part. Let him say "I will take so much."

I know the bureaucratic mind—not that I accuse the Chief Secretary of having a bureaucratic mind; I refer to the gentlemen in the Official Box who will be passing him notes—

I am delighted to know that the Chief Secretary is so confident in his grasp of the complexities of this horrifying Bill that he will be able to battle alone, unsupported not only by his hon. Friends but also by the gentlemen in the Box. This will be a unique occasion to see the Chief Secretary battling unaided, with his native wit and intelligence and with his profound grasp of the complexities of the matter.

Since I know that the bureaucratic mind gropes around for precedents, I remind the Chief Secretary that there is an established respectable precedent for allowing the taxpayer to decide how much of a particular relief advantage he may claim. That is in the most recent measure dealing with capital allowances. It escapes my mind whether it is the Finance Act 1971 or the Finance Act 1972 but the Chief Secretary, without the assistance of the gentlemen in the Box, will know at once.

There is a respectable precedent. This will refine the rather crude form of advantage which the Chief Secretary is offering. I urge him to consider a little more closely than he appears to have done the implications of what my hon. Friend is attempting to do and which he has rather summarily and, as I conceive it, without sufficient perception dismissed. I ask the Chief Secretary to reconsider this point, because it does not seem to me that he has done full justice to the implications of this measure and this amendment.

I want to address most of my remarks directly to the amendment and I do not want to prejudice what we may discuss later on the clause.

The right hon. Member for Down, South (Mr. Powell) spoke about lending and borrowing problems. It is more a question of accelerating or retarding tax payments. The date on which one pays a bill, as every householder knows these days, is of the utmost importance. It amounts in a sense to a loan, but it amounts only to an acceleration or retarding of payment.

The right hon. Member for Down, South was out of the House last summer while we discussed the advance corpora- tion tax, which is the same thing but in the other direction. What we are now discussing is a reversal of what we were discussing in the summer on the question of the ACT. It is true that these accelerating or retarding provisions make for a certain amount of inequity as between different groups, but so would any relief, particularly on the sort of rough-and-ready basis of this relief. I do not complain about the roughness or the readiness of it. We welcome the readiness and we have to accept the roughness.

To come to this question of part claims, the Chief Secretary said that it would be more difficult for the Inland Revenue if part claims were allowed. I do not think it would be. A claim would have to be agreed, of course, but in any case the Exchequer has to agree a total claim, so I do not see that it would be more difficult for the Exchequer to agree a part claim than it would be to agree a total claim. It would make the position easier for taxpayers.

At the moment there are some—not many—who, because of the circumstances in which they find themselves, will be on the horns of a dilemma as to whether to claim or not to claim in total. It would be easier for them if they were able to claim in part, as the amendment would provide. If they are on the horns of this dilemma and they see what the Chief Secretary said, that the spring Budget and the spring Finance Bill will sort it all out in the longer term and that more permanent and presumably less rough and ready measures will be introduced, they will not be able to wait for the spring Finance Bill to receive Royal Assent because they have to claim within three months of Royal Assent to this Bill, which, whenever it may come, is very unlikely to be within three months of Royal Assent to the spring Finance Bill so far as one can see. They will, therefore, be placed on the horns of a very real dilemma.

The amendment, which allows people a part claim, would get them out of this difficulty. There are other amendments to extend the period to three months and so on, but this amendment seems to provide one way out of the difficulty and it is perhaps the way we should choose until we get a better explanation from the Chief Secretary.

I take first the important point raised by the right hon. Member for Down, South (Mr. Powell) on the principle of whether taxation should ever be used for lending or borrowing. I hesitate to say it to the right hon. Gentleman, but I think he has missed the serious point in the whole sphere of taxation, that it is not unusual for a taxpayer to obtain tax relief in a certain way and then at a later stage to have to repay that relief. A simple example immediately springs to mind. If a company buys a piece of plant it will obtain capital allowances on it. If later it sells the plant at a profit in excess of the written down figure for tax purposes it will have to repay that tax relief. The principle is not dissimilar for the form of relief we are considering here.

I was going to deal with this point on a later amendment, but since the right hon. Gentleman raised it I shall take it up now. The right hon. Gentleman made the point that the way in which we are giving this relief will cause great inequity between taxpayers. If we did it the way he and others are suggesting and gave it as a final relief in one year, that would create much greater inequity with other taxpayers. If a company obtains substantial relief under Clause 16 because its stock has substantially increased, possibly in volume as well as in value, and then it goes out of business shortly after the year end and sells the whole of the stock at the inflated value, it will then have had substantial tax relief which I would hope the right hon. Gentleman and many others will not think it equitable for it to have.

In that sense the principle is the same as with capital allowances. I hope, therefore, that the right hon. Gentleman realises that this is why, when we were considering what is admittedly a rough and ready measure, we decided to implement it on a postponement basis rather than on a permanent basis or on a basis complicated by the refinements that the hon. and learned Member for Dover and Deal (Mr. Rees) suggested.

The Chief Secretary's comments go right to the heart of the problem of accounting in an inflationary year. If there is to be a system of inflation accounting there is no way of making it both right and fair on a continuing basis and at the same time right for a business which will come to an end at the end of that year. Different provisions have to be introduced for each case.

The hon. Member is entirely making my point. We accept that our proposition is not inflation-proofing, and it cannot be. We are awaiting the report of the Sandilands Committee and we did not have time to put in the refinements which many hon. Members would like or the type of refinements suggested by the hon. and learned Member for Dover and Deal in respect of relief for debtors, services and so on. It is precisely because we wanted to do something quickly, which I am sure all hon. Members want, that we brought in this haphazard measure. I was delighted that the hon. Member for Gloucestershire, South (Mr. Cope) said that he welcomed the readiness and accepted the roughness of the scheme. I am obliged for that. We wanted to help companies quickly. We could not therefore provide relief by set-offs against other years or other companies. No one pretends that this is the ideal way of dealing with the problem in the longer term, but it gives a substantial measure of tax relief and helps the liquidity of a large number of companies in January this year, and I should have thought that would be supported by all members of the Committee.

For these reasons I hope that the Opposition will feel able to accept that the amendment does not serve the purpose that I have outlined.

4.45 p.m.

My right hon. and hon. Friends have said enough to bring home some of the bizarre consequences that will flow from the wish of the Chief Secretary and the Government to resist these amendments. The Chief Secretary's insistence is on an all-or-nothing approach, and so the picture is conjured up of the Inland Revenue seeking to force a company which would prefer to take part of the relief or loan or whatever it is to take the full amount, to drink the last dregs from this chalice. This is a very peculiar twist in the many gyrations which the Government's taxation policies have already produced, and which the Chief Secretary has had the ill luck to promote at the Dispatch Box.

These very modest amendments, which were moved with extreme reason and calmness by my hon. Friend the Member for Hertfordshire, South (Mr. Parkinson) deal simply with whether the Chief Secretary should stick so doggedly to the all-or-nothing approach in the case of companies which because of their tax situation may actually suffer a loss this year, a year in which, the Chief Secretary was saying a few moments ago, the Government want to help companies. The Chief Secretary did not go so far as to say that the Government want to correct and overcome the damage done to companies by their earlier measures. If his aim is as stated the Chief Secretary should know that there are companies which will not be helped. They will be made to suffer because this is a rough and ready proposition, because the Chief Secretary insists on it being all or nothing, because in those haunting words that we have heard before—"We wanted to do something quickly". That expression would make a marvellous epitaph on this administration's tombstone.

The Government have acted quickly and have produced a rough and ready scheme which produces the bizarre situation in which companies which the Chief Secretary said he wanted to help will be hindered and made to suffer. I think that he also said in his opening comments that losses incurred as a result of companies taking the scheme in full and it adversely affecting their overseas tax situation could be carried forward. I do not understand what he meant by that. However, if he meant that some other relief is to be generated in future years, that may be so, but it contradicts his proposition that he is trying to relieve the situation of the past year.

The Chief Secretary, his senior colleagues and the Government are leading themselves along a path to incredible complexities and difficulties with taxes of this kind. The contribution by the right hon. Member for Down, South (Mr. Powell) was the first and a timely indicator of the impossible situation into which the Government will wander before we go very much further with this Committee stage.

The Chief Secretary could easily have conceded this amendment. It was proposed in a perfectly reasonable way. By resisting it he will make much more trouble for himself and will arrive in a curious situation. I can see no reason why he should not have accepted the amendment. We shall examine the arguments that the Chief Secretary has advanced for resisting the amendment and we shall consider whether to raise the whole matter again on Report. I will not advise my hon. Friends to press the amendment but I make clear to the Chief Secretary that he should not for one moment interpret our moderation in the matter either as typical of our feeling towards the measure or as an indication of the way in which we intend to proceed. We think he could have given way, but he has chosen not to do so. That is disappointing but it is not surprising, because this administration seem bent on binding and entangling themselves about with the worst and silliest forms of tax provision, not merely since the "window tax", which is the description Ian Macleod gave to SET, but since taxation was first devised to molest, bind and shackle man.

Amendment negatived.

I beg to move Amendment No. 18, in page 12, line 33, leave out subsection (4) and insert:

'(4) For the purposes of the Corporation Tax Acts other than this section and Schedule 3 to this Act in any case where a company is entitled to relief under this section:
  • (a) the company's opening stock value shall be treated as increased by an amount equal to its 1973 increase in stock value, and
  • (b) the value of the company's trading stock at the end of the period of account which ends on the day before that on which the opening stock value is determined shall not be increased by a like amount.
  • and all such adjustments shall be made in any assessment to Corporation Tax for any relevant accounting period as are necessary to give effect to any relief under this section'.
    As has already been made clear, we partly welcome what the Chancellor of the Exchequer has done. It is a remarkable reversal on his part and one which the Chief Secretary, with an engaging lack of patriotism for his own past ideas, has just brushed aside. I shall not quote to the right hon. Gentleman the letter I wrote to the Chancellor in May about company liquidity and the answer I received, which was extremely complacent.

    The question that will be asked in these debates is whether the Chancellor has gone far enough. Profits caused by inflation will now be largely ignored for tax purposes, but it is noticable that the same principles have not been included in the Price Code. Both realism and consistency require that the same principles should apply. There is the question of companies which are not paying enough tax to benefit from the provisions, a category which might be thought to include companies such as British Leyland. There is also the matter of the speed with which the deterioration of the cash position of British companies is going on. This can be seen from the debt that the corporate sector has had to raise. In 1973 it raised in debt from the market £0·7 billion. In 1974 that had soared to the astonishing figure of £4·1 billion. The whole matter must be seen in the context of the projected £5 million deficit for the corporate sector in 1975, which at the time of the Budget the Chancellor scoffed at and treated as highly alarmist.

    What has brought about this astonishing reversal in the Chancellor's attitudes? I suppose that the figures that have appeared for both investment and unemployment, when the unemployment figures were being published, have worried him. But I do not believe that the provisions of the clause, unless they are made more certain, and unless some of the threats about clawing back tax deferred are removed, will have the effects that the Chancellor hopes and intends. I believe that investment will fall even faster and that unemployment will rise even faster than would otherwise have happened unless some of the uncertainties are removed.

    What happens in 1974–75 is perhaps even more important than what happened in 1973–74. In 1972 stock appreciation as a percentage of trading profits was 16½ per cent.; in 1973 it was 29½ per cent.; and in the first half of 1974 it had risen to an astonishing 65¼ per cent. The problem is growing, and we must not underestimate what will be required to deal with it.

    The reasons for the uncertainty caused by the Chancellor's proposal relate to the special way in which he has chosen to give this relief. Under his system, the closing stock in one year becomes the opening stock in the next year. This leaves open the possibility that the relief may be clawed back at some future date.

    What the amendment proposes is that instead of being subtracted from the closing stock, which then becomes an incorrect opening stock, the relief should be added to the old opening stock, leaving the closing stock as the correct amount. Unless there is an amendment along the lines we suggest, companies may find that in a few years' time, when they have either reduced stocks in value or volume or have a nil closing stock position, there is a large claw-back. That could happen when a company was closing down, or it could happen simply because it had become more efficient and was using less.

    Furthermore, if the restriction in relief to amounts above the 10 per cent. of trading income continued, particularly if there were falling stocks or stable prices, the relief could be clawed back each year.

    By the method proposed in the amendment, the closing stock would remain at its higher, correct figure and could be used as the opening stock in the next period, when perhaps the closing stock might be diminished in volume or value perhaps in a closing-down situation. This method would lead to a correct assessment of the tax position.

    Under the Chancellor's proposal, the tax would be clawed back in a closing-down situation or when stocks were being used more efficiently. In a closing-down situation, even though stocks might be sold off at cost, a high profit figure would appear because of the artificially lower opening stock resulting from the method proposed by the Government.

    One objection to the amendment might be that the Government's figure allows the balance sheet to balance whilst ours does not. We have had consultations on this matter, and the answer is that when £X relief was added to the opening stock one would also add £X relief as a contra to the capital loss account.

    The object of the exercise, both on our part and the Government's part, is to avoid the payment of tax on an artificial part of profits. Our method would attribute the amount to previous years' profits, but only—this is the difference—after those profits had been assessed for tax. The Chancellor's method is to say that the profit has not yet been made —a device which could lead to the clawing back of the relief given. In addition, the Chancellor's method of giving relief undervalues companies, a tendency that would increase as inflation accelerated.

    The disadvantages of the Government's method are that it is simply a deferral of tax; that it gives no certainty for the future; that as stocks fall, perhaps through greater efficiency, the tax could be clawed back; and that, even if the present method continued and we reached a period of stabilisation of profits and tax, companies would then be in need of greater amounts of money to refinance expansion after a period of recession and slump. If a company ceased trading, the creditors would be badly affected under the Government's method because the Inland Revenue would have a substantial claim in a period in which stocks were lower, in a closing-down situation.

    The method that we are proposing is one which would give greater assurances to industry. It is a cleaner and simpler method which would ensure that the relief given would not be clawed back at a higher rate of tax at some future date. The rate of corporation tax, which was 40 per cent., is now 52 per cent. The rate might well increase again at a later date.

    I do not believe that as the relief is framed at present any accountant or banker when trying to assess a company's financial strength could view the relief granted as being anything other than a deferred liability. Therefore, the banking system will not be able to give credit and to underwrite the investment of industry in the way that the Government hope and expect.

    I believe that the Chancellor has not gone far enough in the methods he has proposed. I believe that there will be considerable uncertainties and fears that the tax will be clawed back in future. Unless the Chief Secretary is able to accept the amendment, or one very much like it, I believe that the results that the Government wish to see from the relief will not appear.

    [Mr. ALAN FITCH in the Chair]

    5.0 p.m.

    It is always agreeable to listen to the way in which the hon. Member for Kingston-upon-Thames (Mr. Lamont) presents his case. At least on this occasion he did not tell me what I should not say. That is his customary practice. If we both abided by that practice we would have very much quicker debates.

    The amendment seeks to change the method of relief so as to make it a final relief rather than as was intended—namely, a deferral or postponement. I dealt with the matter briefly in my reply to the right hon. Member for Down, South (Mr. Powell). In most cases the deferral would be indefinite. Any normal trading company would have an indefinite deferral. In any event we made it clear that the clause is only a temporary measure until we have the spring Finance Bill. We have made that clear.

    I think that the Chief Secretary said something extremely important and I want to ensure that I heard him correctly. Did he say that it would be a permanent deferral for a trading company?

    I said that in most cases it will be a permanent deferral. If a trading company continues trading with its stocks at normal levels and it has its normal levels on the 1973 accounts at which it gets its present relief, and if inflation does not take a major turn downwards but stays at one level, there would be no question of any claw-back of the relief and the position would stay as it was. That would be the position until such time as a company closed down, sold off its stocks or took a similar course of action.

    Let us take the hypothetical figure of 8¼ per cent. when considering the rate of inflation and let us suppose that the rate dwindles from 19 per cent. to 8¼ per cent. Does it follow that the right hon. Gentleman would expect the relief to be clawed back? Is it only if inflation is at a constant 19 per cent. that the deferral is indefinite?

    I am sure that the hon. and learned Gentleman understands the position clearly. I have a feeling that he is having me on. If a company has a final stock of £100 and there is 20 per cent. inflation in the stock value, there will be a stock value of £120 at the end of the following year. A company would then be able to get relief under this system. If the following year the rate of inflation was only 2 per cent. the value would still be higher than the previous £120. I hope that that is reasonably clear. I can see that the hon. and learned Gentleman has the point.

    In saying that the relief will be indefinite—I believe that the right hon. Gentleman used the word "indefinite"—all that the Bill does is to alter the valuation of the closing stock. I am ignoring the amendment for the moment. There will be an alteration of the value of the opening stock as it becomes the closing stock. Therefore, there is an immediate claw-back under the Bill.

    I was coming to that point. I have been interrupted three times before I have hardly started. The hon. Gentleman presupposes that we shall do nothing else in any future Bill. We have made it clear that if nothing else were done and the clause stood it would be a deferral that would continue indefinitely. However, we have made it clear that there will be changes in the spring Bill. We shall have a refinement of the form of inflation accounting of stock plus anything else that we might do for companies when we have the Sandilands Report. If we do not have the report in time we shall have to do something else to ensure that there is additional relief. I thought that I had made that absolutely clear.

    I am not sure whether my comprehension is correct. If there is no further legislation it seems that deferment will be for one year only and that subsequently the tax will have to be paid. If that is not the case I shall be greatly obliged to the right hon. Gentleman if he will make it clear how it will be deferred.

    There will be deferment for one year if there is no legislation to change the clause as it stands. That is clear. However, we have made it even clearer still that we intend to change it. As I have said at least half a dozen times, this is a rough and ready measure which we are introducing for one year only. If we continued with the same kind of relief it would be for many companies a continuing permanent deferral. We are not saying that this form of relief will be permanent. We are saying that in the spring Bill and, we hope, with the benefit of the Sandilands Report we shall introduce a more relevant form of relief.

    If we did nothing else and the clause were to stand I accept that the fears which have been expressed would be understandable and that people would be right to have such fears. However, we have made it clear that we shall do something else. There is no question of automatic claw-back of the relief. I hope that I have been able to assure the Committee that the automatic claw-back of the relief is not in contemplation. If we did not intend to claw back the relief it could be argued that the amendment would be the best approach. Each year there would be a final form of relief. I have already argued that it is not the best approach to have a permanent form of stock inflation-accounting for companies and to have a permanent position year by year. I hope to show—I tried briefly to do so in reply to the right hon. Member for Down, South—that it would be inequitable to allow relief on a final basis.

    I have made it clear on a number of occasions that this is a provisional form of relief. It is an advance instalment that will eventually, as we have made clear, apply to all traders and not only to companies with stocks in excess of £25,000. It is a method of giving immediate relief to companies with liquidity problems. By the very nature of things it is a rough and ready measure. It would be wrong, when the relief that we are now giving gives larger companies, or at least those with a stock in excess of £25,000, an advance instalment of the eventual permanent relief that will be on the statute book, not eventually to make large companies subject to the same rules that will be applicable to everyone else. That is why this is a temporary measure and why we do not believe it is right to give this relief on a permanent rather than a deferral basis.

    The Committee would be grateful for an assurance that none of the relief so given will be clawed back. When the Chancellor spoke on 12th November of this postponement of tax liability he said:

    "If no further steps were taken, the tax forgone this year would automatically be clawed back in the following year. But this, of course, is not contemplation."—[Official Report, 12th November 1974; Vol. 881, c. 265.]
    What we would like is an assurance that those words were a pledge. Can the right hon. Gentleman give us that assurance?

    I can give the hon. Gentleman and the Committee the assurance that it is not contemplated that there will be a general claw-back. There will be instances when relief will be clawed back. I hope the Committee will agree that it is right that there should be. Suppose a company was given 100 per cent. tax relief on a piece of plant and then it sold that plant at the full price. The tax relief is clawed back. That is not unusual. I am sure that hon. Members would agree that in such an instance it would be wrong to allow the company to retain the relief. The same principle applies to stock.

    I am sorry; I must disagree with the right hon. Lady. It does. Suppose a company had increased its stock in this year we are talking about by, let us say, £100,000—not because of inflation but because of increased volume. The Government gave it this relief so that the increase was wholly tax-free. The day after that year ended the company completely sold the stock. It surely would not be right for that company to have the whole of the £100,000 tax-free.

    We are not at cross-purposes here. The right hon. Gentleman knows that usually there is a different provision for cessation and there is nothing to prevent him from putting up special provisions for cessation which would be quite usual. I do not accept his analogy of capital allowances and balancing charges. It is wholly different. The balancing charge comes on a specific event for a specific amount. It is misleading and clouds the position to bring in what is not a true analogy.

    I do not agree with the right hon. Lady. This instance would not only apply to cessation of business. A company could carry on trading. Its stock could have been excessively high at the 1973 year end. The stock might then have come down permanently to a much lower level. It cannot be right to give an enormous amount of relief to the com- pany. This is not meant to be a permanent relief for companies which have not had inflationary increases in stock. It is to misrepresent and misunderstand the purpose of the clause to suggest that that is so.

    The purpose of the clause is to give immediate relief to companies who have had inflationary stock increases. If they had not had such increases on a permanent basis it cannot be right to continue such relief indefinitely. I cannot believe that the right hon. Lady would want to spend taxpayers' money in that way. We are giving a substantial amount of relief in this way. To go beyond that, as the amendment seeks to do, would be indefensible. The hon. Member for Kingston-upon-Thames said that it would be wrong to pay tax on artificial profits. I submit that it would be even more wrong to pay tax relief on artificial losses or where there have not been losses at all.

    5.15 p.m.

    For the sake of clarity, may I ask whether the Chief Secretary is willing to give an assurance to the Committee, and to the wider audience which is taking such an interest in this discussion, to the effect that the Government will introduce measures in the spring Finance Bill which will be no less favourable to companies which benefit from the present arrangements, except only if there is a reduction in the stock level of a company carrying on a continuing business or in the theoretical possibility of an increase in the value of money and deflation takes place as opposed to inflation? The Committee needs this clear assurance because the Chief Secretary's illustrations have not made entirely clear the form of assurance he is giving.

    So far I find that I am being incited, as a result of the Chief Secretary's replies, to speak when I had not intended to. The replies of the right hon. Gentleman constantly leave me with the impression that he has not really grasped the inwardness of the amendment or the inwardness of the relief which he is endeavouring not to foist on the business community. [Interruption.] I say "foist" because it is an echo of our debates on the last amendment. The Chief Secretary would not have it that a company could pick and choose about relief. However, I do not want to reopen that particular wound which the right hon. Gentleman has inflicted on the commercial life of the country.

    The amendment is meant to ensure that, while there will be an advantage for a company which claims this relief in relation to the accounting period ended 1973, there will not be a corresponding disadvantage in the subsequent accounting period. The Chief Secretary appears to have missed the point. The point is that there should not be a corresponding disadvantage. The Chancellor, in his ill-judged March measures, inflicted considerable damage on the cash flow of companies. This modest measure of relief is an effort to redress that damage, to a limited degree. We are concerned to see that this, in turn, will not be offset by a corresponding disadvantage in subsequent accounting periods. That is all the amendment seeks to do.

    To talk about relief being perpetuated indefinitely opens up new vistas not related to the amendment. My hon. Friends and I noted with great interest that in the light of the Sandilands Committee's report, whatever it may be, there may be an endless vista of relief for companies. This is good news. This is not what the amendment seeks to claim. It will be noted far and wide what the Chief Secretary has offered. It will be noted that he has become more generous since our debates in the dog days of June and July. We are happy to note his change of heart. I ask him to move away from the generalised generosity he has offered us—which we accept with gratitude—to the specific point made in the amendment, which is that there should not be a corresponding disadvantage in the next accounting period for any company that claims the advantage or relief in 1973.

    As the Chief Secretary will have divined, it will be a matter of fine calculation for companies whether to claim the relief. Many people will not know whether or not to claim it. They will not be entirely reassured by the Chief Secretary's breezy statement that the Government will adopt Sandilands and perpetuate the relief indefinitely. For the moment, all we ask for the people who have to make this crucial decision is that the Chief Secretary should accept the amendment, which ensures that the relief will not be taken away by a corresponding detriment in subsequent accounting periods.

    I hope that I have made myself clear to the Chief Secretary, who has not intervened. I hope, Mr. Fitch, that he will have the opportunity of catching your eye to show that he has had a change of heart from five minutes ago.

    The Chief Secretary seems to have been saying that he knows that the system is a rotten one, arbitrary and unfair, but, a terrible mistake having been made in March, it is the best system that the Treasury could cobble together in a hurry before something respectable is done in the forthcoming Budget. We agree that it is a shabby way of attempting to deal with the company liquidity problem and accounting at a time of inflation. We are trying to find out more precisely from the Chief Secretary with what he proposes to replace the system. We do not wish to anticipate his right hon. Friend's Budget, but the Chief Secretary argued against the amendment chiefly by saying that there is something better in the pipeline which will put it right.

    Will the Chief Secretary please cease talking about reliefs? We are talking not about a relief for the corporate sector but about getting away from a system in which, because of inflation, companies are taxed on phoney profits, which are not genuine profits but the paper creation of a mixture of inflation and orthodox accounting principles of the so-called "doomsday machine" which are putting respectable, profitable and efficient companies into bankruptcy. A measure to prevent that happening because of the high degree of inflation is not relief but a measure of justice. May it be established that we are not talking about measures of relief but about measures taken to avoid imposing ever higher burdens of taxation at a time of rapid inflation?

    Will the Chief Secretary make clear that what he is talking about as a replacement for this one-off clause is not merely a more refined system of providing for the element of inflation in stock appreciation to be taken into account but inflation accounting in the fullest sense, taking into account the effect of depreciation, which is a major point in company accounts and profits, and that it will be introduced in the forthcoming Budget? Will the right hon. Gentleman say that it will not be confined to stock appreciation, important though that is, but will be introduced regardless of whether the Sandilands Committee has reported by that date? We want full inflationary accounting. It is a form of indexation. The Chief Secretary knows the importance attached by many Opposition Members to indexation at a time of rapid inflation, not merely for the corporate taxation sector but for individuals.

    When the matter of corporate liquidity was discussed in Committee on the Finance Bill eight months ago, the Government's attitude was summed up by the Paymaster-General. I do not wish to pick on the Paymaster-General, who is probably the most well-informed member of the Treasury team on economic matters, but he said:
    "I turn now to the question of company liquidity. There was a discussion about Government statements on company liquidity, and figures were given as to the net position compared with the figures which the Government had quoted after taking account of company indebtedness. The £14,000 million referred to as the current company indebtedness, which is to be set off against liquidity figures stated by the Government, is not expected to be called in."
    He came to the astonishing conclusion that we had no evidence of a serious liquidity problem. He went on to say:
    "If there were to be such a problem, that would obviously be a factor of which we should have to take account."
    Later he said:
    "According to our information, there is much liquidity in the possession of companies."—[Official Report, 21st May 1974; Vol. 874, c. 232–4.]
    That was manifestly nonsense at the time and it is now. Was it bigotry? It could hardly have been unawareness of the fact of inflation. Surely it could not have been lack of awareness of the consequence of inflation on profits. It could not have been unawareness of the existence of the rigid Price Code and price control which existed then and is continuing to cripple company liquidity.

    How did the Government manage to get it so wrong then, and what is their view now? Do they think that there is a serious liquidity crisis now? Do they think that Clause 16 is adequate, or do they think that further steps need to be taken to improve company liquidity at a time when there will be a chain reaction of bankruptcies, starting with smaller companies because they are not so likely to be bailed out, if something is not done to recognise the position of British industry?

    I always like to try to help the hon. and learned Member for Dover and Deal (Mr. Rees). The hon. Member for Blaby (Mr. Lawson) asked whether I know what he wants. The answer is "Yes", and I hope that one day he will get it.

    As the right hon. Gentleman has answered a question which I did not ask, will he please answer the questions I did ask?

    The hon. Member for Hitchin (Mr. Stewart) asked for an assurance about the relief given by Clause 16. I thought I had made absolutely clear that if we did nothing else but Clause 16 there would be a claw-back. The Chancellor said that there would be new measures in the spring Bill, and that is why there is no general claw-back after this year. There is no question of that, and I give that assurance.

    I have been accused by the hon. and learned Member for Dover and Deal of "generalised generosity". It is true that this form of relief is arbitrary, but anything that we could have done in a short time would have been arbitrary.

    Using corporation tax would have been much more arbitrary. It would not necessarily have gone to the areas which suffer from inflation. I was surprised at the view taken by the hon. and learned Member for Dover and Deal.

    5.30 p.m.

    I cannot give way to the hon. and learned Gentleman. No doubt I shall be hearing him often in these debates. He told me that he is easily incited, and I know that only too well. But when he said that I am foisting relief on companies, I think that is taking things a little too far. If he likes to think that we are foisting relief on companies, I should have thought that would be generally welcome.

    As I have said before, and I say again, in regard to the assurance we gave companies as to whether they should be happy with this relief and as to whether it would all be clawed back next time, the answer for most companies is that it will not be clawed back. Most companies will maintain stock levels and there will be no question of clawing back of relief. But the whole purpose behind the amendment is to give relief permanently. For the various reasons I gave previously, that cannot be right. It would not be right to give relief on a permanent basis, and I hope that the Committee will reject the amendment.

    I do not think we can accept the Chief Secretary's assurance, because he has given some rather contradictory assurances. He said first that the relief will not be clawed back, and he then said that it might be taken back in certain circumstances. He then got a little muddled about permanent relief. There is nothing in the amendment to

    Division No. 63.]


    [5.32 p.m.
    Adley, RobertCooke, Robert (Bristol W)Goodlad, Alastair
    Aitken, JonathanCope, JohnGorst, John
    Alison, MichaelCormack, PatrickGow, Ian (Eastbourne)
    Arnold, TomCorrie, JohnGower, Sir Raymond (Barry)
    Atkins, Rt Hon H. (Spelthorne)Costain, A. P.Grant, Anthony (Harrow C)
    Awdry, DanielCrouch, DavidGriffiths Eldon
    Baker, KennethCrowder, F. P.Grimond, Rt Hon J.
    Banks, RobertDavies, Rt Hon J. (Knutsford)Grist, Ian
    Beith, A. J.Dean, Paul (N Somerset)Grylls, Michael
    Bell, RonaldDodsworth, GeoffreyHall, Sir John
    Bennett, Dr Reginald (Fareham)Douglas-Hamilton, Lord JamesHall-Davis, A. G. F.
    Benyon, W.Drayson, BurnabyHamilton, Michael (Salisbury)
    Berry, Hon Anthonydu Cann, Rt Hon EdwardHampson, Dr Keith
    Biffen, JohnDunlop, JohnHannam, John
    Biggs-Davison, JohnDurant, TonyHastings, Stephen
    Blaker, PeterDykes, HughHavers, Sir Michael
    Body, RichardEden, Rt Hon Sir JohnHawkins, Paul
    Boscawen, Hon RobertEdwards, Nicholas (Pembroke)Hayhoe, Barney
    Bowden, A. (Brighton, Kemptown)Elliott, Sir WilliamHeath, Rt Hon Edward
    Boyson, Dr Rhodes (Brent)Emery, PeterHeseltine, Michael
    Bradford, Rev RobertEyre, ReginaldHicks, Robert
    Braine, Sir BernardFairbairn, NicholasHiggins, Terence L.
    Brittan, LeonFairgrieve, RussellHolland, Philip
    Brotherton, MichaelFell, AnthonyHooson, Emlyn
    Brown, Sir Edward (Bath)Finsberg, GeoffreyHordern, Peter
    Buchanan-Smith, AlickFisher, Sir NigelHowell, David (Guildford)
    Buck, AntonyFletcher, Alex (Edinburgh N)Howell Ralph (North Norfolk)
    Budgen, NickFookes, Miss JanetHowells, Geraint (Cardigan)
    Bulmer, EsmondFowler, Norman (Sutton C'f'd)Hurd, Douglas
    Burden, F. A.Freud ClementHutchison, Michael Clark
    Butler, Adam (Bosworth)Fry, PeterIrving, Charles (Cheltenham)
    Carr, Rt Hon RobertGalbraith, Hon T. G. D.James, David
    Chalker, Mrs LyndaGardiner, George (Reigate)Jenkin, Rt Hon P. (Wanst'd & W'df'd)
    Channon, PaulGardner, Edward (S Fylde)Jessel, Toby
    Churchill, W. S.Gilmour, Sir John (East Fife)Johnson Smith, G. (E Grinstead)
    Clark, Alan (Plymouth, Sutton)Glyn, Dr AlanJones, Arthur (Daventry)
    Clarke, Kenneth (Rushcliffe)Goodhart, PhilipJopling, Michael
    Cockcroft, JohnGoodhew, VictorJoseph, Rt Hon Sir Keith

    prevent him having a totally different method of relief. I understand that the Chancellor of the Exchequer wants to give the relief during a period of inflation. We want that, too. However, by his method he is not giving relief during a period of inflation; he has deferred relief during a period of inflation.

    Our amendment makes certain that relief will be given this year and cannot be taken back. It is not a permanent relief, but it is a certain relief for this year. Therefore, I think that we should vote on this amendment. The point about volume will be taken care of by the limitation to 10 per cent. on trading income. Even if it were not taken care of, the relief is inadequate in view of the liquidity position of many companies. It would not hurt the Chancellor to give a little extra relief on increased volume as well, to make certain that the companies get relief and that it is not taken away from them next year.

    Question put, That the amendment be made:—

    The Committee divided: Ayes 239, Noes, 273.

    Kaberry, Sir DonaldMorrison, Peter (Chester)Shelton, William (Streatham)
    Kellett-Bowman, Mrs ElaineMudd, DavidShepherd, Colin
    Kershaw, AnthonyNeave, AireySilvester, Fred
    King, Evelyn (South Dorset)Nelson, AnthonySims, Roger
    King, Tom (Bridgwater)Neubert, MichaelSinclair, Sir George
    Kitson, Sir TimothyNewton, TonySkeet, T. H. H.
    Knight, Mrs JillNott, JohnSmith, Cyril (Rochdale)
    Knox, DavidOnslow, CranleySpence, John
    Lamont, NormanOppenheim, Mrs SallySpicer, Jim (W Dorset)
    Lane, DavidPage, Rt Hon R. Graham (Crosby)Spicer, Michael (S. Worcester)
    Latham, Michael (Melton)Pardoe, JohnSproat, Iain
    Lawrence, IvanParkinson, CecilStainton, Keith
    Lawson, NigelPattie, GeoffreyStanbrook, Ivor
    Le Marchant, SpencerPenhaligon, DavidStanley, John
    Lewis, Kenneth (Rutland)Percival, IanStewart, Ian (Hitchin)
    Lloyd, IanPeyton, Rt Hon JohnStokes, John
    Loveridge, JohnPink, R. BonnerTaylor, R. (Croydon NW)
    Luce, RichardPowell, Rt Hon J. EnochTaylor, Teddy (Cathcart)
    McCrindle, RobertPrice, David (Eastleigh)Tebbit, Norman
    Macfarlane, NeilPrior, Rt Hon JamesTemple-Morris, Peter
    MacGregor, JohnPym, Rt Hon FrancisThatcher, Rt Hon Margaret
    Macmillan, Rt Hon M. (Farnham)Raison, TimothyThomas, Rt Hon P. (Hendon S)
    McNair-Wilson, M. (Newbury)Rathbone, TimThorpe, Rt Hon Jeremy (N Devon)
    McNair-Wilson, P. (New Forest)Rawlinson, Rt Hon Sir PeterTrotter, Neville
    Madel, DavidRees, Peter (Dover & Deal)Tugendhat, Christopher
    Marten, NeilRees-Davies, W. R.van Straubenzee, W. R.
    Mates, MichaelRenton, Rt Hon Sir D. (Hunts)Viggers, Peter
    Mather, CarolRenton, Tim (Mid-Sussex)Wakeham, John
    Maude, AngusRhys Williams, Sir BrandonWalder, David (Clitheroe)
    Maudling, Rt Hon ReginaldRidley, Hon NicholasWalker, Rt Hon P. (Worcester)
    Mawby, RayRidsdale, JulianWalker-Smith, Rt Hon Sir Derek
    Maxwell-Hyslop, RobinRifkind, MalcolmWalters, Dennis
    Mayhew, PatrickRoberts, Michael (Cardiff NW)Weatherill, Bernard
    Meyer, Sir AnthonyRoberts, Wyn (Conway)Wells, John
    Miscampbell, NormanRoss, Stephen (Isle of Wight)Whitelaw, Rt Hon William
    Mitchell, David (Basingstoke)Ross, William (Londonderry)Wiggin, Jerry
    Moate, RogerRossi, Hugh (Hornsey)Winterton, Nicholas
    Molyneaux, JamesRost, Peter (SE Derbyshire)Young, Sir G. (Ealing, Acton)
    Monro, HectorSainsbury, TimYounger, Hon George
    Moore, John (Croydon C)St. John-Stevas, Norman
    More, Jasper (Ludlow)Scott, NicholasTELLERS FOR THE AYES:
    Morris, Michael (Northampton S)Shaw, Giles (Pudsey)Mr. John Stradling Thomas and
    Morrison, Charles (Devizes)Shaw, Michael (Scarborough)Mr. Hamish Gray.


    Abse, LeoColeman, DonaldEvans, John (Newton)
    Allaun, FrankColquhoun, Mrs MaureenEwing Harry (Stirling)
    Anderson, DonaldConlan, BernardEwing, Mrs Winifred (Moray)
    Archer, PeterCook, Robin F. (Edin C)Fernyhough, Rt Hon E.
    Armstrong, ErnestCorbett, RobinFlannery, Martin
    Ashley, JackCox, Thomas (Tooting)Fletcher, Ted (Darlington)
    Ashton, JoeCraigen, J. M. (Maryhill)Foot, Rt Hon Michael
    Atkins, Ronald (Preston N)Crawford, DouglasFord, Ben
    Atkinson, NormanCronin, JohnForrester, John
    Bain, Mrs MargaretCryer, BobFraser, John (Lambeth, N'w'd)
    Barnett, Guy (Greenwich)Cunningham G. (Islington S)Freeson, Reginald
    Barnett, Rt Hon JoelCunningham, Dr J. (Whiteh)Garrett, John (Norwich S)
    Bates, AlfDalyell, TamGarrett, W. E. (Wallsend)
    Benn, Rt Hon Anthony WedgwoodDavidson, ArthurGeorge, Bruce
    Bennett, Andrew (Stockport N)Davies, Bryan (Enfield N)Gilbert, Dr John
    Bldwell, SydneyDavies, Denzil (Llanelli)Ginsburg, David
    Blenkinsop, ArthurDavies, Ifor (Gower)Golding, John
    Boardman, H.Davis, Clinton (Hackney C)Gould, Bryan
    Booth, AlbertDeakins, EricGourlay, Harry
    Bottomley, Rt Hon ArthurDean, Joseph (Leeds West)Graham, Ted
    Boyden, James (Bish Auck)de Freltas, Rt Hon Sir GeoffreyGrant, John (Islington C)
    Bradley, TomDelargy, HughGrocott, Bruce
    Bray, Dr JeremyDell, Rt Hon EdmundHamilton, James (Bothwell)
    Brown, Hugh D. (Provan)Dempsey, JamesHamilton, W. W. (Central Fife)
    Buchan, NormanDoig, PeterHamling, William
    Buchanan, RichardDormand, J. D.Hardy, Peter
    Butler, Mrs Joyce (Wood Green)Douglas-Mann, BruceHarrison, Walter (Wakefield)
    Callaghan, Rt Hon J. (Cardiff SE)Duffy, A. E. P.Hart, Rt Hon Judith
    Callaghan, Jim (Middleton & P)Dunn, James A.Hattersley, Rt Hon Roy
    Campbell, IanDunnett, JackHatton, Frank
    Cant, R. B.Dunwoody, Mrs. GwynethHayman, Mrs Helene
    Carmichael, NeilEdelman, MauriceHealey, Rt Hon Denis
    Carter, RayEdge, GeoffHeffer Eric S.
    Carter-Jones, LewisEdwards, Robert (Wolv SE)Henderson, Douglas
    Cartwright, JohnEllis, John (Brigg & Scun)Hooley, Frank
    Castle, Rt Hon BarbaraEllis, Tom (Wrexham)Horam, John
    Clemitson, IvorEnglish, MichaelHowell, Denis (B'ham, Sm H)
    Cocks, Michael (Bristol S)Evans, Ioan (Aberdare)Hoyle, Douglas (Nelson)

    Huckfield, LesMeacher, MichaelSpriggs, Leslie
    Hughes, Rt Hon C. (Anglesey)Mellish, Rt Hon RobertStallard, A. W.
    Hughes, Mark (Durham)Mikardo, IanStewart, Donald (Western Isles)
    Hughes, Robert (Aberdeen N)Millan, BruceStewart, Rt Hn M. (Fulham)
    Hughes, Roy (Newport)Miller, Dr M. S. (E. Kilbride)Stoddart, David
    Hunter, AdamMiller, Mrs Millie (Ilford N)Stott, Roger
    Irvine, Rt Hon Sir A. (Edge Hill)Mitchell, R. C. (Soton, Itchen)Strang, Gavin
    Irving, Rt Hon S. (Dartford)Molloy, WilliamStrauss, Rt Hon G. R.
    Jackson, Colin (Brighouse)Moonman, EricSummerskill, Hon Dr Shirley
    Jackson, Miss M. (Lincoln)Morris, Alfred (Wythenshawe)Taylor, Mrs Ann (Bolton W)
    Janner, GrevilleMorris, Charles R. (Openshaw)Thomas, Mike (Newcastle E)
    Jay, Rt Hon DouglasMorris, Rt Hon J. (Aberavon)Thomas, Ron (Bristol NW)
    Jeger, Mrs LenaMulley, Rt Hon FrederickThompson, George
    Jenkins, Hugh (Putney)Murray, Ronald KingThorne, Stan (Preston South)
    Jenkins, Rt Hon Roy (Stechford)Newens, StanleyTierney, Sydney
    John, BrynmorNoble, MikeTinn, James
    Johnson, James (Hull West)Ogden, EricTomlinson, John
    Johnson, Walter (Derby S)Orbach, MauriceTorney, Tom
    Jones, Alec (Rhondda)Ovenden, JohnWainwright, Edwin (Dearne V)
    Jones, Barry (East Flint)Owen, Dr DavidWalden, Brian (B'ham, L'dyw'd)
    Judd, FrankPadley, WalterWalker, Harold (Doncaster)
    Kaufman, GeraldPalmer, ArthurWalker, Terry (Kingswood)
    Kelley, RichardPark, GeorgeWard, Michael
    Kerr, RussellParker, JohnWatkins, David
    Kilroy-Silk, RobertParry, RobertWatkinson, John
    Lambie, DavidPavitt, LaurieWatt, Hamish
    Lamborn, HarryPerry, ErnestWeetch, Ken
    Lamond, JamesPhipps, Dr ColinWeitzman, David
    Latham, Arthur (Paddington)Prentice, Rt Hon RegWellbeloved, James
    Leadbitter, TedPrice, C. (Lewisham W)Welsh, Andrew
    Lever, Rt Hon HaroldPrice, William (Rugby)White, Frank R. (Bury)
    Lewis, Ron (Carlisle)Rees, Rt Hon Merlyn (Leeds S)White, James (Pollock)
    Lipton, MarcusRichardson, Miss JoWhitehead, Phillip
    Litterick, TomRoberts, Gwilym (Cannock)Whitlock, William
    Lomas, KennethRobertson, John (Paisley)Wigley, Dafydd
    Loyden, EddieRoderick, CaerwynWilley, Rt Hon Frederick
    Luard, EvanRodgers, George (Chorley)William, Alan (Swansea W)
    Lyon, Alexander (York)Rodgers, William (Stockton)Williams, Alan Lee (Hornchurch)
    Lyons, Edward (Bradford W)Rooker, J. W.Williams, Rt Hon Shirley (Hertford)
    MacCormick, IainRoss, Rt Hon W. (Kilmarnock)Williams, W. T. (Warrington)
    McElhone, FrankRowlands, TedWilson, Alexander (Hamilton)
    MacFarquhar, RoderickRyman, JohnWilson, Gordon (Dundee E)
    McGuire, Michael (Ince)Sandelson, NevilleWilson, Rt Hon (Huyton)
    Mackenzie, GregorSedgemore, BrainWilson, William (Coventry SE)
    Mackintosh, John P.Selby, HarryWise, Mrs Audrey
    Maclennan, RobertShaw, Arnold (Ilford South)Woodall, Alec
    McMillan, Tom (Glasgow C)Sheldon, Robert (Ashton-u-Lyne)Woof, Robert
    Madden, MaxShore, Rt Hon PeterWrigglesworth, Ian
    Magee, BryanShort, Mrs Renée (Wolv NE)Young, David (Bolton E)
    Mahon, SimonSilkin, Rt Hon John (Deptford)
    Marks, KennethSillars, JamesTELLERS FOR THE NOES:
    Marquand, DavidSilverman, JuliusMrs. Betty Boothroyd and
    Marshall, Dr Edmund (Goole)Skinner, DennisMr. Joseph Harper.
    Marshall, Jim (Leicester S)Smith, John (N Lanarkshire)
    Mason, Rt Hon RoySnape, Peter

    Question accordingly negatived.

    5.45 p.m.

    I beg to move Amendment No. 22, in page 12, line 38, leave out from 'value' to 'and' in line 39.

    I think that it would be convenient for the Committee to discuss at the same time Amendment No. 70, in page 12, line 37, after 'to', insert 'ninety per cent. of', and Amendment No. 30, in page 13, line 7, leave out paragraph (b).

    Amendments Nos. 22 and 30 go together, while No. 70 is a halfway house—or rather, a nine-tenths-way house—and I will return to it in a moment.

    This, for want of a better word, relief is calculated by taking the opening and closing stocks and finding the difference—the stock appreciation for the year. However, for some reason which I cannot fathom, that figure is then reduced by 10 per cent. of the trading profits of the business for the year, as defined in the clause. I have been able to find no explanation for this reduction, which distorts, or rather reduces, the deferral for companies whose profits are high relative to their stocks. Those with efficient stock management get a lower relief anyway under the main principles of the relief, but those with efficient general management, which therefore achieve high profits, find that their relief is cut further by this 10 per cent. provision.

    Suppose that three companies are operating shops in identical circumstances, except that one has weak and inefficient management and stock control, the second has good stock control but makes little profit and the third is efficient in every sense, with excellent stock control and large profits. The first company would get the greatest relief, the second would get the next highest relief and the least relief would go to the most efficient company, the third one. This provision will not benefit what is fittest and best in British industry, as the Chancellor seemed to be calling for in his recent speech.

    This can be taken a stage further. When a company makes a loss in this period, there will be no reduction at all in the relief as a result of the 10 per cent. provision. It is true that if it makes a loss for tax purposes there will be no corporation tax to pay, so the relief will not apply anyway, but, nevertheless, it will be able to carry it forward in the way that the Chief Secretary described earlier.

    This 10 per cent. is supposed to relate to the trading income, but this is not what we would normally understand by that phrase. It is, in fact, trading income plus capital appreciation or capital allowances. This provision is in subsection (9). No doubt we shall discuss later whether the capital allowances should be included in this definition of trading income for these purposes. But whatever decision we take later on the point about capital allowances, with the Bill as it stands it seems even more wrong that 10 per cent. of the capital allowances as well as 10 per cent. of the ordinary trading income should be deducted from the stock relief which is to be allowed. I find that again a very peculiar concept.

    The Chief Secretary said earlier—it has been said many times previously—that this is a rough and ready relief. The points related to this 10 per cent. and to the inclusion of 10 per cent. of capital allowances as well as 10 per cent. of trading income do not make it rougher. They are misguided attempts to refine this stock appreciation.

    If the amendment were accepted—as I hope it will be—it will be making the relief larger, but it will also make it simpler. It will increase the readiness of the relief, in a sense. That is something which the Chief Secretary has emphasised throughout in discussing this matter, as has the Chancellor. They have been saying that they wanted a simple relief which they could find quite quickly. If Amendments Nos. 22 and 30 were accepted and we took out this 10 per cent. provision, a section of the calculation would be removed away from the relief. One would be taking out two pieces, a whole section of the calculation—in some ways the biggest and most complicated section, although "complicated" is an exaggeration because it is not that complicated. But it takes out a whole piece and simplifies it.

    This would open another door. We have been told that the reason why this stock appreciation relief cannot apply to smaller companies, let alone partnerships and individuals, is that the Inland Revenue is unable to cope with the complexities of it across all companies and that it can manage it only across those with more than £25,000-worth of stock. Here I am offering a way to the Chief Secretary of simplifying the relief without lowering the equity—in fact, increasing it—and enabling him to go some way, if not wholly to accept our later amendments, to include the smaller businesses, to which relief of this kind is quite as important as it is to the larger businesses. No doubt we shall be discussing this matter in more detail, but this opens the door a little for the Chief Secretary by allowing the Government to simplify the relief which is available.

    I appreciate that the Treasury may argue that the whole of the stock appreciation which has taken place is not the result of price increases or of inflation. I would entirely accept that argument. Not 100 per cent. of the rise in stock values is the result of that. I should have thought that in the interests of simplicity and of helping British business it would be in the interests of the Government and the nation that the whole of it should be allowed for this relief. But in order that the Treasury should not be able to hide too much behind that argument we have also tabled Amendment No. 70.

    It has been calculated that, at least on national aggregates, about 90 per cent. of the total increase in stock values in the period to which the amendments and the clause refer is a realistic estimate of the actual amount of stock appreciation. Obviously, it cannot be a precise estimate. We have, therefore, taken the figure of 90 per cent. and tabled Amendment No. 70 as an alternative way of reducing the relief a little to bring it more directly into line with the increase in stock values as the result of price increases. This system would also be simpler than the system proposed in the Bill, which we are attempting to remove with Amendments Nos. 22 and 30.

    I should much prefer the Chief Secretary to accept Amendments Nos. 22 and 30 and leave it at that. Nevertheless, I thought it right that we should give the Government a bit of an escape route in the form of Amendment No. 70, so that they cannot shelter behind that particular argument, which otherwise they may be inclined to do.

    To sum up, it seems that no case has been made, so far at any rate, for reducing this relief by 10 per cent. of trading income for the efficient company and that even less of a case has been made for reducing it by 10 per cent. of the capital allowances. We shall come to the details of whether these should be included in later amendments. But we have not heard a case for reducing the relief in this way. Therefore, I have great pleasure in commending the amendment, which I hope will be carried by the Committee.

    I am most grateful to the hon. Gentleman for the way in which he is trying to help us, in providing different ways of relief and offering me a choice in these matters. He said that no case had been made for the 10 per cent. reduction. He will forgive me for saying so, but I thought he was doing precisely that in the words that he used in speaking to Amendment No. 70. However, I shall return to that matter when I have dealt with the points he made about Amendments Nos. 22 and 30.

    I have tried to make clear in the previous debates that our aim in giving this relief was to try to give some relief to companies against the effect of inflation on their stock increases. But the way we have done it is not simply to give relief for all increases, some of which might have been from increases in volume as well as increases in value. As we wanted to help quickly, as I have said, we had to do it in a sort of rough and ready, quick way, until we got to a new and complete system, which we shall introduce in the spring Bill.

    It is really not possible in those circumstances to frame the relief in such a way as to distinguish adequately—I accept that point—between companies which have genuinely suffered from inflation and those which have had a simple increase in volume. With respect to the hon. Gentleman, the amendments cannot do that either. Nothing can do that. It is just a matter of what one cares to choose.

    The hon. Gentleman asked why we use the 10 per cent. figure. To some extent he answered that question when he spoke to Amendment No. 70. We restricted it by 10 per cent. in the case of the clause and the trading profits because it broadly corresponds with the increase in value of stocks for an average of companies in a normal year.

    6.0 p.m.

    The hon. Gentleman half-recognised that some of the stock increases would have arisen in any normal year whether or not there had been inflation. In normal years when there have been stock increases because of the growth in the company, we normally give a form of relief by inflation-proofing the stock. We have taken the 10 per cent. figure on a very rough and ready basis. I do not say it is ideal, but neither are the hon. Gentleman's amendments. There is no ideal way of accomplishing the purpose if we want to do it quickly.

    The restrictions have the effect of confining the relief to those companies which experience abnormal increases in the value of their stocks because of inflation. It also concentrates the relief to a greater extent on those companies with substantial stocks compared with their profits, whose need is greater. Although that will apply to companies which are perhaps more efficient, there will be some instances where companies will not benefit.

    This brings me to Amendment No. 70, which was pressed upon us by the CBI. The effect of this amendment would be to take 90 per cent. of the increase instead of 100 per cent.—in other words, still leaving the 10 per cent.—presumably for a reason similar to ours. However, it is taken in a different way. It gives relief to the straight 90 per cent. of the straight increase in stock. For that reason, it is as rough and ready as anything we have proposed in Clause 16. The method proposed by the hon. Gentleman is even more indiscriminate than the method we have adopted under Clause 16.

    There is an even more important reason why I am not able to accept these amendments. They would add considerably to the cost of an already substantial amount of relief. I am surprised that no hon. Member from the Opposition has welcomed the substantial amount of relief given to companies, which is something that has never been done before.

    May I urge the Minister to cease saying most of the time that the tax is deferrable and then claiming, when it suits him, that he is giving us a substantial relief. It is not substantial relief. He is giving us a deferral.

    We are constantly told that companies now have liquidity problems. We are affording relief to their liquidity problems this year. I have said that if we accepted the first group of amendments the cost of the substantial relief to be afforded would be considerable. The benefit could go to a considerable number of companies which are less deserving than those which are to be given relief for their liquidity problems under the terms of Clause 16. I hope that the hon. Gentleman will feel that what we have done under Clause 16, whilst not ideal, is probably better than the method he seeks to adopt.

    As the examination of this clause proceeds, the nature of the predicament in which the Chief Secretary finds himself becomes ever clearer. Each successive debate proves how right were hon. Members who said that the manner in which he is doing what he is doing in Clause 16 is essentially evasive, for political reasons.

    There are two separate objectives which are constantly confused in the Chief Secretary's exposition. One is the proposition, which featured in the Budget speech, of relieving the liquidity crisis of companies. For that purpose, what was required was a relief in taxation at this time, whether deferment or not. However, when hon. Members begin to examine the logic, in that context, of such a deferment of tax liability, they are told that this is the first instalment, a hastened instalment, of whatever is to be the perma- nent law on inflation accounting of stocks for tax purposes. There is no necessary relationship between those two objects. An attempt to improve the liquidity position of the company sector by a first essay in inflation accounting of stocks for tax purpose is bound to result in all kinds of inequities and absurdities, some of which have already been shown up.

    If we are to have proper account taken of inflation in the tax system where the valuation of stocks is involved, it will be necessary to separate not only the increase in the volume of stocks from the increase in the value of stocks but the increase in the real value of stocks—by which is meant their relative value to other things—from that increase in their money value which merely reflects ongoing inflation.

    As regards the clumsy 10 per cent. of trading income, this is an absurd attempt to find a formula which will somehow set on one side the sheep of inflationary increases in value from the goats of real increase in value or increase in volume. Every explanation given by the Chief Secretary is shot through with the consequences of his basic dilemma. The Chancellor of the Exchequer wished to dress up the reality of what he was doing, which was to take less money in taxation from the company sector. That is what he wanted to do. But then he did not like doing that he was embarrassed to do that openly, so he said "We are doing it only by way of deferral. It will all be clawed back." That would not wash, for presently the Chief Secretary had to say "No, theoretically if we stopped here it would be clawed back. But it will not be clawed back because this operation is different. This operation is the beginning of a permanent change in the tax law" which has to do with the inflation-accounting of stocks, something not necessarily in any way related—only incidentally related, and anomalously related—to the liquidity crisis in the company sector.

    I hope the amendments will be pressed because they serve to bring home the essentially evasive nature of what the Government are doing and, therefore, their failure to accomplish what they set out to do—namely, directly, specifically and fairly, as between one company and another, to relieve the liquidity crisis. The Government could do that only by means of straight relief in taxation, against which they set their faces. Hence all the confusion. Hence the unfairness which is bound to follow in the operation of this law and which I fear will be a bad introduction and a bad preface to future legislation dealing with inflation accounting in the context of taxation.

    I plead with the Chief Secretary to reconsider his decision not to accept Amendment No. 70. I believe that the clause is nonsense in its present form, and if I go on to explain why I take that view I hope that it will help the right hon. Gentleman to reconsider his position.

    It has been made clear by the right hon. Member for Down, South (Mr. Powell) that we are seeking to help industrial companies with a cash flow difficulty. However, the Government have started at the end of the calculation by asking themselves how much money they have and which is the best way to find a formula for its distribution. The formula that they have chosen is not a very happy one.

    Looking at the effect of these proposals, we find that we shall reduce the relief—and I call it "relief", though perhaps a better word would be "deferral"—by 10 per cent. of trading income. That means that the more trading profits a company makes, the more corporation tax it is likely to pay, and the more the reduction in the relief that it will be given. That is the consequence of that calculation.

    Another and even more curious feature is that we find that we are to make an adjustment for capital investment. What is more, the very companies that we want to go on investing in industry will have their reduction in the relief increased by the amount that they are investing. That is nonsense. I cannot comprehend that if it is our clear policy to try to help industry. It is nothing other than a piece of very sharp mathematics.

    There is another anomaly. If we look at stocks as a means of calculating the relief, we are choosing an arbitrary date, which always appeals to accountants—and I have to admit to being one myself. We are choosing the year-end as the date for doing this. Many companies have seasonally high stock levels which do not coincide with their year-ends. If we try to support the increased cost of stock levels due to inflation and we choose the year-end, we are not always choosing the appropriate date at which to make that judgment.

    To confuse the issue by grasping at the straw of the report of the Sandilands Committee and prejudging it presumably to decide what choice to make between replacement cost accounting and current purchasing power seems to be a surprising decision to have taken without giving a full explanation to the Committee.

    I hope that the Chief Secretary will take this opportunity of reconsidering the matter by accepting this amendment and perhaps redoing his homework on the way that the relief should be given.

    As was to be expected, the right hon. Member for Down, South (Mr. Powell) understood the problem perfectly but came to the wrong conclusion. This deals with the remarks of the hon. Member for Hertfordshire, South (Mr. Parkinson). He asked for a full explanation. The explanation applies to both interventions.

    We wanted to give relief to companies hardest hit by inflation. The right hon. Member for Down, South implied that it was evasive for political reasons. He suggested that we should have given the relief directly to companies through a straight cut in corporation tax.

    The Opposition cannot accept, apparently, that it is just possible that we decided to give the relief in this way because we felt that it would be the best way of getting the relief to those companies whose stocks had suffered most from inflation.

    If we are to give back money to the tune of £800 million and we give it by a straight reduction in corporation tax, that is no more equitable and no more likely to direct that relief to companies most in need than the method we are adopting here, as rough and ready as it is. On the contrary, it is much less likely to do that. It is more likely to give relief to those companies which have suffered least from inflation.

    There are large numbers of companies which need relief because their stocks have grown substantially as a result of inflation. If we adopted the proposals of the Opposition, they would get a derisory amount of relief compared with what they will get under this clause.

    6.15 p.m.

    That is the answer to the right hon. Member for Down, South, and he failed to grasp it. He chose to decide that we had done it for evasive political reasons. He failed to accept that it is possible that we decided to do it because we thought it the best way of giving relief to those companies which needed it. It would have been simpler to have saved ourselves all this trouble in the debates on this clause and to have given a straight relief. But that would not have done the job anything like as well as Clause 16 does.

    For these reasons, I must ask my right hon. and hon. Friends to resist the amendment—

    The right hon. Gentleman seemed to suggest in answer to me that the principal reason for the 10 per cent. was the cost of it. He did not say what the cost would be. But is he saying that accepting Amendment No. 70 would be more or less expensive to the Treasury, and that that is the reason for resisting the amendment, or is he saying that it would be cheaper to do it the CBI way, in which case he is choosing the more expensive way in order to help the less efficient?

    The cost is incalculable. We do not know the profits of the companies until we have seen their accounts. But on the 90 per cent. one and the CBI's idea, I doubt whether the difference would be very great.

    I am not resisting the amendments purely on cost grounds. I do it for the reasons that I have given. We believe that this is the better way of dealing with the problem.

    But the right hon. Gentleman must have calculated the 10 per cent. It has been deducted already in arriving at the figure given at the time of the Budget.

    It is a different method from the method that we have adopted. We have not been able to calculate it. It is not possible to do so.

    The Chief Secretary is beginning to sound indignant. He has only himself to blame if his brief produces this penumbra of ambiguity which is bewildering to some and arouses suspicion in others.

    My right hon. and hon. Friends have made no secret of the proposals in these amendments. They are to give more assistance to the company sector. We do not disguise our belief that more assistance is needed.

    The Chancellor of the Exchequer got matters badly wrong and totally under-estimated the situation in March. Despite his attempt to reverse his judgments in November, we suspect that there is still a grotesque under-estimation of the need to get money back into the company sector.

    We share the view of the Chancellor of the Exchequer that resources should be switched back into investment and into profitability. We think that that should be done. We think that it should be done through decreasing consumption, notably, at this time, consumption by the State. Therefore, we are not ashamed of putting forward amendments which would increase the amount of help that the Chancellor judged was right in November in order to reverse the effects of his March measures.

    The Chief Secretary has said several times that if we did what we suggest we should be assisting some firms which increased their stocks through volume as well as appreciation in paper values. He has said that this would derogate from the intention to produce some genuine inflation-proofing, some genuine means of overcoming inflation-blind taxation. But Clause 16 itself is not a pure piece of inflation-proofing. On the contrary, the right hon. Gentleman has said that it is rough and ready and designed only for one year.

    The right hon. Gentleman is trying again and again to have it both ways. He admits that Clause 16 is rough and ready, in which case we offer ways to improve it and to assist firms in grave difficulty by allowing them to keep more of their own earnings, increase their profitability and revive investment, which is flat on its back as we move into 1975. If that is what the right hon. Gentleman believes, he should accept the amendment. On the other hand, if he does not believe it, he must believe that what the Government propose is the first golden step on the road to inflation-proofing and to taxation which takes account of the appalling rate of inflation. If that is so, Clause 16 should not be rough and ready but, on the contrary, should be something which he intends to make permanent.

    But then the right hon. Gentleman tells us that the provision is not to be permanent and that something will be introduced to replace it. We have been presented with a merry-go-round of contradictions. It is absurd to say that this rough and ready measure will help firms particularly badly hit by inflation. Everyone suffers from inflation to some extent. Every economic, commercial and financial operation is hurt by the constant and accelerating depreciation in the value of money. To argue that this rough and ready measure is sufficiently unready and

    Division No. 64.]


    [6.28 p.m.

    Adley, RobertDavies, Rt Hon J. (Knutsford)Hannam, John
    Aitken, JonathanDean, Paul (N Somerset)Hastings, Stephen
    Alison, MichaelDodsworth, GeoffreyHavers, Sir Michael
    Amery, Rt Hon JulianDouglas-Hamilton, Lord JamesHawkins, Paul
    Arnold, TomDrayson, BurnabyHayhoe, Barney
    Atkins, Rt Hon H.(Spelthorne)du Cann, Rt Hon EdwardHeath, Rt Hon Edward
    Awdry, DanielDunlop, JohnHenderson, Douglas
    Bain, Mrs MargaretDurant, TonyHeseltine, Michael
    Baker, KennethDykes, HughHiggins, Terence L.
    Banks, RobertEden, Rt Hon Sir JohnHolland, Philip
    Beith, A. J.Edwards, Nicholas (Pembroke)Hooson, Emlyn
    Bell, RonaldElliott, Sir WilliamHordern, Peter
    Bennett, Dr Reginald (Fareham)Emery, PeterHowell, David (Guildford)
    Benyon, W.Ewing, Mrs Winifred (Moray)Howell Ralph (North Norfolk)
    Berry, Hon AnthonyEyre, ReginaldHowells, Geraint (Cardigan)
    Biffen, JohnFairbairn, NicholasHurd, Douglas
    Biggs-Davison, JohnFairgrieve, RussellHutchison, Michael Clark
    Body, RichardFell, AnthonyIrving, Charles (Cheltenham)
    Boscawen, Hon RobertFinsberg, GeoffreyJames, David
    Bowden, A. (Brighton, Kemptown)Fisher, Sir NigelJenkin, Rt Hon P. (Wanst'd & W'df'd)
    Boyson, Dr Rhodes (Brent)Fletcher, Alex (Edinburgh N)Jessel, Toby
    Bradford, Rev RobertFookes, Miss JanetJohnson Smith, G. (E Grinstead)
    Braine, Sir BernardFowler, Norman (Sutton C'f'd)Jones, Arthur (Daventry)
    Brittan, LeonFreud ClementJopling, Michael
    Brotherton, MichaelFry, PeterJoseph, Rt Hon Sir Keith
    Brown, Sir Edward (Bath)Galbraith, Hon T. G. D.Kaberry, Sir Donald
    Buchanan-Smith, AlickGardiner, George (Reigate)Kellett-Bowman, Mrs Elaine
    Buck, AntonyGardner, Edward (S Fylde)Kershaw, Anthony
    Budgen, NickGilmour, Sir John (East Fife)Kimball, Marcus
    Bulmer, EsmondGlyn, Dr AlanKing, Evelyn (South Dorset)
    Burden, F. A.Goodhart, PhilipKing, Tom (Bridgwater)
    Carr, Rt Hon RobertGoodhew, VictorKitson, Sir Timothy
    Chalker, Mrs LyndaGoodlad, AlastairKnight, Mrs Jill
    Channon, PaulGorst, JohnKnox, David
    Churchill, W. S.Gow, Ian (Eastbourne)Lamont, Norman
    Clark, Alan (Plymouth, Sutton)Gower, Sir Raymond (Barry)Lane, David
    Clarke, Kenneth (Rushcliffe)Grant, Anthony (Harrow C)Latham, Michael (Melton)
    Cockcroft, JohnGray, HamishLawrence, Ivan
    Cooke, Robert (Bristol W)Griffiths EldonLawson, Nigel
    Cope, JohnGrimond, Rt Hon J.Le Marchant, Spencer
    Cormack, PatrickGrist, IanLewis, Kenneth (Rutland)
    Corrie, JohnGrylls, MichaelLloyd, Ian
    Costain, A. P.Hall, Sir JohnLoveridge, John
    Crawford, DouglasHall-Davis, A. G. F.Luce, Richard
    Crouch, DavidHamilton, Michael (Salisbury)MacCormick, Iain
    Crowder, F. P.Hampson, Dr KeithMcCrindle, Robert

    unrough to help precisely the firms that suffer from inflation, and that our proposals would damage its purity, and then to point out that it is to be discarded anyway because it will be of no further use beyond the end of this year is to distort and to twist the argument. It is testing our patience and our readiness to try to follow the right hon. Gentleman through these tortuous arguments.

    The right hon. Gentleman knows the ambiguity in his argument, but still tries to have it both ways. Because of that attitude, because assistance to these companies is so desperately required, and because we have no faith in the persistently wrong judgments of the Chancellor of the Exchequer about what is needed, we shall press the amendment.

    Question put, That the amendment be made:—

    The Committee divided: Ayes 249, Noes 263.

    Macfarlane, NeilPeyton, Rt Hon JohnStainton, Keith
    MacGregor, JohnPink, R. BonnerStanbrook, Ivor
    Macmillan, Rt Hon M. (Farnham)Powell, Rt Hon J. EnochStanley, John
    McNair-Wilson, M. (Newbury)Price, David (Eastleigh)Stewart, Donald (Western Isles)
    McNair-Wilson, P. (New Forest)Prior, Rt Hon JamesStewart, Ian (Hitchin)
    Madel, DavidPym, Rt Hon FrancisStokes, John
    Marten, NeilRaison, TimothyStradling Thomas, J.
    Mates, MichaelRathbone, TimTaylor, R. (Croydon NW)
    Mather, CarolRawlinson, Rt Hon Sir PeterTaylor, Teddy (Cathcart)
    Maude, AngusRees, Peter (Dover & Deal)Tebbit, Norman
    Maudling, Rt Hon ReginaldRees-Davies, W. R.Temple-Morris, Peter
    Mawby, RayReid, GeorgeThatcher, Rt Hon Margaret
    Maxwell-Hyslop, RobinRenton, Rt Hon Sir D. (Hunts)Thomas, Rt Hon P. (Hendon S)
    Mayhew, PatrickRenton, Tim (Mid-Sussex)Thompson, George
    Meyer, Sir AnthonyRhys Williams, Sir BrandonTrotter, Neville
    Miscampbell, NormanRidley, Hon NicholasTugendhat, Christopher
    Mitchell, David (Basingstoke)Ridsdale, Julianvan Straubenzee, W. R.
    Moate, RogerRifkind, MalcolmViggers, Peter
    Monro, HectorRoberts, Michael (Cardiff NW)Wakeham, John
    Moore, John (Croydon C)Roberts, Wyn (Conway)Walder, David (Clitheroe)
    More, Jasper (Ludlow)Ross, William (Londonderry)Walker, Rt Hon P. (Worcester)
    Morris, Michael (Northampton S)Rossi, Hugh (Hornsey)Walker-Smith, Rt Hon Sir Derek
    Morrison, Charles (Devizes)Rost, Peter (SE Derbyshire)Walters, Dennis
    Morrison, Peter (Chester)Sainsbury, TimWatt, Hamish
    Mudd, DavidSt. John-Stevas, NormanWeatherill, Bernard
    Neave, AireyScott, NicholasWells, John
    Nelson, AnthonyShaw, Giles (Pudsey)Welsh, Andrew
    Neubert, MichaelShaw, Michael (Scarborough)Whitelaw, Rt Hon William
    Newton, TonyShelton, William (Streatham)Wiggin, Jerry
    Nott, JohnShepherd, ColinWigley, Dafydd
    Onslow, CranleySims, RogerWilson, Gordon (Dundee E)
    Oppenheim, Mrs SallySinclair, Sir GeorgeWinterton, Nicholas
    Page, Rt Hon R. Graham (Crosby)Skeet, T. H. H.Young, Sir G. (Ealing, Acton)
    Pardoe, JohnSmith, Cyril (Rochdale)Younger, Hon George
    Parkinson, CecilSpence, John
    Pattie, GeoffreySpicer, Jim (W Dorset)TELLERS FOR THE AYES:
    Penhaligon, DavidSpicer, Michael (S. Worcester)Mr. Adam Butler and
    Percival, IanSproat, IainMr. Fred Silvester.


    Abse, LeoCox, Thomas (Tooting)Garrett, W. E. (Wallsend)
    Allaun, FrankCraigen, J. M. (Maryhill)George, Bruce
    Anderson, DonaldCronin, JohnGilbert, Dr John
    Archer, PeterCryer, BobGinsburg, David
    Armstrong, ErnestCunningham, G. (Islington S)Golding John
    Ashley, JackCunningham, Dr J. (Whiteh)Gould, Bryan
    Ashton, JoeDalyell, TamGourlay, Harry
    Atkins, Ronald (Preston N)Davidson, ArthurGraham, Ted
    Atkinson, NormanDavies, Bryan (Enfield N)Grocott, Bruce
    Barnett, Guy (Greenwich)Davies, Denzil (Llanelli)Hamilton, James (Bothwell)
    Barnett, Rt Hon JoelDavies, Ifor (Gower)Hamilton, W. W. (Central Fife)
    Bates, AlfDavis, Clinton (Hackney C)Hamling, William
    Benn, Rt Hon Anthony WedgwoodDeakins, EricHardy, Peter
    Bennett, Andrew (Stockport N)Dean, Joseph (Leeds West)Harrison, Walter (Wakefield)
    Bldwell, Sydneyde Freitas, Rt Hon Sir GeoffreyHart, Rt Hon Judith
    Blenkinsop, ArthurDelargy, HughHattersley, Rt Hon Roy
    Boardman, H.Dell, Rt Hon EdmundHatton, Frank
    Booth, AlbertDempsey, JamesHayman, Mrs Helene
    Bottomley, Rt Hon ArthurDoig, PeterHealey, Rt Hon Denis
    Boyden, James (Bish Auck)Dormand, J. D.Heffer Eric S.
    Bradley, TomDouglas-Mann, BruceHooley, Frank
    Bray, Dr JeremyDuffy, A. E. P.Horam, John
    Brown, Hugh D. (Provan)Dunn, James A.Howell, Denis (B'ham, Sm H)
    Buchan, NormanDunnett, JackHoyle, Douglas (Nelson)
    Buchanan, RichardDunwoody, Mrs. GwynethHuckfield, Les
    Butler, Mrs Joyce (Wood Green)Edelman, MauriceHughes, Rt Hon C. (Anglesey)
    Callaghan, Rt Hon J. (Cardiff SE)Edge, GeoffHughes, Mark (Durham)
    Callaghan, Jim (Middleton & P)Edwards, Robert (Wolv SE)Hughes, Robert (Aberdeen N)
    Campbell, IanEllis, John (Brigg & Scun)Hughes, Roy (Newport)
    Canavan, DennisEllis, Tom (Wrexham)Hunter, Adam
    Cant, R. B.English, MichaelIrvine, Rt Hon Sir A. (Edge Hill)
    Carmichael, NeilEvans, Ioan (Aberdare)Irving, Rt Hon S. (Dartford)
    Carter, RayEvans, John (Newton)Jackson, Colin (Brighouse)
    Carter-Jones, LewisEwing Harry (Stirling)Jackson, Miss M. (Lincoln)
    Cartwright, JohnFernyhough, Rt Hon E.Janner, Greville
    Castle, Rt Hon BarbaraFlannery, MartinJay, Rt Hon Douglas
    Clemitson, IvorFletcher, Ted (Darlington)Jeger, Mrs Lena
    Cocks, Michael (Bristol S)Foot, Rt Hon MichaelJenkins, Rt Hon Roy (Stechford)
    Coleman, DonaldFord, BenJohn, Brynmor
    Colquhoun, Mrs MaureenForrester, JohnJohnson, James (Hull West)
    Conlan, BernardFraser, John (Lambeth, N'w'd)Johnson, Walter (Derby S)
    Cook, Robin F. (Edin C)Freeson, ReginaldJones, Alec (Rhondda)
    Corbett, RobinGarrett, John (Norwich S)Jones, Barry (East Flint)

    Kaufman, GeraldMurray, Ronald KingStewart, Rt Hn M. (Fulham)
    Kelley, RichardNewens, StanleyStoddart, David
    Kerr, RussellNoble, MikeStott, Roger
    Kilroy-Silk, RobertOgden, EricStrang, Gavin
    Kinnock, NeilO'Halloran, MichaelStrauss, Rt Hon G. R.
    Lambie, DavidOrbach, MauriceSummerskill, Hon Dr Shirley
    Lamborn, HarryOvenden, JohnTaylor, Mrs Ann (Bolton W)
    Lamond, JamesOwen, Dr DavidThomas, Jeffrey (Abertillery)
    Latham, Arthur (Paddington)Padley, WalterThomas, Mike (Newcastle E)
    Leadbitter, TedPalmer, ArthurThomas, Ron (Bristol NW)
    Lever, Rt Hon HaroldPark, GeorgeThorne, Stan (Preston South)
    Lewis, Ron (Carlisle)Parker, JohnTierney, Sydney
    Lipton, MarcusParry, RobertTinn, James
    Litterick, TomPavitt, LaurieTomlinson, John
    Lomas, KennethPerry, ErnestTorney, Tom
    Loyden, EddiePhipps, Dr ColinWainwright, Edwin (Dearne V)
    Luard, EvanPrentice, Rt Hon RegWalden, Brian (B'ham, L'dyw'd)
    Lyon, Alexander (York)Price, C. (Lewisham W)Walker, Harold (Doncaster)
    Lyons, Edward (Bradford W)Price, William (Rugby)Walker, Terry (Kingswood)
    McEihone, FrankRees, Rt Hon Merlyn (Leeds S)Ward, Michael
    MacFarquhar, RoderickRichardson, Miss JoWatkins, David
    McGuire, Michael (Ince)Roberts, Gwilym (Cannock)Watkinson, John
    Mackenzie, GregorRobertson, John (Paisley)Weetch, Ken
    Mackintosh, John P.Roderick, CaerwynWeitzman, David
    Maclennan, RobertRodgers, George (Chorley)Wellbeloved, James
    McMillan, Tom (Glasgow C)Rodgers, William (Stockton)White, Frank R. (Bury)
    Madden, MaxRooker, J. W.White, James (Pollock)
    Magee, BryanRoss, Rt Hon W. (Kilmarnock)Whitehead, Phillip
    Mahon, SimonRowlands, TedWhitlock, William
    Marks, KennethRyman, JohnWilley, Rt Hon Frederick
    Marquand, DavidSandelson, NevilleWilliams, Alan (Swansea W)
    Marshall, Dr Edmund (Goole)Sedgemore, BrianWilliams, Alan Lee (Hornchurch)
    Marshall, Jim (Leicester S)Selby, HarryWilliams, Rt Hon Shirley (Hertford)
    Mason, Rt Hon RoyShaw, Arnold (Ilford South)Williams, W. T. (Warrington)
    Meacher, MichaelSheldon, Robert (Ashton-u-Lyne)Wilson, Alexander (Hamilton)
    Mellish, Rt Hon RobertShore, Rt Hon PeterWilson, Rt Hon H. (Huyton)
    Mikardo, IanShort, Mrs Renée (Wolv NE)Wilson, William (Coventry SE)
    Millan, BruceSilkin, Rt Hon John (Deptford)Wise, Mrs Audrey
    Miller, Dr M. S. (E. Kilbride)Silkin, Rt Hon S. C. (Dulwich)Woodall, Alec
    Miller, Mrs Millie (Ilford N)Sillars, JamesWoof, Robert
    Mitchell, R. C. (Soton, Itchen)Silverman, JuliusWrigglesworth, Ian
    Molloy, WilliamSkinner, DennisYoung, David (Bolton E)
    Moonman, EricSmith, John (N Lanarkshire)
    Morris, Alfred (Wythenshawe)Snape, PeterTELLERS FOR THE NOES:
    Morris, Charles R. (Openshaw)Spriggs, LeslieMiss Betty Boothroyd and
    Mulley, Rt Hon FrederickStallard, A. W.Mr. Joseph Harper.

    Question accordingly negatived.

    [Mr. OSCAR MURTON in the chair]

    I beg to move Amendment No. 24, in page 12, line 44, at end insert:

    'so that, however, the additional tax payable in that year shall not exceed the amount of relief given,'.
    The purpose of the amendment can be explained briefly—in fact, in record time for this Committee. It is to restrict the claw-back for stock relief to the same rate of tax at which the relief was obtained. I mentioned this point earlier.

    The principle of stock appreciation relief is the deferment of tax payable for the 1973 accounting period. It is not clear how this is to be dealt with in future, but, as I said earlier, technically there could be a situation in which people, having obtained relief for 1973, might have it clawed back at a higher rate. We have seen the rate of corporation tax rise from 40 per cent. to 52 per cent. I appreciate that there is a different method of applying corporation tax, but the principle applies and creates anxiety about the future.

    If the Chief Secretary could give the copper-bottomed assurance that we seek, everybody would be very happy.

    I support what my hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont) has said. I have in my hand a letter from a company which is in exactly the predicament my hon. Friend outlined. It must decide in the very near future whether to make a claim. Its effective rate was 46 per cent. for the relevant accounting period. The rate is at present 52 per cent. If the rate rises again, the company might be faced with a claw-back greater than the relief it has had.

    The Chief Secretary could set the minds of many people at rest if he would give an assurance that in no circumstances will the Government take back more than the relief they grant. Although he has not been able to accept some of the very sensible amendments which have been moved, I hope that in this instance, even if he cannot acept the amendment, he will do the next best thing and give us the assurance we seek.

    I support the amendment. It would be entirely consistent with the Chief Secretary's earlier remarks for him to accept the amendment. It would ensure that there was no diminution of the cash flow position by an accident of drafting of the legislation beyond its original intention. It would make clear that it is not the intention to penalise people for a deferment of relief in this form. I hope that the Chief Secretary will be able to accept the amendment.

    I hope that nothing I have said has resulted in the hon. Member for Kingston-upon-Thames (Mr. Lamont) being moved so rapidly from the Front Bench to the back benches. I hope that this has not arisen because I commended him on the excellent way in which he moved the previous amendment.

    The amendment seeks to ensure that the tax saved this year is not exceeded by additional tax next year. I take the point entirely. The hon. Gentleman said that there has been an increase in the rate already from 40 per cent. to 52 per cent. He knows that that was none of my doing. That was a corporation tax system which I did not particularly want.

    I take the point made by the hon. Member for Hertfordshire, South (Mr. Parkinson). We have had much debate on whether the relief will be clawed back. I have not been able to tell hon. Members that in all circumstances the relief will not be clawed back, for the reasons which I have given, and I do not think there is any need for me to go over them again. In most cases, however, the relief certainly will not be clawed back. Indeed, the hon. Member for Kingston-upon-Thames asked me for—to use his phrase—"a copper-bottomed guarantee". Well, my right hon. Friend the Chancellor gave a bankable guarantee, and I am sure that Tory Members will be aware of that phrase only too well. It was used perhaps in less good circumstances.

    Nevertheless, in this instance we have made absolutely clear that there is no question of our not continuing the relief in the spring Bill. That is why I am afraid that once again I have to resist the amendment, as I am sure the hon. Gentleman appreciates, but I hope that because I have been able to give him, if not a copper-bottomed assurance or guarantee, a bankable one, he will not feel it necessary to press the amendment.

    Amendment negatived.

    I beg to move Amendment No. 25, in page 12, line 44, at end insert:

    '(c) Where as a result of this section the advance corporation tax set-off exceeds the corporation tax due, the balance shall be repaid'.

    With this we may take the following amendments:

    No. 26, in page 12, line 44, at end insert:
    '(c) Nothing in the operation of this section shall affect the amount of advance corporation tax set-off under section 85(3) of the Finance Act 1972'.
    No. 76, in page 14, line 32, at end add:
    '(11) Relief under this section shall be ignored for the purposes of the transitional provisions set out in Schedule 23 to the Finance Act 1972.'.

    The purpose of these amendments can be stated very quickly. They seek a modest extension of the relief. Perhaps "extension" is not the correct word. It is merely to prevent a restriction in certain circumstances.

    The purpose of Amendment No. 25 is to give relief against ACT where there is insufficient mainstream corporation tax liability to absorb the whole of the relief. If the object of what the Government are doing is to help the liquidity of companies, that relief ought also to be available against ACT, all the more so since the Government, for political reasons which have emerged very clearly in this debate, have decided not to cancel or repay ACT.

    If I may try to read the crystal ball—in other words, the Chief Secretary's mind—the right hon. Gentleman may tell me that ACT paid by companies forms the tax credit of the shareholders and that the Revenue will, therefore, be issuing tax credits without actually receiving tax from the company. My professional advisers say that the position would be equalised when the mainstream corporation tax became due or, indeed, when the deferred increase was paid later, as the Chief Secretary has not been able to convince me that it will not be paid. Amendment No. 25, therefore, is simply a test of the Government's good intentions to make sure that the liquidity position of companies is eased.

    The purpose of Amendment No. 26 is to avoid a reduction in the benefit obtained from the stock relief because of the ACT set-off rules. I believe that it is Section 85 of the Finance Act 1972 which deals with the setting off of ACT against the liability to corporation tax. Subsection (3) provides for the repayment of ACT where there is insufficient mainstream corporation tax liability to require payment of ACT. There the relief is limited to 33 per cent.—the current rate of assessable income—and any balance of ACT can be carried back or any remainder can be carried forward.

    The purpose of the amendment is to avoid a reduction in the benefit of stock relief, particularly where one might get a reduction of the company's income and this would lead to a restriction of the ACT set-off. In that situation, one might find that the company was not able to get relief by carrying ACT back because of losses in earlier years. Therefore, the effect of the amendment would be to leave the ACT exactly where it was despite any reduction of income.

    I can see from the benevolent smile on the Financial Secretary's face that at long last I have achieved success.

    6.45 p.m.

    I regret to have to tell the hon. Gentleman that I was smiling at his once again telling me how I am going to reply to the amendment. As he knows, he has this delightful way of telling me how I am going to reply. It saves me a lot of trouble very often because he obviously knows the answer.

    Amendment No. 25, as the hon. Gentleman says, would allow ACT to be repaid to a company if it could not be set off against mainstream tax because the tax had been reduced by the stock relief. The amendment is unacceptable because of the whole system of advance corporation tax. The hon. Gentleman touched on it, and I will deal with that point.

    On the basis of this proposal in Amendment No. 25, the exempt shareholder could claim from the Revenue, where it was entitled to repayment of the tax, payment of tax which had already been repaid to the company. The hon. Gentleman meets that argument by saying that the company may or will sometimes pay this mainstream tax. But it may never do so. It depends on what happens in the future—and who can foresee the future? I am sure that some of us might like to do so, but I should not like to foresee the situation in which a company had had this tax relief in respect of ACT and had had relief which it should not have had, in view of the way in which the present corporation tax system was devised by Conservative hon. Members.

    Apart from that, I am advised that the drafting of the amendment is not altogether clear, although I am happy to tell the hon. Gentleman that it is clear to me what he wants. However, if it was left as it is the drafting would not be altogether clear, although that is not the reason why I am resisting the amendment. The general rule is that ACT paid in a year is to be regarded as an instalment of the mainstream tax. Clearly, if there is no mainstream tax it would be quite wrong to give the ACT and, therefore, relief to a shareholder in certain circumstances and then not to be able to get it back from the company in its mainstream tax.

    That is the major reason why I do not feel able to accept the amendment. Indeed, I am advised that the inviolability of the ACT is a cardinal feature of the imputation system. At least, this is what the previous Government and, indeed, the Select Committee thought it to be. As we still have the imputation system in our corporation tax, I am not able to accept Amendment No. 25.

    Amendment No. 26 is altogether another matter. The hon. Gentleman almost wants cream on the jam here. What he is suggesting is that when a company pays dividends in the financial year 1974 or 1975 to such an extent that the ACT exceeds the amount which can be set off against the year's mainstream bill, it should be allowed to set off the excess against the bill for the year 1973 to the same extent as if the profits had never been reduced by the stock relief. I cannot accept Amendment No. 26 for the same reason as I cannot accept Amendment No. 25.

    Amendment No. 76 seeks to provide that the restriction to be applied, if certain conditions are not met, to the amount of ACT set off in the period of transition from the old to the new systems of company taxation in April 1972, should be made only to the same extent as if the corporation tax liability had not been reduced by relief under Clause 16. We cannot accept that companies can have their corporation tax bill cut, often by substantial amounts, and continue to enjoy the same treatment in other fields to which they have previously been entitled. That is why I do not feel able to accept Amendment No. 76.

    I hope, therefore, that the Committee will agree that these three amendments should not be accepted.

    Amendment negatived.

    I beg to move Amendment No. 81, in page 13, line 3, at end insert:

    '(5) Where the company is entitled to relief under this section and to set off a loss against the profits of a preceding accounting period by virtue of section 177 of the Taxes Act 1970 it shall be entitled to group relief by virtue of sections 258–264 of that Act and to set off the amount of its loss against the profits of another company which is a member of the same group, and for this purpose, the corresponding accounting period for the purposes of section 259 of the Taxes Act shall be the accounting period of the claimant company which corresponds to such preceding accounting period of the surrendering company'.

    With this we are to take Amendment No. 78 in page 14, line 32, at end add:

    '(11) The relief under this section shall not be restricted by subsection 5(a) for a company which is a member of a group where the closing stock value for the group in aggregate is not less than £25,000.'

    These amendments are concerned with group relief for the allowance of stock appreciation. Amendment No. 81 is concerned with the position of large groups of companies. We can take as an example the position which occurs in two different groups of companies. Let us assume that the first group of companies has made no effort during the last few years to engage in any heavy capital expenditure except, possibly, to replace existing plant and machinery. It has shown no interest in expansion but because of the level of inflation its profits have grown. Its stock, if it is typical of the level of industry as a whole, probably represents about two and a half times its annual pre-tax profits.

    With inflation running at 20 per cent., about 50 per cent. of the group's pre-tax profits arises from stock appreciation. This group will benefit considerably from the allowances under the clause. The company which has made very little effort to improve its position in the last few years, which has made practically no effort to increase its capital expenditure in spite of the urgings and exhortations of successive Governments, will benefit.

    The second group of companies is quite separate. For the purpose of the amendment let us assume that it has an accounting year ending on 30th September 1973. This group of companies has been bent on expansion. It has ploughed back large sums in new plant and machinery over several years. It has probably borrowed extensively from the market and the banks for major capital investment programmes, and in doing so it has followed the advice of successive Governments. It might have borrowed extensively when the banks were urged to lend to industry at rates that were far more favourable than today's. Such a group would have been caught by the rise in interest rates and inflation generally.

    Therefore, the groups which responded to the exhortations of successive Governments and invested have come out rather worse in the present circumstances of inflation than companies which did not invest heavily in recent times. This is a lesson we have to learn. The group which is bent on expansion has been able to offset the increases in capital expenditure against group profits so that the taxable profits to the year ending September 1973 have been low. However, in the previous accounting year to September 1972 the group might have had substantial taxable profits arising from companies within the group, but those companies might not necessarily have been the ones in which the stock appreciated in the year ending September 1973.

    The amendment seeks to provide power to offset the stock appreciation provisions against the profits of companies within the same group whose stocks did not appreciate during 1973. The relief is of the same order as is already allowed for corporation tax purposes in the group relief system. Surely it cannot be the Government's intention to penalise groups of companies which have undertaken large capital investment programmes and which have companies within the group against which stock appreciation provisions can be offset.

    The relief cannot be arbitrarily limited to the same companies within the group when the Chancellor's clearly stated intention was to help liquidty. In his Budget Statement he said:
    "I am persuaded that industry needs a substantial immediate improvement of its liquidity through the deferment of tax on that part of the profit which corresponds to the abnormal increase in the value of stock and work in progress."—[Official Report, 12th November 1974; Vol. 881, c. 264.]
    However, in a group of companies such as I have just described in which there has been a measurable degree of stock appreciation because of the incidence of capital investment there might be no profits against which these stock appreciation allowances should be offset. The Chief Secretary must be aware of the consequences of not allowing the kind of relief to which I have referred.

    If, for example, such a group is now in the middle of a major investment programme, I do not see what possible incentive there can be for it to continue that programme if profits will not be available for stock appreciation relief because of the extent of the capital allowances that will be used in future years.

    The Government must be aware of the continuing deterioration of the company sector. In its last review the National Institute said that in the first half of 1973 profits net of stock appreciation fell to only 5½ per cent. of the gross domestic product compared with nearly 15 per cent. in 1963. At the same time the proportion of stock appreciation in gross profits rose from 3½ per cent. in 1963 to more than 60 per cent. in the most recent period. With inflation now proceeding at 20 per cent. this position is becoming increasingly serious.

    It is this situation which the clause belatedly seeks to alleviate. However, it helps most those companies which have no intention of increasing their investment or modernising their plant or equipment. It helps the slothful and inert companies and does nothing for those trying to become more efficient through capital investment. "Strength through stagnation" seems to be the Government's motto. The amendment does not seek to give special help to companies which are investing more; it simply spreads the relief for capital appreciation through the existing group of companies.

    A substantial proportion of our capital investment comes from large groups of companies. Goodness knows, there is not much incentive for them to invest at present, but the effect of the clause is to provide them with a positive incentive to cancel or delay their investment plans and to take the stock appreciation assistance instead. That is why the clearing banks are now so full of money. It is because companies have no incentive to borrow in order to invest, with inflation running at its present rate.

    7.0 p.m.

    In consequence, the proposals in the clause are only likely to extend this position indefinitely, unless there is at least allowance for group relief within a group of companies, so that where there are taxable profits against which this relief can be offset that group of companies can carry on with its investment programme and at the same time achieve the improvement in liquidity which the Chancellor set out to achieve by the clause.

    Therefore, I hope that the Chief Secretary will take the amendment seriously. I know he said earlier that the clause was by no means the last that the Committee would hear about the Government's efforts to improve companies' liquidity. But if ever there is a case for selection it is the case of those companies where there is a measure of relief available within the group. Those companies should benefit by being able to proceed with their capital investment programme, something which is so much required for the country's economic position.

    The amendment proposes an extension to the existing rules of group relief for Clause 16 purposes. The question of group relief can be somewhat complicated for accountants and everyone else concerned. The amendment seeks to widen the scope of group relief in the context of the clause—that is, the stock relief. My right hon. Friend the Chancellor of the Exchequer made absolutely clear when he explained the purpose of the relief under the clause that it was to give relief for liquidity this winter. The amendment goes much further.

    I agree with the hon. Member for Horsham and Crawley (Mr. Hordern) that in many cases the stock relief will increase an existing loss or convert a profit into a loss, and will, therefore, not be able to be used. But in those cases the companies will have all the normal facilities for setting off the loss. It will be possible to carry the loss backwards a year against the profits of the same trade or carry it forward indefinitely against similar profits. They can set the loss off against other profits of the same accounting period. They can surrender the loss to a fellow member of a group for use against the fellow member's profit for the corresponding accounting period.

    But what the hon. Gentleman seeks to do in the amendment is to extend the rules of group relief for the purpose of stock relief only. A company with a stock relief loss would be able to surrender it to another group member for use against profits of that member's preceding accounting year. The hon. Gentleman is seeking to go a little wide. Apart from any other arguments, the amendment would be a dangerous precedent for the further widening of the whole question of group relief which is already a tricky area. I doubt whether the clause is the place we should choose to consider amendments to the whole area of group relief.

    Although the amendment would not be difficult to administer, it would add to the complications because of the need for consultation between tax districts. The companies in a group can be scattered among a number of districts. Any such complication is unjustified when the relief given by way of a repayment of tax, or reduction of the tax payable, was intended to be for this winter.

    We have gone pretty far with the clause. There will be new relief in the spring Bill, and I do not think that it is unreasonable now to ask that this matter be left until we discuss the extension of the relief in the spring.

    I am not particularly attracted by the amendment. One wonders just how far bank finance should be used in a large group to finance substantial capital expenditure, and on what scale it happens. We should have to look at the structure of many companies to know the answer. This is a fundamental matter, because otherwise the expenditure would be funded through shareholders, in which case the argument would not arise, or at a substantially lower rate of interest than the current rate, if we are talking about the 1973 tax year.

    Further, I was not particularly attracted by the argument that the benefit of the stock inflation relief would be largely attributable to the slothful companies. That is the inverse of the argument that the go-ahead companies are necessarily those involved in a high level of capital expenditure at present. Capital expenditure is not necessarily a continuous and on-going process. There could have been large capital expenditure, say, five years ago which is coming on stream now, without current expenditure being incurred. I would not condemn a company in that position as a slothful company.

    The irony of my hon. Friend's argument is that presumably a group will be taking advantage of slothful members of the group, in so far as those members have stock inflation values to offset, for the benefit of companies in the group that cannot otherwise benefit on account of capital expenditure and capital allowances.

    The way in which a company or group of companies may have borrowed for the purpose of capital investment has nothing to do with the argument. Many groups of companies have borrowed extensively under persuasion by both Governments. That has nothing to do with the amendment, but I was pointing out that companies which have used various methods—cash flow or anything else—to invest in new plant and machinery will not be able to benefit by the stock appreciation provisions, because of the use of capital allowances against taxable profits. Whatever my hon. Friend may say about such companies, whether or not they are more efficient because they have invested more, they should not be put at a disadvantage because they have put new investment into plant and machinery compared with those groups which have not invested at all in the past few years.

    I take that point, but to say that a company is slothful because it is not currently embarked upon a capital expenditure programme could be highly distorting in the appraisal of a particular industrial situation.

    Although I am not attracted by the amendment, I am far from convinced that the Chief Secretary has given an adequate answer. He said that the loss provisions were entirely adequate, that one could job backwards, or set the situation against the current year's profits, or take it forward. He then rapidly passed over the matter, simply saying that group relief is a complex problem and asking "Why add to the complexities of life?" That is much less than an answer to my hon. Friend. Despite my reservations, which I think are reservations of emphasis rather than anything else, I must insist that we have a better and more responsible reply from the Treasury Bench.

    Despite the differences between my hon. Friend and myself—if they arise at all, it is in the interpretation of what is or what is not a slothful group of companies and not on the merits of capital investment—I believe that my right hon. and hon. Friends are united in agreeing that the provisions of Clause 16 do not apply to groups of companies which have undertaken considerable capital investment in recent years.

    We are not asking for any special relief for companies which have undertaken large capital investment programmes merely for the sake of doing so. We are saying that it is perfectly permissible

    Division No. 65.]


    [7.15 p.m.

    Adley, RobertBenyon, W.Buchanan-Smith, Alick
    Aitken, JonathanBerry, Hon AnthonyBuck, Antony
    Alison, MichaelBiffen, JohnBudgen, Nick
    Amery, Rt Hon JulianBiggs-Davison, JohnBulmer, Esmond
    Arnold, TomBlaker, PeterBurden, F. A.
    Atkins, Rt Hon H. (Spelthorne)Body, RichardCarr, Rt Hon Robert
    Awdry, DanielBoscawen, Hon RobertChalker, Mrs Lynda
    Bain, Mrs MargaretBowden, A. (Brighton, Kemptown)Channon, Paul
    Baker, KennethBoyson, Dr Rhodes (Brent)Churchill, W. S.
    Banks, RobertBraine, Sir BernardClark, Alan (Plymouth, Sutton)
    Beith, A. J.Brittan, LeonCockcroft, John
    Bell, RonaldBrotherton, MichaelCooke, Robert (Bristol W)
    Bennett, Dr Reginald (Fareham)Brown, Sir Edward (Bath)Cope, John

    for the Clause 16 provisions to be related to groups of companies which have taxable profits in a preceding year and that if they arise in companies which are in a different position from those in which capital investment has taken place they should nevertheless be allowed relief under the group system in a similar way to the relief which is allowed already for corporation tax.

    For the Chief Secretary to say that the whole matter is complicated, that the Revenue would have to deal with different tax districts and that administrative complications would arise is no answer to the problem. The plain fact is that the Chief Secretary and his hon. Friends do not appear to understand the damage they are inflicting on industry. They inflicted damage in the March Budget and this seems to be a belated effort to improve the liquidity of certain companies. The manner of approach which they have chosen is not efficient and it will not do what is required.

    The total effect of the provisions that we are discussing will be to undermine the low propensity of companies to invest in new plant and machinery. If there is one requirement at the moment, it is to provide a stimulus for companies to invest more in plant and machinery. It is all very well for the Chief Secretary to frown. He should be alarmed for the sake of the country and the economy by the way in which bank deposits are rising and by the way in which companies are not investing their capital.

    For those and many other reasons, I invite my right hon. and hon. Friends to join me in the Lobby in support of the amendment.

    Question put, That the amendment be made:—

    The Committee divided: Ayes 245, Noes 262.

    Cormack, PatrickJenkin, Rt Hon P. (Wanst'd & W'df'd)Rawlinson, Rt Hon Sir Peter
    Corrie, JohnJessel, TobyRees, Peter (Dover & Deal)
    Costain, A. P.Johnson Smith, G. (E Grinstead)Rees-Davies, W. R.
    Crawford, DouglasJones, Arthur (Daventry)Reid, George
    Crouch, DavidJopling, MichaelRenton, Rt Hon Sir D. (Hunts)
    Crowder, F. P.Joseph, Rt Hon Sir KeithRenton, Tim (Mid-Sussex)
    Davies, Rt Hon J. (Knutsford)Kaberry, Sir DonaldRhys Williams, Sir Brandon
    Dean, Paul (N Somerset)Kellett-Bowman, Mrs ElaineRidley, Hon Nicholas
    Dodsworth, GeoffreyKershaw, AnthonyRidsdale, Julian
    Douglas-Hamilton, Lord JamesKimball, MarcusRifkind, Malcolm
    Drayson, BurnabyKing, Evelyn (South Dorset)Roberts, Michael (Cardiff NW)
    Dunlop, JohnKing, Tom (Bridgwater)Roberts, Wyn (Conway)
    Durant, TonyKnight, Mrs JillRoss, William (Londonderry)
    Dykes, HughKnox, DavidRossi, Hugh (Hornsey)
    Eden, Rt Hon Sir JohnLamont, NormanRost, Peter (SE Derbyshire)
    Edwards, Nicholas (Pembroke)Lane, DavidSainsbury, Tim
    Elliott, Sir WilliamLangford-Holt, Sir JohnSt. John-Stevas, Norman
    Emery, PeterLatham, Michael (Melton)Scott, Nicholas
    Ewing, Mrs Winifred (Moray)Lawrence, IvanShaw, Giles (Pudsey)
    Eyre, ReginaldLawson, NigelShaw, Michael (Scarborough)
    Fairbairn, NicholasLe Marchant, SpencerShelton, William (Streatham)
    Fairgrieve, RussellLewis, Kenneth (Rutland)Shepherd, Colin
    Fell, AnthonyLloyd, IanSilvester, Fred
    Finsberg, GeoffreyLoveridge, JohnSims, Roger
    Fisher, Sir NigelLuce, RichardSinclair, Sir George
    Fookes, Miss JanetMacCormick, IainSkeet, T. H. H.
    Fowler, Norman (Sutton C'f'd)McCrindle, RobertSmith, Cyril (Rochdale)
    Fraser, Rt Hon H. (Stafford & St)Macfarlane, NeilSmith, Dudley (Warwick)
    Freud ClementMacGregor, JohnSpence, John
    Fry, PeterMacmillan, Rt Hon M. (Farnham)Spicer, Jim (W Dorset)
    Galbraith, Hon T. G. D.McNair-Wilson, M. (Newbury)Spicer, Michael (S. Worcester)
    Gardiner, George (Reigate)McNair-Wilson, P. (New Forest)Sproat, Iain
    Gardner, Edward (S Fylde)Madel, DavidStainton, Keith
    Gilmour, Sir John (East Fife)Marten, NeilStanbrook, Ivor
    Glyn, Dr AlanMates, MichaelStanley, John
    Goodhart, PhilipMather, CarolStewart, Donald (Western Isles)
    Goodhew, VictorMaude, AngusStewart, Ian (Hitchin)
    Goodlad, AlastairMawby, RayStokes, John
    Gorst, JohnMaxwell-Hyslop, RobinTaylor, R. (Croydon NW)
    Gow, Ian (Eastbourne)Mayhew, PatrickTaylor, Teddy (Cathcart)
    Gower, Sir Raymond (Barry)Meyer, Sir AnthonyTebbit, Norman
    Grant, Anthony (Harrow C)Miscampbell, NormanTemple-Morris, Peter
    Gray, HamishMitchell, David (Basingstoke)Thatcher, Rt Hon Margaret
    Griffiths EldonMoate, RogerThomas, Dafydd (Merioneth)
    Grimond, Rt Hon J.Monro, HectorThomas, Rt Hon P. (Hendon S)
    Grist, IanMoore, John (Croydon C)Thompson, George
    Grylls, MichaelMore, Jasper (Ludlow)Trotter, Neville
    Hall, Sir JohnMorris, Michael (Northampton S)Tugendhat, Christopher
    Hall-Davis, A. G. F.Morrison, Charles (Devizes)van Straubenzee, W. R.
    Hamilton, Michael (Salisbury)Morrison, Peter (Chester)Viggers, Peter
    Hampson, Dr KeithMudd, DavidWakeham, John
    Hannam, JohnNeave, AireyWalder, David (Clitheroe)
    Hastings, StephenNeubert, MichaelWalker, Rt Hon P. (Worcester)
    Havers, Sir MichaelNewton, TonyWalker-Smith, Rt Hon Sir Derek
    Hawkins, PaulNott, JohnWalters, Dennis
    Hayhoe, BarneyOnslow, CranleyWatt, Hamish
    Heath, Rt Hon EdwardOppenheim, Mrs SallyWeatherill, Bernard
    Henderson, DouglasPage, Rt Hon R. Graham (Crosby)Wells, John
    Heseltine, MichaelPardoe, JohnWelsh, Andrew
    Hicks, RobertParkinson, CecilWhitelaw, Rt Hon William
    Higgins, Terence L.Pattie, GeoffreyWiggin, Jerry
    Holland, PhilipPenhaligon, DavidWigley, Dafydd
    Hooson, EmlynPercival, IanWilson, Gordon (Dundee E)
    Hordern, PeterPeyton, Rt Hon JohnWinterton, Nicholas
    Howell, David (Guildford)Pink, R. BonnerYoung, Sir G. (Ealing, Acton)
    Howell Ralph (North Norfolk)Powell, Rt Hon J. EnochYounger, Hon George
    Howells, Geraint (Cardigan)Price, David (Eastleigh)
    Hurd, DouglasPrior, Rt Hon JamesTELLERS FOR THE AYES:
    Hutchison, Michael ClarkRaison, TimothyMr. John Stradling Thomas and
    James, DavidRathbone, TimMr. Adam Butler.


    Abse, LeoBarnett, Rt Hon JoelBottomley, Rt Hon Arthur
    Allaun, FrankBates, AlfBoyden, James (Bish Auck)
    Anderson, DonaldBean, R. E.Bradley, Tom
    Archer, PeterBenn, Rt Hon Anthony WedgwoodBray, Dr Jeremy
    Armstrong, ErnestBennett, Andrew (Stockport N)Brown, Hugh D. (Provan)
    Ashley, JackBidwell, SydneyBuchan, Norman
    Ashton, JoeBlenkinsop, ArthurBuchanan, Richard
    Atkins, Ronald (Preston N)Boardman, H.Butler, Mrs Joyce (Wood Green)
    Atkinson, NormanBooth, AlbertCallaghan, Rt Hon J. (Cardiff SE)
    Barnett, Guy (Greenwich)Boothroyd, Miss BettyCallaghan, Jim (Middleton & P)

    Campbell, IanHooley, FrankPark, George
    Canavan, DennisHoram, JohnParker, John
    Cant, R. B.Howell, Denis (B'ham, Sm H)Parry, Robert
    Carmichael, NeilHoyle, Douglas (Nelson)Pavitt, Laurie
    Carter, RayHuckfield, LesPerry, Ernest
    Carter-Jones, LewisHughes, Rt Hon C. (Anglesey)Phipps, Dr Colin
    Cartwright, JohnHughes, Mark (Durham)Prentice, Rt Hon Reg
    Clemitson, IvorHughes, Robert (Aberdeen N)Price, C. (Lewisham W)
    Cocks, Michael (Bristol S)Hughes, Roy (Newport)Price, William (Rugby)
    Coleman, DonaldHunter, AdamRees, Rt Hon Merlyn (Leeds S)
    Colquhoun, Mrs MaureenIrvine, Rt Hon Sir A. (Edge Hill)Richardson, Miss Jo
    Conlan, BernardIrving, Rt Hon S. (Dartford)Roberts, Gwilym (Cannock)
    Cook, Robin F. (Edin C)Jackson, Colin (Brighouse)Robertson, John (Paisley)
    Corbett, RobinJackson, Miss M. (Lincoln)Roderick, Caerwyn
    Craigen, J. M. (Maryhill)Janner, GrevilleRodgers, George (Chorley)
    Cronin, JohnJay, Rt Hon DouglasRodgers, William (Stockton)
    Crosland, Rt Hon AnthonyJeger, Mrs LenaRooker, J. W.
    Cryer, BobJenkins, Rt Hon Roy (Stechford)Ross, Rt Hon W. (Kilmarnock)
    Cunningham, G. (Islington S)John, BrynmorRowlands, Ted
    Cunningham, D. J. (Whiteh)Johnson, James (Hull West)Ryman, John
    Dalyell, TamJones, Alec (Rhondda)Sandelson, Neville
    Davidson, ArthurJones, Barry (East Flint)Sedgemore, Brian
    Davies, Bryan (Enfield N)Judd, FrankSelby, Harry
    Davies, Denzil (Llanelli)Kaufman, GeraldShaw, Arnold (Ilford South)
    Davies, Ifor (Gower)Kelley, RichardSheldon, Robert (Ashton-u-Lyne)
    Davis, Clinton (Hackney C)Kerr, RussellShore, Rt Hon Peter
    Deakins, EricKilroy-Silk, RobertShort, Rt Hon E. (Newcasle C)
    Dean, Joseph (Leeds West)Kinnock, NeilShort, Mrs Renée (Wolv NE)
    de Freitas, Rt Hon Sir GeoffreyLambie, DavidSilkin, Rt Hon S. C. (Dulwich)
    Delargy, HughLamborn, HarrySillars, James
    Dell, Rt Hon EdmundLamond, JamesSilverman, Julius
    Dempsey JamesLatham, Arthur (Paddington)Skinner, Dennis
    Doig, PeterLeadbitter, TedSmith, John (N Lanarkshire)
    Dormand, J. D.Lee, JohnSnape, Peter
    Douglas-Mann, BruceLever, Rt Hon HaroldSpriggs, Leslie
    Duffy, A. E. P.Lewis, Ron (Carlisle)Stallard, A. W.
    Dunn, James A.Litterick, TomStewart, Rt Hn M. (Fulham)
    Dunnett, JackLomas, KennethStoddart, David
    Dunwoody, Mrs. GwynethLoyden, EddieStott, Roger
    Edelman, MauriceLuard, EvanStrauss, Rt Hon G. R.
    Edge, GeoffLyon, Alexander (York)Summerskill, Hon Dr Shirley
    Edwards, Robert (Wolv SE)Lyons, Edward (Bradford W)Taylor, Mrs Ann (Bolton W)
    Ellis, John (Brigg & Scun)McElhone, FrankThomas, Jeffrey (Abertillery)
    Ellis, Tom (Wrexham)MacFarquhar, RoderickThomas, Mike (Newcastle E)
    English, MichaelMcGuire, Michael (Ince)Thomas, Ron (Bristol NW)
    Evans, Ioan (Aberdare)Mackenzie, GregorThorne, Stan (Preston South)
    Evans, John (Newton)Mackintosh, John P.Tierney, Sydney
    Ewing Harry (Stirling)Maclennan, RobertTinn, James
    Fernyhough, Rt Hon E.McMillan, Tom (Glasgow C)Tomlinson, John
    Flannery, MartinMadden, MaxWainwright, Edwin (Dearne V)
    Fletcher, Ted (Darlington)Magee, BryanWalker, Harold (Doncaster)
    Foot, Rt Hon MichaelMahon, SimonWalker, Terry (Kingswood)
    Ford, BenMarks, KennethWard, Michael
    Forrester, JohnMarquand, DavidWatkins, David
    Fowler, Gerald (The Wrekin)Marshall, Dr Edmund (Goole)Watkinson, John
    Fraser, John (Lambeth, N'w'd)Marshall, Jim (Leicester S)Weetch, Ken
    Freeson, ReginaldMason, Rt Hon RoyWeitzman, David
    Garrett, John (Norwich S)Meacher, MichaelWellbeloved, James
    Garrett, W. E. (Wallsend)Mellish, Rt Hon RobertWhite, Frank R. (Bury)
    George, BruceMikardo, IanWhite, James (Pollock)
    Gilbert, Dr JohnMillan, BruceWhitehead, Phillip
    Ginsburg, DavidMiller, Dr M. S. (E. Kilbride)Whitlock, William
    Golding JohnMiller, Mrs Millie (Ilford N)Willey, Rt Hon Frederick
    Gould, BryanMitchell, R. C. (Soton, Itchen)Williams, Alan (Swansea W)
    Gourlay, HarryMolloy, WilliamWilliams, Alan Lee (Hornchurch)
    Graham, TedMoonman, EricWilliams, Rt Hon Shirley (Hertford)
    Grocott, BruceMorris, Alfred (Wythenshawe)Williams, W. T. (Warrington)
    Hamilton, James (Bothwell)Morris, Charles R. (Openshaw)Wilson, Alexander (Hamilton)
    Hamilton, W. W. (Central Fife)Mulley, Rt Hon FrederickWilson, William (Coventry SE)
    Hamling, WilliamMurray, Ronald KingWise, Mrs Audrey
    Hardy, PeterNewens, StanleyWoodall, Alec
    Harper, JosephNoble, MikeWoof, Robert
    Harrison, Walter (Wakefield)Ogden, EricWrigglesworth, Ian
    Hart, Rt Hon JudithO'Halloran, MichaelYoung, David (Bolton E)
    Hattersley, Rt Hon RoyOrbach, Maurice
    Hatton, FrankOvenden, JohnTELLERS FOR THE NOES:
    Hayman, Mrs HeleneOwen, Dr DavidMr. Thomas Cox and
    Healey, Rt Hon DenisPadley, WalterMr. Walter Johnson.
    Heffer Eric S.Palmer, Arthur

    Question accordingly negatived.

    I beg to move Amendment No. 29, in page 13, line 6, leave out paragraph (a).

    With this we may discuss Amendment No. 72, in page 13, line 6, leave out paragraph (a) and insert:

    '(a) the amount of the relief resulting from the application of this section is in excess of £500; and'.

    Amendment No. 72 is a fall-back proposition if the Government do not feel able to accept Amendment No. 29 which we regard as being reasonable. Under Amendment No. 72, £500 would be the amount of stock which would not be taken into account. It would, therefore, take out all the tiddlers.

    Amendment No. 29 is one of the most significant amendments which the Committee has had to discuss today. The Chancellor made the case for the remissions of corporation tax very clearly in his Budget Statement when he said:
    "What happens in times of inflation is that the cost value of the closing stock becomes much larger than that of the opening stock because the stock is replaced at higher prices. This causes an acute liquidity problem, a shortage of cash for the payment of wages, materials and other expenses."—[Official Report, 12th November 1974; Vol. 881, c. 264.]
    That situation made necessary the remissions in corporation tax announced in the Autumn Budget, partly doing away with the savage increases in corporation tax which the Chancellor imposed in the spring Budget.

    The penitent is always welcome. We would not wish to embarrass him in his penitence but we simply say that the idea is wholly to be recommended. We have to consider to which sector of the business community this problem applies most. I suggest that by definition it applies in its most acute form to the smaller businesses. These are the businesses where there is no outside available finance, the businesses which are financed out of plough-back of profits. This plough-back is squeezed by rising costs and wages on one side and on the other side by pegged prices. Availability of cash has therefore been limited.

    The Government recognise that because before the last General Election, in August 1974, they published a White Paper "The Regeneration of British Industry" in which they said:
    "in times of economic difficulty it is often the small businessman, dependent to a great extent on personal wealth as a source of finance, who suffers the greatest hardship. The Government are therefore reviewing the problems of small businesses and will put forward separate proposals to cater for their special needs."
    The Committee will realise that this is the first opportunity the Government have had of showing how they intend to cater for those special needs. How do they do it? Pious words before the election are one thing, but actions speak louder.

    This is the only part of the company sector which is not to get the benefit of the remissions of corporation tax following on increases in the value of stock. These are the companies whose stock is £25,000 or less. In effect, the small businesses are to be left without any assistance at all. I am glad that we have the Under-Secretary of State for Industry who has responsibility for small businesses sitting on the Government Front Bench with a slightly worried look on his face. While we welcome his presence we would have welcomed far more some action by him to prevent small businesses being singled out in this way.

    There is another group which will not benefit—the self-employed. They have already been picked out by the Secretary of State for Social Services for a private clobbering through the unfair increase in national insurance contributions which comes into effect in April. Insult is added to injury when they too do not benefit under the clause. There is an overwhelmingly strong case for saying that of all the companies that should have benefited the ones that need it most are excluded from benefit.

    7.30 p.m.

    One asks why that is. I have made inquiries, and I know that the brief of the Minister who is to reply will say "Administrative difficulties, reject amendment" or words to that effect. Does that hold water? The revision of accounts is done by qualified accountants and, as we are dealing with companies, it has to be done by their auditors. There will be, in the impartial position between the company and the Inland Revenue which is held by auditors, a qualified body of men preparing the accounts and making a mathematical calculation.

    That calculation is not a very difficult one. Before coming into the Chamber I tried to do it myself and I found it to be so simple that even I could do it. One takes the stock at the beginning of the year and the stock at the end of the year and subtracts one from the other. One then reduces the figure by 10 per cent. of the trading profit, and the result is the reduction in taxable profit which comes into the calculation.

    I picked a company at random from "Moodies" in the Library. These are the figures for the British Printing Corporation. Opening stock £11,159,000, closing stock £13,957,000—a difference of £2,798,000. We take away 10 per cent. of the trading profit as defined in the Bill, £742,500, and we are left with £2,055,500. So the profit for the year is reduced by that amount before calculating the 52 per cent. corporation tax, and there is a remission of £1,068,860. It took me about three minutes to do that, but the Treasury is allowed to use electronic calculators which will get through the calculation much more quickly than I did.

    I am grateful to my hon. Friend the Member for Gloucestershire, South (Mr. Cope), who reminded me that a prominent firm of city accountants on the morning after the Budget rammed through its calculator all the accounts of several hundred businesses for which it had responsibility. By midday on the day after the Budget the remissions for each company had been produced. If the calculations can be done in that way, the Government's case that they cannot do it does not stand up.

    Apart from that, there are the Chancellor's words in his Budget Statement:
    "This problem has become so urgent during the present year that I am persuaded that industry needs a substantial immediate improvement of its liquidity".—[Official Report,, 12th November 1974; Vol. 881, c. 264.]
    I accept the Chancellor's advice that there is a liquidity crisis and that an improvement is needed immediately, but if that is so, why should he single out small businesses as being those which are not to benefit from his remission?

    I am always impressed by the way in which the Under-Secretary of State for Industry, who has responsibility for small businesses, manages to get his cue right and appear in the Committee to listen to points usually raised by my hon. Friend the Member for Basingstoke (Mr. Mitchell). I commend his assiduity and that of my hon. Friend. I wish that the Minister, instead of attending so often, would occasionally do something for small businesses, as he is supposed to do. When I occupied his shoes I was a rotten attender in the House, but at least I succeeded in doing a great deal more than he has done.

    I couch my remarks in terms of small businesses because they will be disadvantaged by the clause. It is discriminatory in the extreme to pass tax legislation which gives relief to large businesses but not to small ones. A self-employed small business man might well feel bitter if he could listen to our debate. He is being asked to pay a higher insurance contribution, more rates and more tax to swell the coffers of the Exchequer—or to reduce the money streaming out of it—to give relief to large businesses which are often his competitors and in many cases will not extend credit to him or take credit from him. On every side the small business man is being beleaguered and the Government appear to be totally unaware of his plight.

    I have one small request which I am sure the Treasury will grant, that companies whose opening and closing trading stock is under £25,000 will henceforth from today be exempt from price control. Will the Minister lay the necessary order to ensure that if they cannot get this relief they can at least freely put up their prices to cover their serious financial position?

    Many small business men are not aware that they do not have to obey the Price Code. They are basically law-abiding honest people, and it would help them to be told that they do not have to obey it from now on. It is a contribution which either the Financial Secretary or the Under-Secretary of State could make—particularly the Under-Secretary of State for Industry, whose responsibility it is to look after small businesses. If he does not like my suggestion I hope that he will make another one.

    I object to a system of tax relief which applies only to companies of a certain size and not to smaller companies. It will not satisfy me if the Financial Secretary repeats the argument which my hon. Friend the Member for Basingstoke anticipated, that the administrative difficulties of working out the relief for all companies, particularly small ones, will be impossible.

    The only conclusion one can come to is that it is a bad relief and that the relief should not have been given in this way. We are talking about the effect of inflation upon the finances of companies, large and small. We have been grossly overtaxing them because we have pretended that there is no inflation. As a stopgap, short-term measure for one year only this provision has been brought forward in place of a proper system for indexing taxation or a system of inflation accounting.

    There was much talk about inflation accounting during the debate on the previous Finance Bill and the one before that brought in by my right hon. Friend. I hope that the Financial Secretary will tell us that at least by next year he will have prepared a proper system of financial accounting or inflation relief which will apply to all companies and which will be fair and proper. This stopgap measure shows how slow are the Government, civil servants and tax draftsmen to realise the effect of inflation and to do something about it. Inflation has been going on for years. Why have not the Government brought forward a proper scheme for protecting companies against the ravages of inflation? Why do we have to have this botched-up, discriminating, unfair, stopgap relief, welcome as it is to the few who benefit and unwelcome as it is to those who get no relief? I hope that the Financial Secretary will report to us the progress he has made in designing a system for protecting companies from the ravages of inflation.

    I echo the belief expressed by my hon. Friend the Member for Basingstoke that discriminatory legislation of this sort will prove to be the last straw for many small firms. None of us who have been in our constituencies in the recent recess can be unaware of the feelings of shopkeepers, small business men and people running small enterprises that they are taking every kick and blow that comes along from the Government.

    I hope that the Under-Secretary of State for Industry will not go away from the debate and say to his advisers "Why do I have to listen to all the boring speeches on this subject in the Chamber?" I hope that he will go out among his governmental colleagues and say "This problem is affecting small businesses. What are you going to do about it? Why did you not do something about it in the Budget or in the Finance Bill or in some other way?" That is the job the hon. Gentleman should perform. Although I wish nothing but good will to the hon. Gentleman in that task, I am beginning to become a little impatient at the results, particularly when I see a provision such as Clause 16. I hope that my hon. Friends will press the amendment.

    I agree with what has been said by the hon. Members for Basingstoke (Mr. Mitchell) and Cirencester and Tewkesbury (Mr. Ridley). I hope that, in turn, they will agree with me that large companies do not just happen. Large companies grow from small companies:

    "Tall oaks from little acorns grow."
    And small companies are based on the efforts of men of vision, entrepreneurs.

    I echo what has been said about large companies squeezing small companies in terms of credit. The right hon. Gentleman the Chief Secretary said earlier that liquidity is a problem. Nowhere is it a greater problem than in the small firms, and it is they who should be given the greatest attention.

    I am grateful to see present the Under-Secretary of State for Industry, who has responsibilities for small businesses. He will appreciate that the point I make is a Scottish one. Out of the 3,000 manufacturing firms on the register of the Scottish Council more than 1,500 employ more than 50 people; more than 500 employ between 50 and 100 people. In other words, well over half employ fewer than 100 people. I do not have the statistics for the service industries, but by and large the service industries employ fewer people than do manufacturing firms.

    I would ask the Treasury to remember that there are such things as computers and telecommunications systems. Therefore, to say that there would be many more small companies to deal with in terms of tax relief is no real reason for discriminating against them.

    7.45 p.m.

    I support the amendment. I echo the speech made by my hon. Friend the Member for Basingstoke (Mr. Mitchell) and I find myself very much in agreement with all that has been said so far on this group of amendments. I am particularly concerned about the value of small companies as employers, particularly in the rural areas of Scotland and Wales. In my county it is the small companies that provide a great deal of the employment and we are very dependent on them. I hope that the Under-Secretary of State for Industry is taking due note of these points. I know that he will agree that we must support the small companies to enable them to maintain employment in rural areas. Their need for relief, clearly, is just as great as, if not greater than, the need of large companies.

    Since I am referring specifically to the small companies in rural areas, I urge on their behalf that their costs have probably risen far more than have the costs of major companies in the urban areas. I am thinking mainly of transportation costs, rates and so on. Therefore, their need for relief certainly exists.

    The reason why the Government are unlikely to agree to our proposal will no doubt be given as lying in the administrative difficulties caused to the Inland Revenue, but the Government should make a very special effort indeed to help the small companies because of their needs and because of the way in which they provide employment. If we are persistent in asking why the Government may not help in this respect, we begin to feel that it is part of the Government's Marxist attack on middle-class institutions. This is becoming almost notorious in extent, and is rather like Stalin's attack on the Kulaks. What is needed is a change of mind by the Government and a willingness to help small companies which have given such valuable service, particularly in terms of employment which is in such danger these days.

    I, too, would like briefly to add my voice to what was said by my hon. Friend the Member for Basingstoke (Mr. Mitchell). It is significant that of the five people who have spoken on the amendment two represent Scottish constituencies and one a Welsh constituency. Therefore I hope that the Under-Secretary of State for Industry, who represents a Scottish constituency, will appreciate the reasons for there being in this debate so many speakers from the rural areas.

    In Scotland we have a large number of small businesses covering a wide sphere of activities. They range from the small family shop, with the service it gives to the community, to businesses which support agriculture. There are even industries, such as textiles, which produce goods which are household names but which still fall within the category of those with stocks of less than £25,000. We must remember that in Scotland and elsewhere most businesses are small businesses. It has already been said that it is the small efficient business that tomorrow will become the large business.

    It is singularly unfair that this group of businesses should be selected for this treatment. Despite the figures which have been given, the effect is equally damaging. Whether one's stock amounts to £25,000 or £250,000, the same percentages apply throughout those areas in terms of profit, turnover and return on capital. These figures do not alter, so why are the Government now seeking to make an already difficult competitive position even more difficult? The Government's proposals will prevent many more small businesses from expanding, or even wishing to expand.

    I was delighted to hear the hon. Member for Perth and East Perthshire (Mr. Crawford) refer to acorns and oaks in the context of small businesses. My hon. Friend the Member for Croydon, North-East (Mr. Weatherill) and I some years ago wrote a publication bearing the title "Acorns to Oaks", emphasising the importance of small businesses to the economy.

    No doubt my hon. Friend is aware that in succeeding clauses the Government intend to erect crippling taxes not only on acorns but on oaks as well.

    I am aware of that but, having dwelt on the matter of small businesses in that booklet, I shall not go into the matter in detail in this discussion.

    We can take it for granted that everyone on the Conservative benches and indeed the Under-Secretary of State for Industry with his responsibilities for small businesses, will recognise the importance of this sector of the economy. We should make it clear that the problems of administration which apparently prevent this relief, or which are causing relief to be withheld from this important sector, are not problems within the private sector or, indeed, problems facing small businesses but are problems involving the Inland Revenue.

    I see that the Financial Secretary is generous enough to agree.

    The calculation is relatively easy. It will be done by the accountants, who do their work so well, as I am sure the Financial Secretary, who, like me, is an accountant, will agree.

    I think that the problem arises from the administrative division of the Inland Revenue into two groups—collectors of taxes and inspectors of taxes. The inspectors basically look at the accounts, argue with the accountants and arrive at the amount of tax payable. They then pass over the papers to the collectors, who get the cash from the taxpayers. There are proper reasons for this division concerning the control of cash. At this time of year the inspectors have largely gone through the accounts and done the assessments and passed over the papers to the collectors. I accept that it is administratively difficult to reopen all the cases and correct the information which is passed to the collector. That is the nub of the administrative problem.

    There is, however, a simple solution which I should have thought would appeal to the Revenue. A relatively simple form could be produced, in triplicate—which should also appeal to the Revenue. It would be a claim form to be filled in by the claimants and sent to the collector, who would accept the calculation of the accountants, or amend it, and retain one copy. The other two copies, suitably rubber-stamped, could be returned to the taxpayer, who would retain one and send the other authenticated and agreed copy to the collector along with a cheque for the balance.

    This would be a relatively simple procedure for taxpayers, accountants and the Revenue, whose officials would sit there with their rubber stamp as the chitties came forward, saying "Chitty chitty, bang-bang". This is not a novel suggestion because I put it forward in the debate on small businesses before Christmas, as the Under-Secretary of State for Industry will remember.

    If this scheme is not possible, I hope that the Financial Secretary will by now have found out why. The scheme would surely get around the administrative problems and should permit this important amendment to be made.

    Hon. Members have already noted that several of us from Wales and Scotland have spoken on this matter. In a rural area like mine, which until recently had no significant manufacturing development but is now making tentative progress, any measure penalising the small company could have serious effects. It is a matter not only of penalising stable companies but of stopping companies growing when they are in a difficult stage of development. In my own area over the last 10 years there have been 20 or 25 small industrial developments each employing up to 20 or 30 people. These are the foundations for an integrated future for our economy, without our having to depend completely on outside companies.

    There is no question of this provision penalising small companies. It is just a question of when they will get the relief.

    I accept that, but when rates have risen so cripplingly, when water charges have hit so many companies hard in my area and transport costs are going up, the cost of stock at present interest rates is penal. Without this sort of relief, some companies will go out of business. Only two years ago the Council for Wales studied the availability of capital for small businesses—a difficult problem. When interest rates rise and inflation pushes up the cost of stocks, liquidity can be seriously affected.

    The effect on the smaller company which does not have recourse to available capital, as is the case very often in my area, can be much more severe than on the larger companies with which I was more familiar before I came to the House. Increased costs have hit such companies and unless some relief is given I am certain that redundancies, which have been running at the rate of four or five announcements per week for several weeks, will carry on hitting employees in my area.

    As for administrative costs, income tax is administered for millions of people and I find it difficult to believe that this sort of provision cannot be administered, particularly on the basis of figures being submitted by a company, subject to spot checks if necessary and prosecution of exceptions for misrepresentation. Surely a way can be found. If the amendment is not acceptable, I ask the Government to find an alternative solution before Report.

    It is increasingly obvious that in resisting the amendment, as I judge from the expressions on Ministers' faces they will, the Government not only do not understand about small businesses but simply do not care. It does not suit them to allow entrepreneurial activity to continue. It is not just that these small businesses are not unionised, but it does not suit the Government's book to nationalise them. The only alternative is to squeeze them out of existence. That is precisely what is happening all over the country, particularly to very small businesses.

    One of the main effects of inflation and the reason why the Government have accepted inflation accounting is the crippling cost of financing increased stocks. The extra cost of keeping the ordinary street corner shop stocked with goods has risen over the past 18 months, depending on the type of business, by 50 per cent. or more. This means that the average family retail business has to find at least an extra £2,000 to £3,000 to keep the shelves stocked with the same amount of goods.

    That capital certainly does not come out of profits and it cannot be outside capital. The only other source is the banking system, which means increased indebtedness for the family, involving interest charges of at least £300 on top of the costs that the business already has to bear—the higher rates, the crippling taxes and the extra service charges.

    It really is time that the Government took a look around the country and noted what was happening and how many small businesses and small retailers are folding up, going bankrupt or ceasing to trade. It is time that the Government took on board the penal effect which this legislation will have if it is not amended to provide the concession to those businesses which need it most and need it now, not in a year or two's time when many of them will have already gone bankrupt.

    [Mr. BRYANT GODMAN IRVINE in the Chair]

    8.0 p.m.

    From the vehemence with which successive speakers from the Opposition benches have rallied to the cause of small businesses, it is obvious that we feel very strongly about the amendment so ably moved by my hon. Friend the Member for Basingstoke (Mr. Mitchell).

    I want to draw close attention to the principle. The principle we seek is one of fairness, of the equitable distribution of the benefits to be obtained under the tax relief measure. The principle of fairness has been demonstrated by my hon. Friend the Member for Aberdeenshire, West (Mr. Fairgrieve). It applies certainly in terms of the valuation of stock, the proportion of trading profits, and so on, and it applies whether it be a large or a small business. But one of the most obvious places where it does not apply is in the percentage risk involved.

    For the larger business there are many opportunities of offsetting risks. By establishing the sheer size of a large business, with its investment holdings and shareholdings, its banking facilities and its multiple assets, there are many areas in which the risks of a trading error or a trading down-turn can be offset. One of the most important of these areas in which it starts to handle risk is in the credit which it allows to its customers. It is very obvious to me that one of the first things which happen when a large concern is in difficulty is that it tightens up credit restrictions on those to whom it sells goods. We come, therefore, to the distribution area, where so many of these small businesses are located. They are among the first to suffer if a large supplier or manufacturer gets into difficulty. I also make a special plea for the wholesalers in this regard.

    The question of administrative costs has been raised, notably from the point of view that the Revenue and certainly retailers and wholesalers have had to tackle VAT without too much relief offered by the present Government or, indeed, by their predecessors. The question of fairness, therefore, is the principle which is attacked.

    Secondly, when we talk about larger businesses we tend to forget that there are many smaller businesses which are vital suppliers to the larger businesses. When we talk about the motor industry we know that there are very big businesses in components supply, but when we talk of many other industries we quite often fail to recognise that it is a small manufacturer supplying a minute part to a larger manufacturer which is often vital in the success and profitability of the larger enterprise.

    In my constituency, which is closely associated with the textile industry, a great many small firms supply specialist cloth or specialist engineering equipment to the textile industry. Most of these small firms are entirely family firms employing about 30 or 40 people. These firms see in this measure proposed by the Government not only the inequity or lack of relief but the general drift towards higher charges and taxes. They look askance at the proposal for the capital transfer tax, which has yet to be debated. When they look at all this and their problems, they must draw the conclusion that it is the Government's intention to ensure that the life of small businesses is less attractive, less profitable and less worth while.

    I urge my colleagues that we should stand up and be counted as the supporters of the small businesses. I quote a highly qualified economist, Dr. Schumacher:
    "In the end, small is beautiful."

    I want briefly to speak in support of the amendment so ably moved by my hon. Friend the Member for Basingstoke (Mr. Mitchell). I had a wonderful picture of the constituency of my hon. Friend the Member for Gloucestershire, South (Mr. Cope) and of a rhythmic song in the Revenue office, "Chitty, chitty, bang-bang." But I rather feel that sometimes a more likely rhythm would be that which we could take into account when we consider the tendency of tax collectors to hit us rather harder. "Chitty, chitty, bang-bang" implies a reasonably fair and acceptable quality. I see it rather more as "Chitty bang, chitty bang, chitty bang, bang, bang." We shall find ourselves being banged more often than helped by them.

    I suport the amendments because I represent a constituency in the South-West, Exeter, in which the smaller business is the sector of our economic community which is being clobbered so hard by the Government. The latest figures which I have received of bankruptcies among smaller businesses for the last year indicate that bankruptcies have increased by about 38 per cent. That must give some indication of the problems facing our small business sector.

    It is incomprehensible to me and, I think, to the hard-working self-employed and people in small partnerships and small firms that the Government should appoint a Minister with responsibility for small firms—although we are all pleased to see him present and taking an interest in the debate—but then systematically set out by successive measures to destroy that appointment. I suggest that the Minister responsible for small businesses may find himself in the position shortly of being a Minister without small businesses. unless he brings his full weight to bear on his colleagues.

    The belated acceptance by the Chancellor of the need to offer help to this sector has been counterbalanced by the restrictive and discriminating nature of the Bill. Later we shall have the capital transfer tax to deal with and, I hope, to reject in Committee tonight. In the way that that has manifested itself, it is a malevolent piece of legislation aimed at finishing off the once proud backbone of our British free enterprise trading nation. The attributes of thrift, family and savings are all being systematically destroyed by the Government at a time when if ever our economic future depended on the efforts of the small entrepeneurs and the risk-taking small business man it is surely now, in 1975 and 1976.

    About 10 million people, 39 per cent. of our working population, depend for their livelihood upon the privately-owned small firms. They are aghast at the dangers now becoming apparent in the present attacks by the Government on the private sector.

    It is quite wrong that we should have this lower limit of £25,000 stock value for tax relief. I hope that the Minister will accept the case which has been put so strongly by my hon. Friends, or will at least consult the Minister responsible for small businesses. Let us have flexibility and an awareness of the reality of the dangers facing our business sector if the small firm is extinguished from our economic society. I hope that the Government will accept this very reasonable amendment.

    It falls to me, as tonight's spearhead of the Marxists' attack on the established institutions—in the phrase of the hon. Member for Conway (Mr. Roberts)—to reply to the debate.

    The hon. Member for Basingstoke (Mr. Mitchell) is well known for his interest in the problems of small business men, but he could hardly claim credit—perhaps he did not, but his friends were giving him credit—for anticipating what I would have to say, because my right hon. Friend the Chancellor has already explained precisely the reasons why it would not be possible at this stage to give relief over and above that provided for in the Bill.

    I quite understand the strong feelings of Opposition Members about the difficulties confronting small businesses. I am grateful to my hon. Friend the Under-Secretary of State for Industry, the Minister responsible for small businesses, for being on the Front Bench throughout the debate. It was a trifle churlish of the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) to berate him for being here when, had he not been present, the hon. Gentleman would have been the first to berate him for his absence.

    The hon. Gentleman asks what we are going to do. He had in his speech one moment of his usual delicious candour when he wondered why the Government had done nothing about providing in the fiscal system for infla- tion accounting. His phrase was "This"—meaning inflation—"has been going on for years." Successive Governments have wrestled with the problem. The Tory Government did not distinguish themselves by introducing provisions for inflation accounting in the fiscal system any more than when the hon. Gentleman was responsible for the problems of small businesses.

    While I was responsible for small businesses the Government introduced the small businesses corporation tax rate. There is a big difference between that and this rebate for big businesses.

    It is up to the hon. Gentleman to blow his own trumpet in whatever way seems to him becoming. Whatever contribution he made to the affairs of small businesses, it did not seem to impress the leaders of his party sufficiently to entrust him with that responsibility for the full life of the previous Government. Let us pass over that as we may.

    The hon. Member for Perth and East Perthshire (Mr. Crawford) spoke about computers, telecommunications and so on. He is not present. The problem is not one of lack of hardware. The basic point is that we are talking about hundreds of thousands of cases which have already been assessed and which are going through the administrative machine. The hon. Member for Gloucestershire, South (Mr. Cope) recognised that there was a serious problem and that if staff were to be reallocated from their present functions—they are engaged in next year's programme—and were brought back to work on relief of this sort it would lead to an administrative nightmare. That is the only reason for this exclusion. My right hon. Friend would have preferred to have given the exclusion immediately to all categories of businesses, whether incorporated or not, and whether large or small. He made it clear that only administrative reasons prevented him from doing so.

    It is the contention of the hon. Member for Basingstoke that one group of small companies will not benefit from the proposal. Granted, they will not benefit immediately. That is a matter for regret, and we have never disguised our feelings in that respect. The Government have made it clear that when we are able to legislate for relief for them with respect to the current year's problems we will take fully into account the fact that they have had to wait for relief, unlike the larger companies. I only ask the hon. Gentleman to judge, when he sees the proposals we put forward, whether they are adequate or not in that regard. We are firmly of the opinion that when we are able to bring forward the relief it will compensate some companies for the fact that they have not obtained it as early as have other companies.

    8.15 p.m.

    During the Second Reading the Chief Secretary referred to "bankable assurances". Will the hon. Gentleman go further and explain whether they are bankable assurances? How does one bank them? Do we obtain interest on the outstanding money, during the period when we have to borrow at excessively high rates of interest to keep going?

    I have in no way fallen short of the factual assurances given by my right hon. Friend to the House with respect to the reliefs to be brought forward. I have not followed my right hon. Friend in using the same adjective to describe them. However, I endorse what my right hon. Friend said on that occasion. The fact is that the relief is coming and is known to be coming. A company will be able to go to its bank and say "We are entitled to this amount". It will be a matter which it could raise in negotiations with its bank managers.

    That is a very important statement. It was not revealed before by the Chancellor that there will be a remission of tax, calculated now, so that we may go to our bankers and say that we shall receive so much money during the next year. That is the obvious inference of what the Minister has just said.

    The hon. Gentleman knows that when my right hon. Friend spoke of bankable assurances he meant that these were firm assurances on which companies could rely in trying to obtain credit from their bankers. That is clear. The hon. Gentleman is trying to make bricks out of straw.

    The whole of the tenor of the debate and the hon. Gentleman's anxiety to pro- tect the small businesses has been to the effect that this clause clobbers small businesses. This is in no sense a penal clause. Understandably and properly, the hon. Gentleman deplores the absence of relief. I assure the hon. Gentleman that the relief is coming. The relief has been promised. When the relief comes allowance will be made for the fact that there has been a delay in making it available.

    Of all the arguments we have heard this evening from the Treasury Bench for resisting amendments, these are undoubtedly the flimsiest.

    The Financial Secretary drew back from using the word "bankable" in following his right hon. Friend down that path, and he is right to do so. It is generally recognised that that was a highly misleading word used in a highly misleading way. The interventions of my hon. Friend the Member for Basingstoke (Mr. Mitchell) demonstrated that beyond all doubt.

    As for the resistance to the proposal to exclude businesses below the £25,000 closing stock value, that rules out the small traders and small businesses who are most in need. Can they hold out longest? On the contrary, they need immediate relief—not assurances, bankable or otherwise, next year. They are in dire need now.

    Is there an administrative problem? Both my hon. Friends the Member for Gloucestershire, South (Mr. Cope) and the hon. Member for Basingstoke showed that that problem can easily be resolved. My hon. Friend the Member for Gloucestershire, South showed that the task is simple since most of the work is done by accountants. It is a narrow problem for any party.

    On the contrary, during the last half hour we have heard hon. Members representing many parts of the United Kingdom, pointing out the dire difficulties experienced by small businesses, which should be helped the most, not the least. The truth is that there is no need for delay.

    The Government are against the independent sector. They do not like small businesses. They subscribe to the modern, strange form of Socialism which favours large units, big unions and big battalions. The Opposition favour the little platoons. That is why we support the amendments.

    Question put, That the amendment be made:—

    Division No. 66.]


    [8.21 p.m.

    Adley, RobertGower, Sir Raymond (Barry)Morgan, Geraint
    Aitken, JonathanGrant, Anthony (Harrow C)Morris, Michael (Northampton S)
    Alison, MichaelGray, HamishMorrison, Charles (Devizes)
    Amery, Rt Hon JulianGriffiths EldonMorrison, Peter (Chester)
    Arnold, TomGrimond, Rt Hon J.Mudd, David
    Atkins, Rt Hon H.(Spelthorne)Grist, IanNeave, Airey
    Awdry, DanielGrylls, MichaelNelson, Anthony
    Bain, Mrs MargaretHall, Sir JohnNeubert, Michael
    Banks, RobertHall-Davis, A. G. F.Newton, Tony
    Beith, A. J.Hamilton, Michael (Salisbury)Nott, John
    Bell, RonaldHampson, Dr KeithOnslow, Cranley
    Bennett, Dr Reginald (Fareham)Hannam, JohnOppenheim, Mrs Sally
    Benyon, W.Hastings, StephenPage, Rt Hon R. Graham (Crosby)
    Berry, Hon AnthonyHavers, Sir MichaelPardoe, John
    Biffen, JohnHawkins, PaulParkinson, Cecil
    Biggs-Davison, JohnHayhoe, BarneyPattie, Geoffrey
    Blaker, PeterHeath, Rt Hon EdwardPenhaligon, David
    Boscawen, Hon RobertHenderson, DouglasPercival, Ian
    Bowden, A. (Brighton, Kemptown)Heseltine, MichaelPeyton, Rt Hon John
    Boyson, Dr Rhodes (Brent)Hicks, RobertPink, R. Bonner
    Braine, Sir BernardHiggins, Terence L.Powell, Rt Hon J. Enoch
    Brittan, LeonHolland, PhilipPrice, David (Eastleigh)
    Brotherton. MichaelHooson, EmlynPrior, Rt Hon James
    Brown, Sir Edward (Bath)Hordern, PeterRaison, Timothy
    Buchanan-Smith, AlickHowell, David (Guildford)Rathbone, Tim
    Buck, AntonyHowell Ralph (North Norfolk)Rawlinson, Rt Hon Sir Peter
    Budgen, NickHowells, Geraint (Cardigan)Rees, Peter (Dover & Deal)
    Bulmer, EsmondHurd, DouglasRees-Davies, W. R.
    Burden, F. A.Hutchison, Michael ClarkReid, George
    Butler, Adam (Bosworth)Irving, Charles (Cheltenham)Renton, Rt Hon Sir D. (Hunts)
    Carr, Rt Hon RobertJenkin, Rt Hon P. (Wanst'd & W'df'd)Renton, Tim (Mid-Sussex)
    Chalker, Mrs LyndaJessel, TobyRidley, Hon Nicholas
    Channon, PaulJohnson Smith, G. (E Grinstead)Ridsdale, Julian
    Clark, Alan (Plymouth, Sutton)Jones, Arthur (Daventry)Rifkind, Malcolm
    Clarke, Kenneth (Rushcliffe)Jopling, MichaelRoberts, Michael (Cardiff NW)
    Cockcroft, JohnJoseph, Rt Hon Sir KeithRoberts, Wyn (Conway)
    Cooke, Robert (Bristol W)Kaberry, Sir DonaldRoss, William (Londonderry)
    Cope, JohnKellett-Bowman, Mrs ElaineRossi, Hugh (Hornsey)
    Cormack, PatrickKershaw, AnthonyRost, Peter (SE Derbyshire)
    Corrie, JohnKimball, MarcusSainsbury, Tim
    Costain, A. P.King, Evelyn (South Dorset)St. John-Stevas, Norman
    Crawford, DouglasKing, Tom (Bridgwater)Shaw, Giles (Pudsey)
    Crouch, DavidKitson, Sir TimothyShaw, Michael (Scarborough)
    Crowder, F. P.Knight, Mrs JillShelton, William (Streatham)
    Dean, Paul (N Somerset)Knox, DavidShepherd, Colin
    Dodsworth, GeoffreyLamont, NormanSilvester, Fred
    Douglas-Hamilton, Lord JamesLane, DavidSims, Roger
    Drayson, BurnabyLangford-Holt, Sir JohnSinclair, Sir George
    Dunlop, JohnLatham, Michael (Melton)Skeet, T. H. H.
    Durant, TonyLawrence, IvanSmith, Cyril (Rochdale)
    Dykes, HughLawson, NigelSmith, Dudley (Warwick)
    Eden, Rt Hon Sir JohnLe Marchant, SpencerSpence, John
    Edwards, Nicholas (Pembroke)Lewis, Kenneth (Rutland)Spicer, Jim (W Dorset)
    Elliott, Sir WilliamLloyd, IanSpicer, Michael (S. Worcester)
    Emery, PeterLoveridge, JohnSproat, Iain
    Evans, Gwynfor (Carmarthen)MacCormick, IainStainton, Keith
    Ewing, Mrs Winifred (Moray)McCrindle, RobertStanbrook, Ivor
    Eyre, ReginaldMacfarlane, NeilStanley, John
    Fairbairn, NicholasMacGregor, JohnStewart, Donald (Western Isles)
    Fairgrieve, RussellMacmillan, Rt Hon M. (Farnham)Stewart, Ian (Hitchin)
    Fell, AnthonyMcNair-Wilson, M. (Newbury)Stokes, John
    Finsberg, GeoffreyMcNair-Wilson, P. (New Forest)Taylor, R. (Croydon NW)
    Fisher, Sir NigelMadel, DavidTaylor, Teddy (Cathcart)
    Fookes, Miss JanetMarten, NeilTebbit, Norman
    Fowler, Norman (Sutton C'f'd)Mates, MichaelTemple-Morris, Peter
    Fraser, Rt Hon H. (Stafford & St)Mather, CarolThatcher, Rt Hon Margaret
    Freud ClementMaude, AngusThomas, Dafydd (Merioneth)
    Fry, PeterMawby, RayThomas, Rt Hon P. (Hendon S)
    Galbraith, Hon T. G. D.Maxwell-Hyslop, RobinThompson, George
    Gardiner, George (Reigate)Mayhew, PatrickTrotter, Neville
    Gardner, Edward (S Fylde)Meyer, Sir AnthonyTugendhat, Christopher
    Gilmour, Sir John (East Fife)Miscampbell, Normanvan Straubenzee, W. R.
    Glyn, Dr AlanMitchell, David (Basingstoke)Viggers, Peter
    Goodhart, PhilipMoate, RogerWakeham, John
    Goodhew, VictorMolyneaux, JamesWalder, David (Clitheroe)
    Goodlad, AlastairMonro, HectorWalker, Rt Hon P. (Worcester)
    Gorst, JohnMoore, John (Croydon C)Walker-Smith, Rt Hon Sir Derek
    Gow, Ian (Eastbourne)More, Jasper (Ludlow)Walters, Dennis

    The Committee divided: Ayes 244, Noes 258.

    Watt, HamishWigley, Dafydd
    Weatherill, BernardWilson, Gordon (Dundee E)TELLERS FOR THE AYES:
    Wells, JohnWinterton, NicholasMr. John Stradling Thomas and
    Welsh, AndrewYoung, Sir G. (Ealing, Acton)Mr. Richard Luce.
    Whitelaw, Rt Hon WilliamYounger, Hon George


    Abse, LeoEvans, loan (Aberdare)Mackintosh, John P.
    Allaun, FrankEvans, John (Newton)Maclennan, Robert
    Anderson, DonaldEwing Harry (Stirling)McMillan, Tom (Glasgow C)
    Archer, PeterFernyhough, Rt Hon E.Madden, Max
    Armstrong, ErnestFlannery, MartinMagee, Bryan
    Ashley, JackFletcher, Ted (Darlington)Mahon, Simon
    Ashton, JoeFoot, Rt Hon MichaelMarks, Kenneth
    Atkins, Ronald (Preston N)Ford, BenMarquand, David
    Atkinson, NormanForrester, JohnMarshall, Dr Edmund (Goole)
    Barnett, Guy (Greenwich)Fowler, Gerald (The Wrekin)Marshall, Jim (Leicester S)
    Barnett, Rt Hon JoelFraser, John (Lambeth, N'w'd)Mason, Rt Hon Roy
    Bates, AlfFreeson, ReginaldMeacher, Michael
    Bean, R. E.Garrett, John (Norwich S)Mellish, Rt Hon Robert
    Benn, Rt Hon Anthony WedgwoodGarrett, W. E. (Wallsend)Mikardo, Ian
    Bennett, Andrew (Stockport N)George, BruceMillan, Bruce
    Bidwell, SydneyGilbert, Dr JohnMiller, Dr M. S. (E. Kilbride)
    Blenkinsop, ArthurGinsburg, DavidMitchell, R. C. (Soton, Itchen)
    Boardman, H.Golding JohnMolloy, William
    Booth, AlbertGould, BryanMoonman, Eric
    Boothroyd, Miss BettyGourlay, HarryMorris, Alfred (Wythenshawe)
    Bottomley, Rt Hon ArthurGraham, TedMorris, Charles R. (Openshaw)
    Boyden, James (Bish Auck)Grocott, BruceMulley, Rt Hon Frederick
    Bradley, TomHamilton, James (Bothwell)Murray, Ronald King
    Bray, Dr JeremyHamilton, W. W. (Central Fife)Newens, Stanley
    Brown, Hugh D. (Provan)Hamling, WilliamNoble, Mike
    Buchan, NormanHardy, PeterOgden, Eric
    Buchanan, RichardHarrison, Walter (Wakefield)O'Halloran, Michael
    Butler, Mrs Joyce (Wood Green)Hart, Rt Hon JudithOrbach, Maurice
    Callaghan, Rt Hon J. (Cardiff SE)Hattersley, Rt Hon RoyOvenden, John
    Callaghan, Jim (Middleton & P)Hatton, FrankOwen, Dr David
    Campbell, IanHayman, Mrs HelenePadley, Walter
    Canavan, DennisHealey, Rt Hon DenisPalmer, Arthur
    Cant, R. B.Heffer Eric S.Park, George
    Carmichael, NeilHooley, FrankParker, John
    Carter, RayHoram, JohnParry, Robert
    Carter-Jones, LewisHoyle, Douglas (Nelson)Pavitt, Laurie
    Cartwright, JohnHughes, Rt Hon C. (Anglesey)Perry Ernest
    Castle, Rt Hon BarbaraHughes, Mark (Durham)Phipps, Dr Colin
    Clemitson, IvorHughes, Robert (Aberdeen N)Prentice, Rt Hon Reg
    Cocks, Michael (Bristol S)Hughes, Roy (Newport)Price, C. (Lewisham W)
    Coleman, DonaldHunter, AdamPrice, William (Rugby)
    Colquhoun, Mrs MaureenIrvine. Rt Hon Sir A. (Edge Hill)Rees, Rt Hon Merlyn (Leeds S)
    Conlan, BernardIrving, Rt Hon S. (Hartford)Richardson, Miss Jo
    Cook, Robin F. (Edin C)Jackson, Colin (Brighouse)Roberts, Gwilym (Cannock)
    Corbett, RobinJackson, Miss M. (Lincoln)Robertson, John (Paisley)
    Craigen, J. M. (Maryhill)Janner, GrevilleRoderick, Caerwyn
    Crosland, Rt Hon AnthonyJay, Rt Hon DouglasRodgers, George (Chorley)
    Cryer, BobJeger, Mrs LenaRodgers, William (Stockton)
    Cunningham, G. (Islington S)Jenkins, Rt Hon Roy (Stechford)Rooker, J. W.
    Cunningham, Dr J. (Whiteh)John, BrynmorRoss, Rt Hon W. (Kilmarnock)
    Dalyell, TamJohnson, James (Hull West)Rowlands, Ted
    Davidson, ArthurJohnson, Walter (Derby S)Ryman, John
    Davies, Bryan (Enfield N)Jones, Alec (Rhondda)Sandelson, Neville
    Davies, Denzil (Llanelli)Jones, Barry (East Flint)Sedgemore, Brian
    Davies, Ifor (Gower)Judd, FrankSelby, Harry
    Davis, Clinton (Hackney C)Kaufman, GeraldShaw, Arnold (Ilford South)
    Deakins, EricKelley, Richard Sheldon, Robert (Ashton-u-Lyne)
    Dean, Joseph (Leeds West)Kerr, RussellShore, Rt Hon Peter
    de Freitas, Rt Hon Sir GeoffreyKilroy-Silk, RobertShort, Rt Hon E. (Newcasle C)
    Delargy, HughKinnock, Neilshort, Mrs Renée (Wolv NE)
    Dell, Rt Hon EdmundLambie, DavidSilkin, Rt Hon S. C. (Dulwich)
    Dempsey, JamesLamborn, HarrySillars, James
    Doig, PeterLamond, JamesSilverman, Julius
    Dormand, J. D.Latham, Arthur (Paddington)Skinner, Dennis
    Douglas-Mann, BruceLeadbitter, TedSmith, John (N Lanarkshire)
    Duffy, A. E. P.Lee, JohnSnape, Peter
    Dunn, James A.Lever, Rt Hon HaroldSpriggs, Leslie
    Dunnett, JackLewis, Ron (Carlisle)Stallard, A. W.
    Dunwoody, Mrs. GwynethLitterick, TomStewart, Rt Hn M. (Fulham)
    Edelman, MauriceLomas, KennethStoddart, David
    Edge, GeoffLoyden, EddieStott, Roger
    Edwards, Robert (Wolv SE)Luard, EvanStrauss, Rt Hon G. R.
    Ellis, John (Brigg & Scun)Lyon, Alexander (York)Summerskill, Hon Dr Shirley
    Ellis, Tom (Wrexham)McElhone, FrankTaylor, Mrs Ann (Bolton W)
    English, MichaelMcGuire, Michael (Ince)Thomas, Jeffrey (Abertillery)
    Ennals, DavidMackenzie, GregorThomas, Mike (Newcastle E)
    Thomas, Ron (Bristol NW)

    Thorne, Stan (Preston South)Weitzman, DavidWilson, Alexander (Hamilton)
    Tierney, SydneyWellbeloved, JamesWilson, William (Coventry SE)
    Tinn, JamesWhite, Frank R. (Bury)Wise, Mrs Audrey
    Tomlinson, JohnWhite, James (Pollock)Woodall, Alec
    Varley, Rt Hon Eric G.Whitehead, PhillipWoof, Robert
    Wainwright, Edwin (Dearne V)Whitlock, WilliamWrigglesworth, Ian
    Walker, Harold (Doncaster)Willey, Rt Hon FrederickYoung, David (Bolton E)
    Walker, Terry (Kingswood)Williams, Alan (Swansea W)
    Ward, MichaelWilliams, Alan Lee (Hornchurch)TELLERS FOR THE NOES:
    Watkinson, JohnWilliams, Rt Hon Shirley (Hertford)Mr. Joseph Harper and
    Weetch, KenWilliams, W. T. (Warrington)Mr. Thomas Cox.

    Question accordingly negatived.

    8.30 p.m.

    I beg to move Amendment No. 35, in page 13, line 23, leave out 'three months' and insert 'two years'.

    With this we can discuss Opposition Amendment No. 82, in page 13, line 34, leave out 'six months' and insert 'two years'.

    These amendments refer to the period of time in which a company can make a claim for the purpose of relief for stock appreciation. We submit that the period of six months is far too short. We have been asked by the Financial Secretary to the Treasury, in a disgraceful account of the troubles to which small businesses will be put by this provision in the clause, to believe that there will be no inconvenience and that the Government have offered these businesses what they call bankable assurances. Now we come to the practical difficulties that will arise for professional firms in advising companies when and how they should make their claims. These are genuine practical difficulties, and I cannot believe that the Government are aware of them. In any event, the Bill is not drafted in a way which is intelligible to the professional firms which have to advise companies.

    I want to quote from a letter I have received from a large firm of accountants expressing some of the difficulties. It says:
    "In the Press Release issued on 10th December last companies were requested to send claims to the Inspector of Taxes as soon as possible with the clear intention of enabling tax payable 'probably on 1st January, 1975' to be held over."
    The clause contains no provision for the withdrawal of a claim once it has been made, so that any claim that is made has to be made very seriously, taking every possible factor into account. Under subsection (6) of the clause a time limit is provided within which a claim must be made. Assuming that subsection (6)(b) applies, the last date for making the claim will probably fall before the Finance Bill for the spring Budget is available.

    The letter continues:
    "It accordingly follows that taxpayers will not be aware of the stock relief rules for 'year two' and accordingly not in a position to decide whether a claim should be made."
    Earlier, the Chief Secretary to the Treasury said that the Government were proposing to bring in a further arrangement during the spring Budget. But that is not something on which firms of accountants and advisers to companies can act. I shall quote a practical example.

    Suppose that there is a group of companies in the building trade with an accounting year to 30th April. The stock relief for year one is based on the accounts to 30th April 1973. Any stock relief claimed will be granted, therefore, at an effective corporation tax rate of 41 per cent. We do not know what the position will be as a result of the next Budget. In the absence of any announcement, normally there would be a claw-back in year two which could well be taxed at the rate of 52 per cent. Unless this uncertainty is resolved that group of companies will make no claim.

    Accountants who are in the position also of being auditors have to advise companies and have to deal with company accounts under this provision, and they have to consider how any entitlement to stock relief is dealt with in the company's accounts. There are no details at present about the relief which would be available in year two, and the only prudent course available to firms of accountants is to credit the relief by way of reduction of the liability for deferred taxation. This means that consequently there can be no credit to profit and loss account, but, of course, there will at least be an improvement in the net current assets. The absence of any credit to profit and loss account will be badly received by companies at an unprofitable stage in their career.

    I hope that the Financial Secretary has understood the position, because it is a most serious matter that within a very short period companies have to make a claim upon which a great deal will hang, and to claim, furthermore, in advance of the position for the next tax year, since this has yet to be announced.

    Professional firms are in difficulties. How can they properly advise companies in the position that I have quoted? I hope that the hon. Gentleman will give more positive assurances than he has been able to give so far and will at least indicate what companies can expect in year two, otherwise they will not know their corporation tax position or what the claw-back will be. They will be incapable of making proper provisions in companies' accounts to deal with the relief which is proposed.

    This is an important matter. I hope, therefore, that the Financial Secretary will give a clear assurance and will make much clearer than is presently the case what the position of those companies will be. The easiest way of doing so is to extend the period in which a claim may be made. The most sensible way of doing that is to extend the period from three months to two years, as suggested in the amendment, which would allow the company to take the maximum advantage of the stock appreciation position, which is surely what the Government's intention must be.

    This provision should not be framed too tightly. It is no use arguing that it is only a temporary arrangement and that further positive arrangements will be made in the next Budget and will be incorporated in a future Finance Bill. Groups of companies and companies which must be advised by accountants must know the position so that they can make proper arrangements for the stock appreciation position.

    I listened carefully to the hon. Member for Horsham and Crawley (Mr. Hordern). I accept that he made a serious and important point. I emphasise that we are talking about companies whose assessments are already final. The clause as drafted provides a period of three months after Royal Assent within which a company can claim with respect to the direct relief, as it were, arising from our proposals, and a further three months after that within which it can claim for any consequential reliefs which might arise as a result of the first relief being granted.

    Some of these companies have had their assessments final for some time. We are talking about companies whose financial year ended in the financial year 1973, which itself ended on 31st March 1974. Therefore, some of these assessments relate to corporate accounts which go back some time.

    We are dealing with the larger companies and professional firms of accountants, among whom there is a great deal of expertise in these matters and a considerable degree of sophistication in terms of tax planning. I recognise that considerable sums of money may be involved in certain of these cases.

    I am anxious to make progress. The hon. Gentleman will not be surprised to hear that I cannot accept the amendments, which would extend both these periods to two years, because on the face of it that would involve companies in using this relief for long-range tax planning considerations rather than for the immediate benefits which was the aim of my right hon. Friend's provisions. However, I am prepared to look at this matter again. I give the hon. Gentleman no undertakings, and I certainly would not want to raise his hopes that I would even think of the possibility of going as far as two years. On that understanding, perhaps we can make progress.

    I am delighted to hear that undertaking. This is a serious point. It is causing great inconvenience. I beg to ask leave to withdraw the amendment.

    Amendment, by leave, withdrawn.

    I beg to move Amendment No. 37, in page 13, line 41, leave out from "stock" to end of line 6 on page 14.

    With this we are to take the following amendments:

    No. 71, in page 14, line 2, after "Act" insert:
    "unless the services are ancillary to the trade carried on".
    No. 41, in page 14, line 23, leave out from "losses)" to end of line 26.

    The Chief Secretary told us that the clause is rough and ready, and he was candid enough to admit that the relief distributed will be a little haphazard. The purpose of the amendment is to smooth off one of the rougher edges of the clause.

    As I understand subsection (8), it is designed to limit the types of stock which will attract relief. Paragraph (a) appears to exclude securities, though why securities should be excluded it is hard to see since they, too, reflected inflation in 1973. Equally sharply, they have deflated in subsequent years. Paragraph (c) excludes the stock of companies carried on in partnership with individuals. It is a little difficult to understand the underlying logic of that.

    Then paragraph (b) seeks to exclude
    "any services, article or material which, if the trade concerned were a profession, would be treated as work in progress for the purposes of section 138"
    of the Taxes Act. There is no logic discernible, at any rate to me, in this provision. I can think of four types of company which might be affected by paragraph (b). Other hon. Members may be able to recall other varieties of company. The first might be a construction company which has a design department and carries on what might be called quasi-professional work. Again, various engineering companies have pattern departments, and chemical companies have laboratory work involved in their trade. A fourth category, I suppose, would be shipping companies which are engaged in the design and construction of ships. I can see no rhyme or reason why they should have their relief cut down in this way.

    It may be that the Financial Secretary is concerned with tax avoidance. There are always deep ancestral voices calling him to be stricter and sterner in this regard. But, dealing with accounts of past years, it seems unlikely that a person would be able to put his stock into a company and take advantage of this clause. It may be argued that there should be parity of treatment with the professions. But the professions are entirely excluded in any event. Finally, it might be argued that there is a certain administrative convenience in excluding this type of stock. But since the identification and separation of services, articles and materials by a company whose normal stock in trade will add to rather than subtract from the complications, I can see no real substance in that argument.

    I can only assume that the Government have not thought properly through this provision, and now that the anomalies have been drawn to their attention I hope they will accept the amendment with good grace.

    I congratulate the hon. and learned Member for Dover and Deal (Mr. Rees) on his appearance at the Dispatch Box. I am not sure whether this is his first appearance there, but it is long overdue. I hope that compliments from me will not result in his returning to the back benches, like his hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont), particularly if it results in a marked reduction in the eloquence of the hon. and learned Gentleman.

    The hon. and learned Gentleman is quite right. These amendments address themselves to anomalies, and I do not pretend to the contrary. I would merely say that to pass the amendments would create further anomalies. There are administrative questions involved, and, while I shall not pretend that they are not insurmountable, they exist and add to the complications of administering this relief.

    In practice there could be considerable problems of calculation—the question of following the effects of apportionment through the various stages of giving relief, the carry-forwards and sideways transfers of losses and that sort of thing. When we are talking about companies in partnership with unincorporated businesses there really would be administrative difficulties which would be out of all proportion to the relief that might be available.

    Coming to Amendment No. 71 which calls for relief on professional services ancillary to a trade, while I concede that this proposal has some merit in principle, it would again import into the operation of relief a judgment as to the nature of the circumstance, as to whether or not a professional service was, in fact, ancillary to a trade. That would have to be decided in each case, which would only lead to considerable delays and the exercise of judgment as between the Revenue and the taxpayer.

    I am abbreviating the argument because I know what the Committee wishes to make progress towards the next clause. I do not suppose that the hon. and learned Gentleman will find the answer I have given satisfactory, but I hope it is an explanation that he will appreciate. I am unable to give him any assurance on this point.

    8.45 p.m.

    I am grateful to the Financial Secretary for his kind words to me personally. After crossing swords with him at the Dispatch Box I shall return to the obscurity from which I came. Before I do so, however, I must tell him that his argument has been so abbreviated that I am left entirely in the dark about the real reasons for his resisting the amendment. It seeks to broaden the definition so as to include every type of stock in trade other than those categories in paragraphs (a) and (c). The more the Government seek to define and limit the types of stock in trade or work in progress which will attract relief, obviously the greater the problems of definition, identification and separation. It seems, therefore, that, so far from adding to the administrative problems of the revenue and the companies, the amendment will ease those problems.

    It stands to reason that the easiest definition is to say that all stock in trade must be taken into account under the clause. The Government have sought to extract and support three important categories. In our modesty my right hon. and hon. Friends and myself have merely aimed our fire at one particular category of exclusion. Knock that out and at least one range of problems will be eliminated. I can only conclude by saying that the Financial Secretary has not grasped what we are aiming at or the problems likely to be faced by companies in the operation of the clause. Alternatively, he is being as obdurate as—dare I say it?—we found him to be in the summer. I had hoped that the pleasant months of relaxation over the recess had perhaps mellowed him. Alas, I have been proved wrong.

    Perhaps I may say a little more on the amendment, which is always a rash thing to do because it might provoke the hon. and learned Member to further eloquence. I am sorry to have lost my good character so soon.

    The categories of exclusions in the Bill are quite straightforward. The only one that refers to a type of work in progress is the one in respect of professional work in progress. The others relate to situations in which there is an exclusion. The vast majority of professional work in progress relates to individuals and partnerships and to unincorporated businesses. We believe that it would be to create another anomaly if we were to allow that to be available only where incorporated professional firms—those fortunate enough to be able to take advantage of incorporation—could benefit from this relief.

    I accept that the Bill contains anomalies, but the adoption of the amendment would, we believe, while removing some anomalies, create others, and we do not believe that to be satisfactory.

    Amendment negatived.

    With this we shall also consider the following amendments: No. 74, in page 14, line 19, at end insert:

    '(b) it shall be reduced by the amount of any charges on income computed in accordance with section 248 of the Taxes Act.'.
    No. 83, in page 14, line 20, at end insert:
    '(b) charges on income as defined in section 248 of the Taxes Act shall be deducted'.
    No. 84, in page 14, line 26, at end insert:
    '(d) payment disallowed under the provisions of section 130 of the Taxes Act 1970 in respect of interest, royalties or other sums paid in respect of patents, or any rent, royalty or other payment which, by section 156 or 157 of that Act is declared to be subject to deduction of tax under Part II of that Act as if it were a royalty or other sum paid in respect of the user of a patent, shall be deducted'.

    The purpose of the amendment is to leave out of the calculation of trading income, for the purpose of applying the 10 per cent. reduction, paragraph (a) which provides for the artificial addition to trading income of capital allowances which would otherwise be received. We had a discussion earlier about the 10 per cent. reduction in the relief, but it was not satisfactory. We heard no real reason, other than the one of cost, for the 10 per cent. provision to be included at all. If cost is to be the principal reason for rejection of the amendment, as seems likely, I hope that we shall be told what the cost is. I can see no logical reason why the paragraph should be included in the Bill.

    "Trading income" has a meaning to all of us. It means income left after one has finished trading. To say that it equals the income left after one has finished trading, plus depreciation, is to depart considerably from logic. Governments, of course, regularly depart from logic. I do not pretend that the present Government are unique in that respect. The point of Amendment No. 73, the principal amendment, is that the paragraph deserves to be left out of the Bill.

    Amendment No. 74, like Amendment No. 83, refers to Section 248 of the Taxes Act. It has the effect of altering another of the adjustments at present in the calculation of 10 per cent. I see no justification for allowing short-term interest as a deduction in computing trading interest but disallowing medium- or long-term interest. Once again, there appears to be no logic in the situation. I hope that the Minister will describe to us the logic which has led the Government to include these matters in the calculation of the relief. I hope that, in particular, he can tell us the cost, if that is the ground on which the Government will reply.

    I should like to speak briefly on Amendments Nos. 83 and 84, which deal with further anomalies.

    Amendment No. 83 seeks to correct the anomaly of the distinction between bank loans and overdrafts which are allowed for stock appreciation relief and deductions and borrowing on, for example, unsecured notes from which income tax is deducted at source at the time of payment. Interest is not deductible under those rules because relief is being given for corporation tax by the separate device known as a charge on income.

    If we have two businesses with identical profits, trading stocks and borrowings, one with a bank overdraft and the other financed by an issue of unsecured loan notes, the business with bank borrowings will have a smaller trading income for the purposes of the clause. Therefore, it will have greater tax relief, whereas the company which has borrowed under unsecured notes will not have a similar relief. The anomaly seems perfectly simple to correct, and I hope that the Financial Secretary will do so. Whether he does it in terms of the amendment does not matter.

    Amendment No. 84 deals with the treatment of royalties. A business which manufactures under licence must deduct income tax at source at the time of payment of royalties to the owner of the patents. Such royalty payments are also treated as a charge on income and so are not deductible in arriving at trading income. All taxpayers will be in the same boat. In most cases royalties will be disallowable for this purpose. However, royalties surely should be deductible in arriving at trading income and should not be disallowed for the purposes of Clause 16, which itself is supposed to provide income merely because of the longstanding law which requires any tax to be deducted at source at the time of payment. There is no reason for that old provision to have any influence on the stock appreciation measure.

    I hope that these two simple amendments which my hon. Friend the Member for Gloucestershire, South (Mr. Cope) so ably proposed will be accepted readily by the Financial Secretary.

    I rise briefly to support my hon. Friend the Member for Gloucestershire, South (Mr. Cope) in the deletion of paragraph (a) in Amendment No. 73. It appears that a form of penalty is being exacted at a time when we are seeking to encourage industry actively to invest. We have in the course of that encouragement agreed to give 100 per cent. allowance in respect of investment expenditure. We now have a situation in which 10 per cent. of the allowance is being treated as a deduction from the relief. The effect is a form of penalty, because companies have carried out their investment expenditure and their relief under the provisions of the Bill is now being reduced. That seems illogical and anomalous. In the circumstances it would seem to be sensible that the paragraph should be removed altogether.

    The effect of Amendment No. 73 is that depreciation allowances should not be disregarded for the purpose of the 10 per cent. reduction. The reason we have included the provisions of paragraph (a) is that it is intended that trading income should normally approximate to commercial profits.

    Hon. Members will know that capital allowances, particularly the 100 per cent. allowances, are extremely generous. Whereas it might be urged that the disallowance of the allowances for the purpose of this relief might operate to the detriment of capital intensive industries, equally those industries that are not capital intensive might feel that an arrangement that permitted the relief to be set off against them would prejudice their position.

    If the amendment were to be allowed the cost would be so great that my right hon. Friend would probably have to think seriously about the level of 10 per cent. as the offset against the relief. I am sure that that would be a course that would not commend itself to Conservative Members.

    The effect of Amendment No. 74 would be to allow basically all interest costs as a charge in arriving at trading income. That would breach the well-known distinction between short-term and long-term interest. My right hon. Friend's relief is addressing itself to the short-term liquidity problem—in other words, to inventory problems. Conservative Members will know that they are traditionally financed by short-term interest, whereas long-term interest is normally of a sort that arises to finance capital expenditure. There is that recognised difference between the two types of interest. If we were to increase the relief that is available by reference to the sort of interest that arises on debenture charges, for example, that would not be in accord with the purposes of the relief being offered by my right hon. Friend. Perhaps I might anticipate an intervention by saying that the perfect solution might be to consider the nature of the loan and to determine whether it was being incorporated to finance stock rather than capital expenditure. I am sure that the hon. Gentleman will recognise that this is rough and ready assistance—we have made no secret of that—my right hon. Friend is able to provide.

    Refinements of this sort would again be time consuming from the taxpayers' point of view. There could be a dispute over the judgment as to what the real purpose of the loan was. That would mean that the taxpayer would be even later in getting his money, which would not be a solution which would commend itself to the hon. Gentleman.

    I recognise that these are only temporary provisions and that the Government are to bring forward further provisions in the spring Budget. During the consideration of that Budget will the Chancellor bear in mind, and take into account, these anomalies?

    9.0 p.m.

    I do not even have to give the hon. Gentleman an assurance that I will bring his representations to the attention of my right hon. Friend because the Chancellor is here to take note of what has been said. I am sure that he will bear those representations in mind.

    Amendment No. 84 appears to be somewhat obscurely drafted. It seems to us to be proposing that the measure of trading income for the purpose of the 10 per cent. reduction should be reduced by the amount of those charges which are royalties paid in respect of patents and certain mining rights from which tax is deducted. Again, it is a situation where the analysis of the charges would be extremely time consuming in relation to the relatively minor benefit that would be involved. I must advise the Committee that I cannot accept the amendment.

    It seems that my hon. Friends have made an excellent case for both amendments. The Government's answer is not that the situation raises an administrative problem, although on occasions it involves a technicality, but that the main difficulty is one of cost. We have not been told how much the amendments would cost. If the cost would be considerable, the fact is that it is being borne by those who have done most investment. That situation would not be welcomed by most of us. We ask the Financial Secretary, if he can ascertain the cost, to tell us what it is. If not, will he consider the points that have been made, because we may return to them on Report? We have a great deal of work to do tonight and we are moving on now not because we think we are wrong. We think we are right, as usual.

    The right hon. Lady has invited me to intervene again. I will, of course, always consider points raised by right hon. and hon. Members on the Tory benches. I would be misleading the right hon. Lady if I gave her any indication that Amendment No. 73, which is the crucial one, on which it is not possible to calculate the cost, would be acceptable to the Government on Report.

    I cannot accept that it is not possible to calculate the cost involved with Amendment No. 73, because it must have been calculated somewhere to arrive at the estimate in the Red Book issued at the time of the Budget. It is an essential part of the calculation which was made in arriving at the figure of £775 million. In the hope that the Financial Secretary will do his best to get in among the figures, I beg to ask leave to withdraw the amendment.

    Amendment, by leave, withdrawn.

    Clause 16 ordered to stand part of the Bill.