House of Commons
Thursday, June 3, 1948
The House met at Half past Two o'Clock
Prayers
[Mr. SPEAKER in the Chair]
Petition (Building Operations, Control)
I beg to present a humble Petition from an ex-Service man, a Mr. F. J. White, the owner of a building plot on the Glenholt Estate in the parish of Bickleigh, in my constituency. The Petitioner devoted some of his gratuity to purchasing materials for building, with unpaid labour, a house for himself and family to live in. The Petitioner claims that his action at the time was in order under the provisions of Article 2 (3) of the Control of Building Operations No. 7 Order, 1946. His plans were passed by the local authority. When the Control of Building Operations No. 8 Order was made on 15th January, 1947, however, and in subsequent orders, the Minister of Works omitted the provisions of Article 2 (3) of the Control of Building Operations No. 7 Order, 1946. The result has been that the Petitioner is precluded from using the building materials and is unable to proceed with the building of his own house, on his own site, with his own labour and materials. The Petition concludes with the words:
"Your Petitioner therefore humbly prays your honourable House that direction be given for the making of a new order for the Control of Building Operations and that such order do contain a provision similar to Article 2 (3) of the Order of 1946; or that such other relief may be given to your Petitioner as your honourable House shall deem meet, and your Petitioner, as in duty bound, will ever pray."
Petition to lie upon the Table.
Oral Answers to Questions
Education
Administration, Wales
asked the Minister of Education whether he will make a statement concerning the replies which he has received from the local education authorities in Wales and Monmouthshire to his letter concerning the recommendations of the Working Party on Educational Adminstration in Wales.
I have been informed by all the local education authorities in Wales and Monmouthshire that they agree in principle to the formation of a Joint Education Committee on the lines recommended in the report of the Working Party. The Federation of Education Committees, and the Advisory Councils for Technical Education, have also agreed. I hope to receive the reply of the Central Welsh Board very soon.
Is my right hon. Friend aware that that very encouraging statement indicates the desire on the part of the Welsh people for the establishment of a national committee for education? Will he therefore waste no time in issuing an order to make this possible?
As soon as I receive the report from the Central Welsh Board, I hope to go ahead.
Does my right hon. Friend propose to reconvene the Working Party to provide them with a report on the response of the local authorities and to invite them to make their own suggestions about the best way to establish the new body?
I will look at that. I question whether it is necessary in the form sugested, but I will certainly look at it.
asked the Minister of Education the number of courses and classes conducted in Wales by extra-mural departments during the years 1939, 1946 and 1947, respectively.
The numbers of courses and classes conducted in the sessions 1938–39, 1945–46 and 1946–47 by the extra-mural departments of University Colleges in Wales were 205, 391 and 360, respectively.
asked the Minister of Education the total amount of grant contributed by local education authorities in Wales towards the cost of extra-mural departments' work during 1939, 1946 and 1947, respectively; and what total amount is proposed for 1948.
The figures are £827, £1,201 and £1,201. No information is yet available for the year 1948.
University Scholarships
asked the Minister of Education how many local education authorities now make available financial assistance in case of need to all full-time students securing places in a university.
So far as I am aware, no local education authority has undertaken to give a major award in case of need to every student who secures a place in a university.
Will the Minister consider his powers and influence to recommend this policy to local education committees?
I have just set up a working party to advise me on this question.
Is my right hon. Friend taking any steps in connection with the scheme put forward by local authorities to see that the more backward authorities are brought up to the standards of the more advanced authorities? Is he taking any steps to prepare a comprehensive policy in respect of scholarships and entry to the universities generally?
I have set up a working party to advise me quickly on the objects my hon. Friend has mentioned.
asked the Minister of Education the composition and terms of reference of the Committee on University Scholarships recently established by him.
As the reply is rather long, I will, with permission, circulate it in the OFFICIAL REPORT.
Are the terms of reference wide enough to make it possible for the Committee to recommend to his Department and to local education authorities a comprehensive peacetime university scholarship policy which will adequately replace the further education and training schemes?
I definitely had distinctly limited the terms of reference on this occasion in order that I might have a quick report on these matters. The other matter to which my hon. Friend referred will be taken later.
Some of us hoped that this working party would produce a scheme to replace the further education and training scheme; could the Minister assure us that that is to be considered quite soon?
Yes, that is in the terms of reference, but the question asked by my hon. Friend went much further than that.
Will the working party offer any guidance on the question of whether the amount of money available for State scholarships should be increased or not?
That is not a question for the working party.
My right hon. Friend will agree, I think, that with the disappearance of the further education and training scheme the number of students supported by his Department will drop from 30,000 to less than 7,000 in a year or so. Therefore is not the question the wider one of university policy, which is a matter of some urgency?
Yes, and it is on the administrative side of that problem that I am asking for information. It will not be in 12 months' time, but may be in three to four years' time perhaps that the change in the numbers suggested will take place.
Following is the answer:
Composition of the Working Party:
Mr. G. G. Williams, C.B., Ministry of Education ( Chairman. )
Mr. P. V. Arculus, Ministry of Education. Dr. W. P. Alexander, Association of Education Committees.
Mr. R. H. Barrow, H.M. Inspector.
Mr. G. B. Brown, C.B.E., Chief Education Officer, Cumberland.
Dr. J. F. Duff, University of Durham.
Mr. L. G. Duke, Ministry of Education.
Dr. W. W. Grave, University of Cambridge.
Mr. R. G. K. Hickman, National Union of Teachers.
Mr. A. W. S. Hutchings, Joint Four Secondary Associations.
Mr. B. L. Pearson, C.B., D.S.O., M.C., Ministry of Education.
Sir Martin Roseveare, H.M. Inspector.
Dr. E. Stephens, Chief Education Officer, Glamorgan.
Mr. F. Stephenson, Chief Education Officer, Nottingham.
Mr. J. N. Archer, Ministry of Education ( Secretary ).
Terms of reference:
On the basis of the present system of State Scholarships and Major Awards to advise on any administrative or other changes that may be desirable, particularly having regard to:
( a ) the increased numbers at Universities;
( b ) the termination of the Further Education and Training Scheme;
( c ) the probable abolition of four year grants for intending teachers.
Political Propaganda
asked the Minister of Education what steps he is taking to prevent disloyalty to the Crown by Communist propaganda being surreptitiously fostered in the national schools.
My Department has always set its face against the dissemination in the schools under its jurisdiction of doctrines distinctive of any political party. Any case where there was evidence of a contravention of this policy would be investigated at once.
Would the right hon. Gentleman say if he has taken any action to ensure that any literature dealing with Russia, for instance, is written objectively?
Is my right hon. Friend aware that these attempts to introduce political discrimination into the teaching profession are greatly resented by the teaching profession, and that there is no evidence whatever to encourage the hon. and gallant Gentleman in his irresponsible Question?
Quite apart from politics, would my right hon. Friend keep alive the tradition that proscription of textbooks by the central authority is against the whole spirit of education?
That would have been the tenor of my reply to the first supplementary question that was asked. We expect all these textbooks to be written objectively, and we have no occasion to think that the position is otherwise.
Is not the Minister aware that if a true teaching of history is given, particularly in relation to the activities of the Tory Party, it will be good Communist propaganda?
Education Authorities (Staffs)
7 and 8.
asked the Minister of Education (1) the total number of employees of education committees in England and Wales in 1947 and 1938;
(2) the number of employees of the county council education committees in England and Wales for the years 1947 and 1938.
I regret that I have no information on the points raised.
Comprehensive Schools, South-West Middlesex
asked the Minister of Education whether he has considered a resolution sent to him from a committee of some 600 parents in South-West Middlesex protesting against the introduction of comprehensive schools in that area; and what action he proposes to take.
I have considered the resolution, and I have informed the Middlesex authority that I welcome their proposal to set up a small number of comprehensive schools as an experiment. I have suggested that the experiment should be limited this year to two such schools. To secure the most favourable conditions for the conduct of this experiment, it is important to select the two schools so that their staffs and the parents of the pupils concerned should be in sympathy with the aims and methods of the experiment.
While I am in perfect agreement with experiments, might I ask my right hon. Friend whether he realises that not only 700 parents, but the Urban District Council of Staines, and others, including the local divisional executive, have all opposed this? It involves the only grammar school in the district. Can the right hon. Gentleman give me an assurance that if he is allowing two of these experiments to take place this will not be one of them? It is an absolute farce, and the scheme will not provide a comprehensive school because it consists of three schools three miles away from each other.
I cannot give an assurance that any particular scheme will be barred. It is for the local education authority to put up the schemes and for me to advise them whether on educational grounds it is desirable that they should go on.
In view of the fact that the parents in thins area and the local divisional executive are strongly against this proposal, has not my right hon. Friend certain powers to protect the parents under the 1944 Act?
Yes. But I have also the duty to consult the local education authority. I have called their attention to the conditions and circumstances which in my judgment should be taken into consideration in starting an experiment of this kind. To that extent I am seeking to influence them in the direction which I think necessary.
Is it not as important to allow local education authorities to experiment in methods of education as in textbooks?
General Certificate Examination (Age Limit)
asked the Minister of Education what representations he has received from the Headmasters' Conference with regard to his decision to impose a minimum age limit of 16 for candidates sitting for the new examination for the General Certificate of Education; and what answer he has returned to these representations.
I had a letter from the Chairman of the Headmasters' Conference which, among other things, deprecated the imposition of a minimum age limit. This was followed on 15th March by a meeting between representatives of the Conference and myself at which there was a full and frank exchange of views.
Can the Minister say whether the Headmasters' Conference changed their minds or did they continue to press upon him the inadvisability of these proposals?
When a conference takes place one is left in some doubt at the end of it as to whether one has converted the others, or has been converted by them. The fact remains that the circular was issued after the conference.
Will the independent schools, which form a large part of the schools represented by the Headmasters' Conference, be bound by the age limit of 16 for their pupils who wish to take the examination?
They will be bound to the extent that if they want their pupils to take this particular examination their candidates cannot take it until they are 16 years of age.
Must it not have a deadening effect on a clever boy who is ready to take the examination at 15 if he is compelled to mark time because he cannot take the examination for another year?
It certainly will not. One has to keep in mind the purpose of the examination, which is to determine the capacity of the pupil at the age at which he is going to the university. Surely the time most closely approaching the age when he is to enter the university is the best time for him to take the examination.
Why was the date of 1st September after the boy reaches the age of 16 chosen?
I cannot say without notice, but there is a very good reason.
How does the Minister reconcile his answer today with the statement of the Parliamentary Secretary last Thursday that this proposal had the unanimous approval of the representative people?
The Secondary Schools Examination Council, which includes the representatives of the Headmasters' Conference, unanimously suggested this arrangement.
In view of the Minister's former answer is he suggesting that this examination will be a qualification for entrance to a university, or will the universities be perfectly free to set their own examination?
What I am hoping, in accordance with the circular sent out, is that the universities will, in the light of this decision, make known their requirements to the schools.
Anglo-Eire Trade Talks
asked the Secretary of State for Commonwealth Relations if his attention has been drawn to an announcement by Mr. J. A. Costello, the Prime Minister of Eire, of forthcoming talks of great importance with His Majesty's Government; when and where these talks will take place; and what will be their scope and purpose.
I am grateful to my hon. and learned Friend for this opportunity of telling the House that there will be a meeting of Ministers from Eire with Ministers of His Majesty's Government in the United Kingdom on 17th and 18th of this month. The meeting will be held in London, and the representatives of Eire will be the Prime Minister, Mr. Costello; the Deputy Prime Minister and Minister for Social Welfare, Mr. Norton; the Minister for External Affairs, Mr. MacBride; the Minister for Finance, Mr. McGilligan; the Minister for Agriculture, Mr. Dillon; and the Minister for Industry and Commerce, Mr. Morrissey. The subject of the discussion will be the trade relations between Eire and this country.
While I thank the Minister for that reply, may I ask whether the talks will be directed to effecting long-term as well as short-term agreements, and will they be concerned with the supply of coal to Eire as well as of food to this country?
I think that anything concerned with trade between our two countries will be discussed.
Will the right hon. Gentleman invite Sir Basil Brooke, Prime Minister of Ulster, to participate in these discussions?
Will my right hon. Friend bear in mind in connection with these negotiations, especially as they will affect agricultural produce, that it is most important to stop discrimination in favour of the farmers in the North of Ireland and put the farmers in the South on the same footing?
That is another question.
Will the deputation be received as being representative of a Dominion or of a foreign country?
It will be representative of Eire.
Empire Migration (Shipping)
asked the Secretary of State for Commonwealth Relations what are the number of applications still standing on the books for emigration to Canada, South Africa, Australia and New Zealand, respectively; and what are the limiting factors which make it impossible to comply with the wishes of families desiring to settle in these Dominions.
So far as I have been able to obtain the information which my hon. Friend desires, it is as follows:
Canada. No central passenger register exists, but I am assured that migrants can now obtain passages without undue delay.
Australia. I am told that the names of 200,000 potential settlers are recorded at Australia House. About 35,000 other prospective passengers are registered with shipping companies in Australia and here.
New Zealand. Fourteen thousand prospective migrants are registered with the High Commissioner in London; 28,000 passengers are registered with shipping companies.
South Africa. Ninety thousand names are registered with shipping companies. This includes returning South Africans, commercial visitors, tourists and others, as well as prospective migrants.
The shortage of shipping and the difficulties of housing accommodation are the main factors which limit the immediate movement of families who desire to settle overseas.
In view of the very large unsatisfied number of people wishing to enter these schemes of migration, can my right hon. Friend say whether the Government are doing anything in regard to transport; and further, whether the Dominions have stated that they cannot house these people?
It is well known that the housing difficulty is one which arises in many of these countries. With regard to shipping, my right hon. Friend the Minister of Transport is doing everything in his power to find ships in which to move these people. As my hon. Friend knows, there is a shortage of shipping and there are other commitments with which he must cope.
Is it not a striking commentary on three years of Socialist misrule that all these people and all those who have gone before, should find it desirable to leave this country because they can find no prospects for themselves or their families in the Motherland?
I am sure that the hon. Member, like many other hon. Members of this House, can well remember the days when hundreds of thousands of people were driven abroad by unemployment, poverty and other hardships. The number wanting to leave this country after this war is much less than those who desired to leave it after the last.
Is it not a fact that if 200,000 of these people went to Australia they would be going to a country with a Socialist Government?
May I ask what proportion of these numbers are old persons and what is being done to safeguard and assimilate their rights under pension schemes?
I think the last part of the question should be addressed to my right hon. Friend the Minister of National Insurance. Australia is registering members of families, that is to say, old people as well as others, but, without notice, I cannot give the exact proportion.
Basutoland (Medical Officers)
asked the Secretary of State for Commonwealth Relations how many African medical officers are serving in Basutoland; and whether he is satisfied that qualified Africans in Government service in Basutoland receive the same rates of pay, with the exception of expatriation allowances, as Europeans in the same grade.
There is at present no African Government Medical Officer in Basutoland, though provision for such an appointment has been made in the Estimates. European officials in Basutoland do not receive allowances for expatriation. The relation between the salaries of locally domiciled African officers and of Europeans who are recruited from outside the Territory is now under consideration.
In giving this consideration will my right hon. Friend see whether he can induce the present Basuto-born graduates who work outside the territory to enter its service by following the practice of some Colonies of combining expatriation allowances with equal rates for the job?
Yes, Sir. As soon as there are qualified people who can do the jobs we are anxious to work them into the administration.
Trade and Commerce
Import Schedules, New Zealand
asked the President of the Board of Trade what negotiations are in progress with the New Zealand Government and with representatives of trade interests, with the object of obtaining modifications in the import schedules for 1948–49.
No such negotiations are in progress with the New Zealand Government. My Department is always ready to listen to representations from trade interests in the United Kingdom.
Leather Imports
asked the President of the Board of Trade why we do not purchase leather of good quality from France in quantities available to us, since such purchases would not involve us in an expenditure of dollars.
Imports of leather are generally intended to make good any deficiency in the quantities available from home production; we are prepared to consider on their merits applications to import from France, especially when the leather will be used for goods for export.
Raw Cotton Supplies
asked the President of the Board of Trade what steps he is taking to ensure a continuance of supplies of short-stapled raw cotton from the Central Provinces, in view of the serious position arising from the embargo on the export of this type of cotton.
I am aware of the embargo referred to by the hon. Member, and am taking the matter up with the Government of India.
Is the right hon. Gentleman aware that this is a very serious matter for mills which use considerable quantities of Oomra cotton? I hope he will be able to take some action. Can the right hon. Gentleman also say why this did not arise before the closing of the Liverpool Cotton Exchange?
I am well aware of the importance of this, because it is required substantially for the manufacture of meat wrappers and surgical dressings, but it is to deal with major questions of this kind rising at Governmental level that something like the Raw Cotton Commission, rather than the independent activities of independent merchants, is required.
Is the President of the Board of Trade aware that this would have been handled much better by firms which knew each other than by waiting until political difficulties arising out of Government negotiations come into play?
The hon. Gentleman is living in a prewar world.
Cotton Yarn (Export)
asked the President of the Board of Trade what steps he is taking to clear the large number of cases of cotton yarn destined for export which has accumulated at many mills; and which is tending to hinder production.
I am not aware of any substantial hold-up in the mills of cotton yarn destined for export. If the hon. Member will let me have particulars of the cases he has in mind I shall be glad to make inquiries into them.
Is the President of the Board of Trade aware that several months have elapsed in many cases before these goods have been despatched for export and many complaints have been made? Is he aware that this was a determining factor in the vote against overtime?
I am not prepared to allow cotton yarn to be exported on such a scale as to interfere with the needs of the manufactoring side of the industry. If there is at any time a surplus awaiting export they have only to apply for export licences.
Anglo-Soviet Agreement
asked the President of the Board of Trade if he will give at the latest available date the position of deliveries and receipts in the recent trade agreement with the U.S.S.R.
I would refer the hon. Member to the reply given to him yesterday on this subject.
May I tell you, Mr. Speaker, that a most amazing thing happened. I got the answer to this Question the day before it was asked. May I ask the President of the Board of Trade if he will give an assurance that these trade agreements with Russia are based on economic and not on political grounds, and is he satisfied that Great Britain is getting a fair deal?
I apologise to the hon. Gentleman that he should get the answer before the Question was asked, but we are always one or two steps ahead of the hon. Gentleman. In relation to the second part of the supplementary question, I would inform him, as he already knows, that this negotiation was based entirely on economic considerations—without any political consideration whatsoever.
Utility Furniture
asked the President of the Board of Trade if he will now release to the general public, without units, utility furniture manufactured prior to 1947, or other convenient date.
I am afraid my hon. Friend's suggestion is not practicable, as there is no way of identifying the date of manufacture of an article of utility furniture. As I said in the Debate on the Board of Trade Vote on 25th May, I am watching the utility furniture situation closely, and I hope to be able to make a statement on it next week.
Is it not a fact that earlier utility furniture, manufactured in 1944 and 1945, is clearly distinguishable from the later models made now?
No, Sir. It would not be considered practicable to make the distinction suggested and I would ask my hon. Friend to await the statement I shall be making next week.
Is the President of the Board of Trade aware that his Department has given permission for the use of Tate sugar boxes to be manufactured into bedroom suites which are being sold at the present time at 100 per suite?
I would like notice of that question.
It is in the "Manchester Guardian" today.
I saw that, and I would like notice of the question.
asked the President of the Board of Trade when he proposes to sign the order fixing prices in the new range of utility furniture about to be released.
I signed the Order on 24th May. It will be published tomorrow, and will come into operation on 18th June.
Development Councils
asked the President of the Board of Trade if he will give a list of Development Councils established to date and the industries for which they function.
The Development Council for the cotton industry, known as the Cotton Board, 1948, was set up in April. No other Development Councils have yet been set up.
Will the right hon. Gentleman give an assurance that he will take every step to set up development councils in the widest range possible?
Yes, Sir. I am now taking and have been taking, these steps. A White Paper outlining my proposals for a Development Council Order for the hosiery and knitwear industry is published today. A considerable number of proposals concerning other industries are at present with both sides of the industries concerned.
Can the Minister give the name of the council for the hosiery industry to which he has just referred?
Of course not. This is a draft Order setting up the scheme in outline for the council. Until that has been put through, after discussion with both sides of the industry, we cannot settle the names of the members of the council
China Clay
asked the President of the Board of Trade if he is aware that Danish importers of china clay are unable to obtain import licences for contracts already made which is causing hurt to our china clay industry; and what action does he propose to take.
I understand that the Danish import programme provides for certain quantities of china clay and fireproof clay from the United Kingdom, but the allocation of licences among importers is a matter for the Danish authorities.
Has the Minister received the letter which I sent him, and will he look into that particular case?
I have received the letter. Our trade agreement with Denmark does not establish quotas far particular goods. I was not aware that hon. Gentlemen opposite wanted that degree of bilateral trade planning; but certainly there is provision for traditional imports from this country. In any case, the hon. Gentleman knows that if the Danes do not take this china clay we are only too anxious to have it sent to hard currency areas.
Is the right hon. Gentleman aware that exporters of china clay in Cornwall are having great difficulty in exporting their goods to France where there is a demand for them in spite of the great shortage of currency? Would he look into the matter because china clay is priority No. 1 on the export list, and there is a demand in spite of the shortage of sterling in France?
I am aware of this difficulty. I would remind the hon. and gallant Gentleman that when we gave various forms of help to that industry last year to build up exports, it was on the assurance of increased exports to dollar areas, of which France is not one.
Newsprint (European Recovery Programme)
asked the President of the Board of Trade whether his attention has been drawn to the announcement made by Mr. Paul Hoffman, the E.C.A. administrator, on 20th April that under the Marshall Aid Plan it was proposed to allot $22,000,000 to Great Britain for newsprint; whether this allocation is to be in the form of loan or of grant and if His Majesty's Government have accepted this offer.
The American Administrator has given for the information of the American people certain tentative and illustrative figures of commodities which might be obtained under Marshall Aid, but they do not in any sense represent an allotment and the matter is still under discussion in the United States. As I stated in the Debate on the Board of Trade Vote on 25th May, the prospective dollar aid under the European Recovery Programme is likely to be considerably less than the drain on our gold and dollar reserves, and the whole question of payments for all Canadian supplies has still to be settled in relation to the development of the European Recovery Programme. I am, of course, anxious to see that so far as our financial resources allow, we buy all the newsprint that we can.
Does it not arise from the statement before the Appropriations Committee that either newsprint or dollars may be given in the form of a grant, and would I be right in assuming that in that case His Majesty's Government would have no hesitation in accepting?
The statement to which the hon. Gentleman has referred has been a matter of some controversy. For one thing, the figures given of the finance available and the quantities available did not tie up with one another. I can assure the hon. Gentleman that, in fact, we have asked for newsprint to be included in the European Recovery Programme allowances for this year.
Will the President of the Board of Trade answer the Question? Is this allocation to be in the form of a grant or a loan, because if it is in the form of a grant, what right have we to refuse it?
I have made it clear that this is not an allocation or an allotment. It was made by the American Administrator as—I am quoting his words—"a tentative and illustrative programmed." There has been no question yet whether, if it was to be allotted or allocated, it would be a grant or a loan.
In view of the willingness shown by Mr. Hoffman to provide that amount of newsprint, would the President of the Board of Trade consider asking whether this is a special grant outside the terms of the loan, because he might have very great success if he did so?
I have already made it plain that we have asked for this within the general arrangement, and I am not aware of any power in the hands of the administrator to make available supplies outside the terms of the loan.
Will the right hon. Gentleman make certain that wherever possible newsprint will be manufactured in this country rather than imported?
As I said in my statement on 25th May, we are doing everything possible to get the raw materials and supplies necessary for production in this country.
Petrol Allowances
asked the Minister of Fuel and Power why no reply was received from the Regional Petroleum Officer, Bromyard Avenue, to a letter written by Mr. E. Walton, of 22, Kedleston Drive, Petts Wood, Kent, on 19th January until 19th April, 1948; and whether he will reconsider Mr. Walton's application for a petrol allowance, particulars of which have been sent to him.
Mr. Walton's letter of 19th January was an appeal against the original assessment of his application; the appeal was granted and a further allowance issued to him on 5th February. The letter of 19th April was in reply to Mr. Walton's letter of 18th March. I cannot agree to increase the allowance any further.
Is not this delay typical of the inevitable breakdown of Socialism, because under Socialism administration fails?
If the hon. Member reads my answer, he will see that there was no great delay.
asked the Minister of Fuel and Power whether, in view of the granting of standard petrol allowances, he will instruct regional petroleum officers to discontinue the issue of essential petrol permits for purposes of blood sports.
On the recommendation of the responsible agricultural executive committee regional petroleum officers grant allowance of petrol to masters of hounds for purposes connected with the hunt. I cannot agree that the introduction of the standard ration justifies the complete abolition of these allowances, which will of course be reduced by the amount of the standard ration.
Assuming that my right hon. Friend does not surrender control over his own officials to the Ministry of Agriculture, and that it is still his responsibility to conserve supplies of petrol in this country, can he give a single good reason why people who want to indulge in these orgies should be encouraged to do so by his Department at the cost of foreign currency which could be used for buying food for children?
It is customary when agricultural matters are in question for the Minister of Agriculture to be consulted, and I propose to continue that practice. I cannot agree that the granting of petrol allowances to masters of hounds can be adequately described by the words used by my hon. Friend.
The Minister made specific reference to hounds. Will he say whether his reply also covers the shooting of game?
That is an entirely different question.
Domestic Coal Supplies (Registration)
asked the Minister of Fuel and Power if he will now make it possible for customers to transfer their registration for coal to a different merchant if they so desire within a given period of time.
I have nothing to add to the reply I gave on 11th March to the hon. Member for Newark (Mr. Shephard), except that I am consulting the Domestic Coal Consumers' Council on this matter.
Does not the Minister think that a step such as is indicated in this Question would encourage coal merchants to pay more attention to the standard of the supplies they receive?
I am most anxious to make a change of this kind as soon as possible, but there are great practical difficulties which we are endeavouring to overcome.
Shotguns (Accidents)
asked the Secretary of State for the Home Department if his attention has been drawn to the considerable number of cases where people are killed or seriously injured through the accidental firing of shotguns; and if he is giving consideration to the possibility of introducing regulations or alternatively some widespread form of instruction with a view to lessening the waste of life from this cause.
I have no information to suggest that the number of such accidents is increasing, but I share the hon. Member's anxiety that the dangers shall not be overlooked. I do not think that the risks could be reduced by any code of regulations, but those concerned should make it their invariable practice to handle loaded shotguns with care and to remove ammunition from them when they are not in use.
Aliens
Entry Permits
asked the Secretary of State for the Home Department whether he will now extend the scheme announced on 13th November last for admission of distressed European persons to the United Kingdom.
The scheme which I announced on 13th November, 1945, set out certain categories of persons who had special claims to join relatives in this country. Experience shows that the persons outside this scheme who have the strongest claims to sympathy do not fall into definable groups, and no addition of fresh categories would be satisfactory. The policy which I have been developing has been to grant applications in respect of relatives outside the existing categories where there are special circumstances and considerations which differentiate their position from that of the thousands of people who would find life less difficult if they were admitted to the United Kingdom. In particular sympathetic consideration is given to isolated individuals in distressed circumstances whose only relatives are in this country.
As cases which I have sent to the Home Office have invariably been met with the reply that they fall outside the scheme announced by the Home Secretary in 1945, will he give consideration to cases where there is an adequate guarantee given by relatives in this country?
It all depends on whether they are the only relatives of the person. If I were to adopt the formula suggested by my hon. Friend, I would have to admit a far larger number of people than could be justified.
Would my right hon. Friend say how long it has been his practice to grant permission in exceptional cases falling outside the category which he has mentioned, because I have had many cases which I have sent to him, as he will no doubt remember, in which everybody agreed, including the Home Office, that the circumstances were exceptional, but in which permission was refused only on the ground that the cases did not fall into this category?
I could not say how long it is, but, for some time, I have been endeavouring to improve the circumstances of these people who have no other relatives than persons resident in this country.
May I submit to my right hon. Friend the cases which I have had in hand recently?
I am quite sure that nothing that I could do would deter my hon. Friend from doing so.
Czechoslovak Refugees
asked the Secretary of State for the Home Department how many refugees from Czechoslovakia are now in the British zone of Germany and under the protection of British Consulates in other Territories; how many from the British zone and elsewhere have applied in the last three months for permission to come to this country; and how many such applications have so far been granted.
I am informed that the number of refugees from Czechoslovakia in the British zone of Germany is estimated to be between 200 and 300. Numerous applications for visas to come to this country are being received by Passport Control Officers in the various territories to which refugees have made their way, and these applications are being dealt with in accordance with the policy stated in my answer of the 3rd May to a Question by the right hon. Member for South Kensington (Mr. Law). The number of visas actually granted to such refugees in the last three months is 115.
Is my right hon. Friend satisfied that these people are given every opportunity to find out just what they have to do in order to get permission to come here?
I think so, and I think the high proportion of visas which have actually been granted indicates that considerable use is being made of this provision.
Has my right hon. Friend any information whether any of these people are now returning to Czechoslovakia, and, if he has, can he say how many there are?
I should require notice of that question, but I have no personal knowledge of any such movements.
Political Meetings, London (Police)
asked the Secretary of State for the Home Department how many police have been detailed for duty at the Whitestone Pond, Hampstead Heath, on each of the last eight Sunday evenings in connection with the holding of Fascist meetings.
I am informed that the numbers of police detailed for duty at the meetings in question were as follow: At each meeting on nth and 18th April, 59; at each meeting on 25th April and 2nd May, 48 and at each meeting on 9th, 16th and 30th May, 37. There was no meeting on 23rd May.
In view of the time wasted in this kind of work, would not my right hon. Friend agree that the police would be better employed, and would prefer to be employed, in tracking down the murderers of children rather than in providing an audience for Fascist meetings?
I have no doubt, indeed, I know from conversations which I have had with police officers, that they would prefer any other duty to this. On the other hand, it is my duty to see that breaches of the peace are not committed, and I think the figures show that every effort is Made to reduce the number of police officers on such duties to the proper minimum.
Does not my right hon. Friend think that the time has come when the evidence shows that the organisers of such meetings hold them for the deliberate purpose of committing breaches of the peace, and that the time has come when he should prohibit such meetings?
No, Sir. I have no evidence on the statement made in the first part of the supplementary question, and I do not intend to ask permission to prohibit meetings in this country.
Could the right hon. Gentleman discourage his hon. Friends from giving wholly unnecessary advance advertisements to these "orgies"?
Prison Births
asked the Secretary of State for the Home Department, how many women detained in H.M. Prisons gave birth to babies during the past 12 months; and how many of such births took place in the prison premises.
During the twelve months ended 30th April last, 100 women were due to be confined during a sentence of imprisonment or Borstal detention. Of these, 22 were granted early release before the date of the confinement, three were for medical reasons temporarily released to an outside hospital, and 75 gave birth to babies in prison, one of the babies being stillborn.
While I thank my right hon. Friend for the concession which he has made in some of these cases, may I ask him whether, in view of the stigma which might attach to other children, and of the distress caused both to the mothers and the relatives, he will look into the matter further to see if some other concession by his Department can be made?
I have the matter under very active consideration. There are certain circumstances in which the mother asks to remain in prison during her period of confinement. With regard to the stigma, it does not appear on the birth certificate that the child has been born in prison, but, as there might in certain very remote circumstances be a chance that the place of birth might be traced, I am now in communication with the Registrar-General to see if I can devise something which would inflict no possible disability on any party.
Is my right hon. Friend aware of the fact that, wherever the child is told it was born, if the mother tells the truth in later years, she will have to say that the child was born in prison, and, therefore, the stigma will still be there, whatever steps the Home Secretary tries to take?
I must have regard to practicability on this question, and I believe that the grievance has been reduced to very small proportions. I am now actively considering with all the authorities concerned how it can be further reduced.
In view of the fact that the address but not the name of the prison appears on the birth certificate, will my right hon. Friend consider either omitting the address altogether or allowing the permanent address to appear?
Those are precisely the kind of details about which I am consulting the Registrar-General, but, if there was a birth certificate which showed no place of birth, that would very quickly disclose the fact that is was one of these children.
Unlicensed Dog Racing
asked the Secretary of State for the Home Department if he is aware that unlicensed greyhound race meetings are taking place in fields, permissible under the 1934 Betting and Lotteries Act whereby a licence from a local authority is not necessary, and after eight greyhound race meetings in any one place the promoters move on elsewhere in order not to contravene the provisions of the Act; and if, in view of the fact that children are present at these meetings and there are other undesirable features associated with them, he will take immediate steps to put an end to this abuse.
Yes, Sir. I am aware that since restrictions were imposed last year on mid-week greyhound racing persons in some areas have sought to take advantage of the exemption specially inserted by Parliament in Section 2 (1) (b) of the Betting and Lotteries Act, 1934, for occasional race meetings. Any curtailment of this exemption would require amending legislation, and, having regard to the heavy legislative programme, the Government could not undertake to consider the question of legislation this Session.
Is the Minister aware that the situation has been aggravated since there was a ban on mid-week dog racing? In view of the fact that, on these unlicensed courses which are springing up all over the country, no betting tax has to be paid, and, as a result of new legislation, this abuse is getting far worse now, and since my right hon. Friend advised me last year that he was going to look into the matter, may I now ask him if he will do something about it?
Mid-week racing will be resumed on 1st July this year, and I believe that that will eliminate a good many of these tracks. I only limited my answer to the possibilities of legislation this Session.
Employment
Littlewood's Store, Bolton (Employees)
asked the Minister of Labour how many persons male and female covered by the Control of Engagement Order have been granted permission by the Bolton Employment Exchange to work at Littlewood's Store in Deansgate, Bolton; and if any of these persons now employed by Messrs. Littlewood would be debarred for any reason from work in the cotton mills.
One man, who is medically unfit for industrial work, and six women. Of the six women, four are medically unfit for employment in a cotton mill, one is unsuitable, and one, a married woman, refused it.
Wool Textile Industry
asked the Minister of Labour what assistance he is giving to the carrying out of the recommendations of the Wool Textile Joint Factory Advisory Committee.
The committee's recommendations have been referred to representatives in the industry for comments, which are expected shortly. When they have been received, I will certainly consider whether there is any assistance I can properly give.
asked the Minister of Labour what are present prospects of achieving the labour target of 200,000 for the wool textile industry by the end of 1948; to what extent European Voluntary Workers have and will contribute; and from what sources the other recruits will come.
It is too early yet to give any firm estimate of how near we shall get to achieving the increase proposed by the end of the year. Special steps to stimulate recruitment are now being taken as an improvement in the present rate is essential. Over 5,000 European Volunteer Workers are now employed and others should become available from among workers arriving here.
Can my right hon. Friend say how many additional workers have been produced so far this year towards the target?
I think the number for the first three months of this year was 2,200.
Could the Minister give us an up-to-date figure to show how far we have to go before we reach the 200,000?
Not without notice, but, if the hon. Gentleman will put that Question down, I will try to give him an answer.
Agricultural Workers, Suffolk
asked the Minister of Labour the latest figure of unemployed registered agricultural workers in Suffolk.
Figures are not available for any date later than 15th March, when the number of unemployed men registered at employment exchanges in Suffolk for employment as agricultural workers was 90.
Is the right hon. Gentleman aware that if he induced his right hon Friend the Minister of Health, to find more houses for agricultural workers in Suffolk, there would be no unemployment of agricultural workers at all?
The Question asked was what were the latest figures. It has nothing to do with houses.
Labour Groups (E.R.P. Proposals)
asked the Minister of Labour if he has considered the recommendation of the E.C.A. Administrator, Mr. Hoffman, made on 14th May, for labour groups in the E.R.P. nations to be moved about interchangeably among those nations; and what proposals are being considered for the transfer of British labour to other countries or for the importation of labour groups to this country; and on what conditions.
I have no information regarding any recommendation on this subject by the Administrator appointed by the American Government. Any such recommendation would be a matter for consideration by the Organisation for European Economic Co-operation.
Would the right hon. Gentleman like me to send him, since he is not informed, a copy of the official report of the United States Government on the matter?
I have seen a newspaper report.
Has the right hon. Gentleman seen the official report?
Any recommendation would be made by the Administrator of the Economic Co-operation Administration in the first place. The matter would then be discussed and undoubtedly our views would become known.
As this seems to be an official report, would my right hon. Friend see that the Commonwealth has some say in this matter, because any part of the labour force which could be spared should surely go to the Commonwealth rather than to the European countries where the standard of wages, etc., will probably be lower?
There is no intention—indeed we cannot afford to lose any of our home labour force at all. I hope that is quite clear. If this matter were considered, no doubt the Commonwealth would be taken into the consideration.
National Finance
Purchases, Sterling Area (Resale)
asked the Chancellor of the Exchequer what steps he is taking to see that goods purchased in the sterling area by countries outside that area, in particular Holland, are not being re-sold to Belgium, with consequent increase in the adverse trade balance.
Machinery exists under the Exchange Control Act to ensure that sterling area exporters selling goods to Belgium receive payment in Belgian francs or in sterling from a Belgian account, even though the goods may have been transhipped via a third country. This machinery cannot, of course, cover goods reaching Belgium from third countries whose merchants have bought for shipment to their own country against payment in the appropriate manner.
What steps is the Minister proposing to take in cases where other countries buy commodities and goods in the sterling area, purported to be for their own use, and then resell them, thereby depriving us of the hard currency?
There are a number of steps. The hon. Member has been good enough to give us particulars of some of those transactions in the past and if he gives us any more we will certainly look into them.
Income Tax
asked the Chancellor of the Exchequer why Service men serving overseas during a full or nearly full financial year are liable to home Income Tax, whilst civilians are liable to local Income Tax.
I would refer the hon. and gallant Member to Rules 6 and 18 of Schedule E of the Income Tax Act, 1918, which prescribe the liability.
Would the right hon. Gentleman bear in mind the fact that since allowances have been taxed, and since the cost of living overseas has gone up, just as it is going up here, the benefits expected from these allowances are not being realised by the officers and other ranks serving overseas, and will he see whether something cannot be done to ease the situation?
The fact is, of course, that those who are serving abroad in the Armed Forces are not in a worse position than other Government servants who happen to be serving overseas.
European Recovery Programme
asked the Chancellor of the Exchequer if he will give the fullest information at present possible as to the quantities of each of the commodities it is expected this country will receive during the first 12 months of the operation of the European Recovery Programme.
The annual programme for the period July, 1948, to June, 1949, is under consideration and I am not able to make a statement.
asked the Chancellor of the Exchequer whether the loan available to this country under the European Recovery Programme is estimated to be sufficient at its expected rate of release during the next 12 months to bridge the gap between our imports and our exports if such gap continues at the average rate current during the first four months of this year.
We do not yet know the amount of grant aid that we shall receive in the first 12 months of E.R.P. It is, therefore, impossible to say whether it will bridge the gap.
Will the Chancellor issue a statement on this important subject as soon as he does know how much he is to expect to receive under the European Recovery Programme?
Yes, certainly. We already know we shall receive 300 million dollars in the April-June quarter of this year.
asked the Chancellor of the Exchequer if he will give the fullest information at present possible as to the changes in production, in terms, both of quantities and commodities, and the changes in exports, in terms of quantities, commodities and destinations, which are expected to be made in this country to meet the requirements of the European Recovery Programme.
It is premature to say what changes in United Kingdom production or exports may be implied by the European Recovery Programme.
Is not the Minister at least going to tell the House that without this generous aid from a country of free enterprise there would be at least 2,000,000 unemployed here?
I think it has been made clear so often that it is quite unnecessary.
Conveyor Belting (Purchases, U.S.A.)
asked the Chancellor of the Exchequer why dollars were made available to the National Coal Board for the purchase of conveyor belting in the U.S.A. in excess of requirements.
These contracts were approved last September after the National Coal Boards estimates had been examined by the Departments concerned against estimates of supplies likely to be available from home production. In the event, home production was better than had been estimated and the installation in the pits rather slower. The Coal Board's estimated requirement was based on a reasonable optimistic view of the rate at which conveyers could be installed in the mines during 1948 and took account of the fact that, if a recurrence of the 1947 fuel crisis was to be avoided, the Board could not take any risk that lack of equipment would impede the steps they were taking to raise output.
Does the hon. Gentleman agree that the Coal Board spent over seven million dollars on belting which could have been produced in the United Kingdom, and why does he not treat applications by the Coal Board to the same scrutiny as he does those in the case of private enterprise?
The answer to the second part of the question is that we do. The answer to the first part of the question is that valuable conveyor belting was bought in the United States which will be of the greatest use in increasing coal output.
Would the hon. Gentleman say what was the percentage of error in the Board's estimate?
The total supply from abroad represents only 10 per cent. of demand, so it must have been something less than that.
Would the hon. Gentleman say what period the stock covered?
It represents only a few months' stock.
I would like to ask the hon. Gentleman if he does not think that if this sort of thing happened under private enterprise an official would have merited the sack?
No, Sir. What has happened is that the equipment for the coal mines has got a little ahead of schedule. It had been behind schedule for about 100 years.
On a point of Order. May I respectfully submit to you, Sir, that when you consider your statement of the allowability and non-allowability of Questions, this is a case where the action of the Coal Board—
That has nothing to do with this Question.
Imported Currency (Confiscations)
asked the Chancellor of the Exchequer under what statutory authority travellers' money is confiscated by Customs officers when travellers land in this country with more than the permitted amount of currency.
Section 21 of the Exchange Control Act, 1947, prohibits the importation into the United Kingdom of sterling notes except with permission of the Treasury. Part III of the Fifth Schedule to the Exchange Control Act, 1947, enacts that sterling notes are goods for the purpose of Section 177 of the Customs Consolidated Act, 1876. This Section provides that any prohibited goods imported into this country are liable to forfeiture. There is no restriction on the importation of foreign currency notes into the United Kingdom.
In these extraordinary times is it not possible, in the case of people coming into this country who inadvertently have a little more than the limited allowance—I know of such people—that there should be some form of appeal under which they could claim before this confiscatory action of the Treasury?
Tobacco Duty Relief (Ex-Service Men)
asked the Chancellor of the Exchequer what are the administrative reasons which prevent the special concession of cheaper tobacco and cigarettes being extended to 100 per cent. disabled ex-Service men.
Extension of the concession would necessitate the setting up of administrative machinery disproportionate to the amount of benefit to be dispensed. Further, the process of extension, once started, would have no end.
Is the right hon. Gentleman aware that the British Legion officials, who are not without knowledge on these matters, are very ready to offer such help as they can to the right hon. Gentleman in overcoming these difficulties? Would he be prepared to meet representatives of the British Legion to discuss this matter?
It is not only ex-Service men who are deserving. There would be great pressure, and very proper pressure, on us to extend the concession to those who have been disabled in industry. The difficulty is not one of lack of sympathy, but of finding a definition which would help those whom we all wish to see helped but yet exclude those who should not have this concession.
Business of the House
May I ask the Leader of the House to tell us the Business for next week?
The Business for next week will be as follows:
Monday and Tuesday, 7th and 8th June—Conclusion of the Committee stage of the Finance Bill. On Tuesday we shall also ask the House to take the Committee stage of the Gas [Money] (No. 2) Resolution.
Wednesday, 9th June—Report stage of the Gas Bill.
Thursday, 10th June—Conclusion of the Report stage of the Gas Bill.
Friday, 11th June—Second Reading of the Development of Inventions Bill [Lords] and Committee stage of the necessary Money Resolution. Second Reading of the Companies Bill [Lords]. This is a Consolidation Measure and has been reported upon by the Joint Committee of both Houses on Consolidation Bills. The Bill is expected to be received from another place today. Second Reading of the Factories Bill [Lords].
In view of the doubt as to the constitutional position which has arisen as a result of the Home Secretary's decision which he communicated to this House, as he will remember, on 16th April, namely, to advise His Majesty to commute during an indefinite period all death sentences irrespective of the merits of each individual case, may I ask whether the Government intend to make any further statement on this matter?
No, Sir. My right hon. Friend made a statement, as the right hon. Gentleman has said, on 16th April. It is now 3rd June. I should not have thought there was occasion for a Government statement, unless the matter arises on the Criminal Justice Bill on its return to this House from another place.
I am aware of that, and I am not seeking to make a party point on this issue. [HON. MEMBERS: "Oh."] No, I am not. Hon. Gentlemen can believe me or not. I am not making a party point. This does raise an issue of very considerable constitutional importance. In view of the decision which appears to have been made—I cannot quote another place—what has been done by administrative action is contrary to the position under the law. May I ask the Leader of the House if he will not, therefore, consider if it would not be to the advantage of the House as a whole that we should have a considered statement—I do not say today, but at some convenient time—of the Government's view of the situation?
I think the matter—I do not know—may naturally arise when the Bill comes back from another place.
I cannot see that there is need for the Home Secretary to make a considered statement in advance of that. When the Home Secretary made his statement on 16th April I thought it was quite possible that the point might be taken. It was not taken. I must say that if hon. Members opposite wait until 3rd June from 16th April, then, to use the Scottish phrase, they are "a bit slow in the uptake."
Will the right hon. Gentleman accept from me that he is entirely entitled to say the point might have been taken by the Opposition earlier, but I think that we are entitled to say the point might have been observed by His Majesty's Government earlier? But that does not in the least alter the case I am putting to him. What I am trying to put is, that it seems that, by administrative action, the Government are, in fact, acting contrary to the law; and that is a position which I do not understand to have existed before. But that apparently being the position, I ask the Government whether this decision does not require consideration now, not when the Bill comes back from another place?
As far as the Government are concerned, the right hon. Gentleman may be assured that all aspects of the matter were considered at the time.
Wrongly.
The right hon. Gentleman says we are wrong. I say that the points for consideration and all the aspects he has raised were considered by the Government. It was perfectly open to the Opposition or anybody else in the House to raise the matter after my right hon. Friend's statement on 16th April. They missed it. I cannot very well be responsible for that. It is for Mr. Speaker and the Rules of Procedure to settle. It may conceivably arise when the Bill comes from another place, but I do not see any reason why my right hon. Friend should make a statement at this juncture.
On a point of Order. Does not this whole matter arise out of the question of the exercise of the Royal Prerogative on the advice of the Home Secretary? If that is so, how can it be administrative action, and how is this discussion in Order?
Further to that point of Order. Is it not the practice of the House to limit questions and discussion on the exercise of the Royal Prerogative to an individual case, and is not the point which my right hon. Friend has raised that, instead of advising the exercise of the Royal Prerogative in an individual case, the right hon. Gentleman has said that it will be exercised for an indefinite period without regard to the individual facts of the case?
Further to the point of Order which I raised, and in view of the observations that have been made, is it not purely a question in each individual case of advice given to His Majesty and the exercise by His Majesty—[HON. MEMBERS: "No."]—of His Majesty's Prerogative, and does the fact that the Home Secretary made a statement in advance of what advice he proposed in future to give, alter at all that position? If the position is merely that the Home Secretary made a statement in advance of the advice he would in future give to His Majesty on the exercise of the Royal Prerogative, how can discussion of the exercise of that prerogative be in Order now on the Floor of the House?
Of course, I am not a lawyer. Therefore, I look at these matters from a commonsense point of view. It seems to me that these questions which are being flung across the House as to Order, are questions for lawyers and not matters of Order for me.
Oh, no—with all respect, Mr. Speaker. I cannot claim to be a lawyer in any sense of the word. What we are asking the Government is a matter of the greatest constitutional importance to this House.
The right hon. Gentleman has misunderstood me. I said it is not a matter for me and not a point of Order; and, therefore, the matter may proceed.
May I ask a further question of the Leader of the House? It seems to us as laymen that what appears to have happened—I do not say whether it has happened or not—is that, by action of the Home Secretary, with which we did not quarrel at the time, he has used powers which have been dispensed with since the days of James II. That is what appears to have happened. I repeat, it appears to have happened. That is to say, he has over-ruled by administrative action what was the law of the land; and that is a very serious thing. What I am asking is whether the Government will consider the situation. I ask for no statement now. I asked if they will consider the situation, and let us have their view of the situation in which we are now, under the law of the land, at whatever moment is convenient to them.
On a point of Order. Is the House justified in discussing this matter on the Business for next week without notice, and having regard to a decision in Committee in another place, when the Report stage has not been reached?
I hope we shall not discuss the matter, but the Deputy Leader of the Opposition, I understood, asked for a statement, and that is as far as it goes.
On an entirely different point. [Interruption.] Hon. Members can go back to the other matter, but Mr. Speaker has called me. In view of the very grave statement made to a Press conference yesterday by the Chancellor of the Exchequer and when at last it ought to be clear to this country that, reckoned in terms used by financiers of the City of London and of Wall Street, we are financially "bust"—I say reckoned in their terms—will the Leader of the House say whether he will give an opportunity for discussion of the real economic situation at a very early date, if necessary in Secret Session?
I have not fully studied the statement to which the hon. Gentleman refers. I do not think I could make any observation on it.
May I put this point? In answer to my right hon. Friend the Member for Warwick and Leamington (Mr. Eden), the Leader of the House spoke of delay in this matter. Has he not observed the statement—I think that I can quote this because it was a statement of Government policy in another place yesterday—of his noble Friend the Lord Chancellor, who pointed out that a new position arises as from yesterday?
On a point of Order. Are we in a position to discuss a Debate which took place in another place yesterday?
I was not inviting a Debate. I was asking the right hon. Gentleman why he should not give an answer to my right hon. Friend as to whether a statement would be made. There is no reason why it should not be. A Government statement was made in another place anticipating a further statement here.
Our Rules do not prevent a statement on Government policy in another place being quoted in this House. The position with regard to that is quite clear so long as it is on Government policy.
I understand that the statement to which reference has been made was made by my noble Friend in the course of Debate. It could be called a speech; it cannot be quoted as a statement. [Interruption.] It was not a statement as we understand a statement made here. It was in the course of the Debate. [HON. MEMBERS: "No."] I think that it was. I say that this matter was announced here in explicit terms by my right hon. Friend the Home Secretary on 16th April, and if the Opposition did not take the point which I should have thought might have occurred to them on that date, I cannot see why we should walk into it now, especially as, in due course, the Criminal Justice Bill will come back to this House from another place when, possibly, the matter can be raised.
As it seems to us—the right hon. Gentleman can say by our fault if he likes, but there is nothing in that point at all; it is by everybody's fault—at the moment, the Home Secretary appears to be taking action that is contrary to the law of the land. That is what it appears to be, according to a very high legal authority. I have not asked for a discussion of this matter; all I am asking is that the Government should make a statement one day next week to put the matter as they see it. That seems to be as reasonable a request as the Opposition can possibly make.
That is exactly what was done on 16th April by the Home Secretary. What the right hon. Gentleman is asking us now to do is to make a statement by way of interchange of Debate between this House and another place during current discussions. I think that to do that would be improper and disorderly, and that we had better wait until the Bill comes back to this House.
In view of the important conference which has just been terminated with regard to German policy, would my right hon. Friend tell us whether it is the Government's intention that the House should be given an opportunity of debating that agreement before it is ratified, or what opportunity will be given to the House of discussing the contents of the agreement before ratification takes place?
I cannot say. The matter may arise in the course of future Debate. I admit that the question comes to me when I am not briefed on the point but I hardly think that I can give an undertaking to give special time to it.
Would not the Lord President make a statement with regard to the other matter? The Home Secretary tendered advice on 16th April, or said that he was going to act on one form of advice which he mentioned in regard to the exercise of the Royal Prerogative. It is his right and not a question of law. It now appears that he has changed the advice that he has given. [HON. MEMBERS: "No."] I am talking about what was said by the Lord Chancellor. If there has been a change from yesterday in the advice given, could it not be made clear by the Government whether there has been a change, and, if so, what is the change?
Will not the Lord President concede that whatever was the position on 16th April the situation has been changed and must have been changed by a pronouncement of the nature of that made yesterday by the highest permanent judicial officer in the realm?
To the best of my knowledge and belief there is no change.
May I ask the Minister if it is possible to get a Debate next week on the Motion which stands in my name and the names of the hon. Member for Mile End (Mr. Piratin), the hon. and learned Member for North Hammersmith (Mr. Pritt) and the hon. Member for Finsbury (Mr. Platts-Mills)—a very fine combination?
[" That this House expresses its deep concern at the events taking place in Palestine; deplores Me policy of His Majesty's Government, whose support for the Arab States is mainly responsible for their invasion of Palestine; urges that His Majesty's Government should immediately recognise the Provisional Government of Israel, cease all supplies of arms and subsidies to the Arab States, immediately withdraw all British officers seconded to the Arab Legion, speed up the complete British military withdrawal and, in support of the United Nations' decision for the establishment of independent Jewish and Arab States in Palestine, give every assistance in the carrying out of such measures to achieve that end."]
I ask the Minister that very seriously, because so far as any negotiations in Palestine are concerned, the question at issue is, "Shall the State of Israel exist or not exist"? Surely this House can express an opinion on that matter before discussions take place, rather than wait until a decision is made and then be faced with a fait accompli. I ask the Minister to say that this House should express its opinion on the question of whether this State should exist or go out of existence.
I can recognise the hon. Members to whom the hon. Member for West Fife (Mr. Gallacher) has referred as a combination, and a very natural combination—whether it is a fine combination is another matter. I cannot find a day for this Motion next week.
On 26th May last, the Lord President of the Council, in response to representations which I made to him on the matter of Questions to Ministers about nationalised industries, said that he would look into the matter, and if the House would give him a little time he would see if a statement could be made. Last Monday, you, Mr. Speaker, were good enough to indicate to the House that you had taken some steps and were hoping to make a statement. May I ask whether you, or the Lord President, are in a position at this moment to make any statement?
I am not, and I rather gather that Mr. Speaker is not at this moment, but it is hoped that a statement may be made at the beginning of next week, on Monday, if possible, but certainly at the beginning of next week.
By whom will the statement be made? Is it regarded as the duty of Mr. Speaker to make it, or is it a matter for the Lord President? How are we to arrive at a settled policy, and who is to describe it?
I think that the hon. Gentleman ought to be satisfied with the reply which I have given. It must depend on the solution as to how the statement will be made. No one has any wish to evade the House on the point. We recognise the specific difficulty that arises for specific Ministers, and everyone is trying to solve it. I ask the hon. Gentleman to wait until the beginning of next week when we shall try to clear up the matter.
To revert to the question put by the hon. Member for Attercliffe (Mr. J. Hynd), would not the Lord President bear in mind that, at the time of the recent foreign affairs Debate, it was indicated that there might shortly be a Debate on Germany which would, at that time, have been premature and could not have been dealt with fully on the general Debate, and will he give an assurance that such a Debate will not be deferred simply because there is not, at present, a Minister in special charge of Germany?
I can assure my hon. Friend that the existence or non-existence of a special Minister will make no difference to the point at issue at all. The matter would have been in order on the recent Foreign Affairs Debate; indeed, there were some references to Germany during the Debate.
There has been a conference.
Well, I know, but it is difficult to hold Foreign Affairs Debates with undue frequency. I will bear the point in mind and see how things work out.
The hon. Member for East Fife (Mr. Stewart) raised a point, which I tried to raise earlier on a Question about conveyor belting. May I ask you, Mr. Speaker, on the allowability or non-allowability of Questions, who is the deciding person supposing, for instance, that today the question of conveyor belting is outside the decision of the National Coal Board and becomes a matter of national importance?
I heard the Lord President of the Council say that everybody was trying to help in solving questions of that kind. That is what we are trying to do; therefore, I am answering no questions at the moment.
I would make a further appeal to the Leader of the House urgently to consider this question of a Debate concerning the ratification of the agreement which has been reached in regard to Germany, according to announcements, although no details have yet been stated. We have not been told whether the House will be given an opportunity of discussing it before ratification. The Leader of the House and the Government know very well what is the feeling of the House, who will be anxious to know what opportunity there will be for debate, what are the conditions of this agreement, and to what extent we are to have an opportunity of playing a part in it.
I think my hon. Friend's question is a little premature. I am not sure that the matter is sufficiently developed to make it a clear issue. Therefore, I cannot give an undertaking; but I will note what my hon. Friend has said.
Arising out of the question put by the hon. Member for East Fife, I gather the Leader of the House was not quite clear whether he or you, Mr. Speaker, would be making the statement. I should like some guidance on this. Last Wednesday week I handed in a Question, but I have not yet received an answer whether or not it will go on to the Order Paper. Will that be dealt with at the same time as the statement is made?
I have an idea that if the hon. and gallant Gentleman waits till Monday, when somebody will make a statement he will then hear the answer to his question.
Orders of the Day
Finance (No. 2) Bill
Considered in Committee [Progress, 2nd June].
[Colonel Sir CHARLES MACANDREW in the Chair]
Part V.—(The Special Contribution)
CLAUSE 46.—(Charge, and amount, of contribution.)
3.53 p.m.
I beg to move, in page 32, line 40, to leave out "total income" and to insert, "aggregate investment income."
Would it be convenient, Sir Charles, to discuss this Amendment together with the next two Amendments—in page 32, line 41, leave out from "pounds," to "there" in line 43, and in page 33, line 7, leave out "two hundred and fifty," and insert "two thousand"? Perhaps you would allow the Debate to range over the principles of the Clause and the Special Contribution?
Yes.
We put down these Amendments on the charging Clause of the Special Contribution knowing that it makes a radical change in the method of collecting the tax, and might be regarded as a wrecking Amendment. We did so in order that the general principles of a new departure of great significance in our fiscal system could be discussed at the earliest opportunity on Part V of the Bill. We have three objections to this tax. We say that it will not achieve the particular object for which the Chancellor said he included it in his Budget; that the provisions of Clause 3 as drafted will create many and glaring injustices; and we object on principle to a tax upon capital during the lifetime of the owner. These are difficult matters, and I hope the Committee will allow me to make my argument in some detail.
I want first to ask whether the tax will achieve the particular object for which it was brought in. The Committee will remember that the Chancellor said the Government intended this Special Contribution to be a once-for-all imposition. The right hon. and learned Gentleman told us that the Special Contribution was needed to help swell a genuine sur- plus which he said he must have to his hand as a powerful instrument of deflation. We on these benches fully agreed that in this financial year a surplus of that kind was desirable; but we said that it could have been achieved by economies in expenditure. The Government were not willing to reduce expenditure and, therefore, we have to consider new taxes if the surplus is to be obtained.
The question arises whether this Special Contribution is a tax that will be useful in building up such a surplus designed to check inflation. The whole object of such a surplus is to make good the deficiency in private savings. The plain fact, which is fully admitted in the Economic Survey, is that the public is not saving enough. The Chancellor, therefore, is compelled to step in and make us save whether we want to or not; and by this means it is hoped to keep the demand for goods and services within bounds. But if the Chancellor tries to achieve this result by a tax which makes people save less and spend capital that they would have kept intact, then obviously the tax will have the opposite effect from what was intended.
I think I can show the Committee that this Special Contribution will prove to be a boomerang of that sort. It is agreed that a large part of the levy will be paid out of capital. That is implicit in the Bill itself. The capital will either consist of idle funds that would be available for new investment, or, what is more likely, it will come from the proceeds of sales of investments, and those sales will absorb the savings of other people; so that to the extent that the Special Contribution is paid out of capital there will be a transfer of savings from private individuals to the State; there will be no addition to the total of savings in this year, and there will, therefore, be no contribution to closing the inflationary gap. Indeed, in subsequent years the gap will be more difficult to close by reason of the reduction in taxable income which must follow from the sale of investments to meet this tax.
I will deal a little later with the more serious secondary effect upon the volume of savings of a capital levy introduced in any form. I want now to return to the ways in which the capital levy will actually be paid. We are going to be told that everybody will not sell out to pay this tax; it will be said that at least some part of the money will be found by reductions in current consumption, and that that action will bring about the desired deflation. I agree, and if the public were convinced that this was a once-for-all imposition that kind of abstinence might be a useful weapon. Surely, however, the essential condition to make this tax even moderately deflationary is to convince the public that it is a once-for-all and not-to-be-repeated imposition. The Chancellor used emphatic words on this point when introducing the tax. It was clear that, to him at least, there was no doubt that, if the public did not believe his assurance about the once for-all nature of the tax, the tax would do more harm than good. The Committee will remember what happened. The right hon. and learned Gentleman's intentions were blown to pieces by the speech of his predecessor. Perhaps I may be forgiven for saying that his predecessor's outstanding gifts as a poacher have now been suitably rewarded.
4.0 p.m.
The damage was done, however, and nobody now believes that the party opposite, having had one bite at a capital levy, will never touch it again. It is already apparent that a very large number of people, whether they are caught by this particular levy or not, are revising their views about the wisdom of spending their capital while it is still theirs to spend. I must here remark how grave a step the Chancellor is taking when he introduces a tax which weakens the distinction between the spending of capital and the spending of income. I know it is fashionable to laugh at the Victorians, but I am certain that their reluctance to spend capital on current consumption was a source of strength to our society. They held that a man should live within his income and that to spend his capital was a sign of bad character. There must always be exceptions to that rule, but it is a very sound principle, and a serious objection to this tax is that it will weaken the habit of accumulating capital and keeping it intact when it has been accumulated.
This is a matter of vital importance. The British economy, so diversified, so complicated and so dependent upon exports, will flourish only so long as it is enriched by a broad stream of private capital, without which new businesses cannot start and old businesses cannot expand. The State cannot step into the shoes of all private capitalists in our lifetime. This particular Government is finding it hard enough to run a small number of nationalised industries. Ministers know already that the private sector of industry must go on; but how can it go on if private capital is scared and squeezed out of existence? The choice is quite plain—either private enterprise with private capital and savings, or no private enterprise.
Therefore, as a matter of economics, this tax is a disaster, but I am the first to say that capital is not only a matter of economics and productive power. What we call social justice has something important to add to this argument, and I think that, at the point where we have arrived in our history, private capital, if it is to continue, must be seen to play a responsible part in the life and fortunes of the community. It is for that reason that we should roundly condemn a tax which prompts investors to regard their capital as something that can be blurred and confounded with their income—something to be acquired one day and dissipated the next, before the State can take it away. This Special Contribution undermines the growing sense of social responsibility, of which there have been many encouraging signs in recent years. It must corrupt the qualities of good citizenship, qualities on which the recovery of the country depends.
I turn now to the basic provisions off the Special Contribution as drafted in the Bill. Even if the new tax were deflationary we should have to vote against it because of the shocking jungle of injustices into which the Clauses as drafted must lead us. The underlying reason for all this unfairness is really quite simple. Liability to the Special Contribution is to be calculated on a totally wrong principle; it is to be assessed on income but will be paid out of capital. It never can be just to tax one class of wealth by reference to another. A rough analogy would be an attempt to find the value of a house by reference to the number of people who live in it. Such a method would be bound to create a whole series of ludicrous results and the Chancellor's indirect method of assessing the Special Contri- bution will create just such a series of anomalies.
But it is quite possible to find the value of a house by reference to its rent.
The hon. Member may be right. I am giving merely my particular example.
I am giving a better.
That is irrelevant to my argument. The real point is that many people receive an investment income without being the owners of the capital from which it is derived. An extreme case is that of an author—the late Edgar Wallace, for example—who dies and leaves to his children the royalties on his books. His children enjoy the investment income from those royalties, but there is no capital behind them at all. Nothing in the world can ever make a tax fair which proceeds upon the principle of taxing capital belonging to one person by reference to income which belongs to somebody else.
I imagine that the Chancellor will explain this method of assessment on grounds of administrative convenience. He will say, quite correctly, that to collect a capital levy quickly is very difficult and that this is the nearest method to justice of which he can think. I suppose he will point out that the complicated provisions of Part V of the Bill do remove some of these injustices. That is true, but they also leave a very large number completely uncovered. I leave it to my hon. Friends, who have much more experience in legal matters than I have, -to give details of those anomalies. The least the Chancellor should do is to take these Clauses away and, if he must bring them back in any form, exempt all income not derived from capital over which the contributor has control. Then he can bring in trust income and one or two other specified classes. That is the only principle upon which it would be fair to proceed, but even if the Clauses were so redrafted, whilst the improvement would be great the essential injustice would remain.
Full justice cannot be done unless the Chancellor will abandon the attempt to tax capital by reference to income. A man's income is not a fair measure of his ability to pay a capital levy. One man may buy a horse, and in that case there is no income and no levy to pay; another may invest his money at half of one per cent. on deposit in the bank, and in that case there is a small income and a small levy to pay, with a large capital out of which to pay it. Another man may invest his money in a successful but risky enterprise, which may be of great significance to the country, and in that case he will have a large income and a large levy to pay, with a small capital out of which to pay it.
Suppose that a man invested his money in a mine or oilfield where the life of the deposit is coming to an end. The dividends he received in the years 1947–48 are bound to have included a very large element of repayment of capital; and he will pay the capital levy twice, once upon his income and once upon part of his capital. The situation is really absurd, and perhaps I may sum it up by reference to the famous parable of the servants who were asked to look after their master's money. The man who spent his talent gets off free; the man who wrapped it up in a napkin also escapes, but the man who put it to good use is penalised in a quite arbitrary way. Therefore, my second submission is that the tax is unjust as well as being inflationary.
Thirdly, we shall vote against this tax on principle. We believe that the Estate Duties are the proper instrument with which to redistribute capital wealth, and that to impose a levy upon capital during the lifetime of the owner will injure the productive power of the British economy to an extent that cannot possibly be compensated by any satisfaction which the levellers and equalisers in the Socialist Party may feel. Here is a great conflict of principles. Here is a conflict between the practical needs of our economy and the political aims of the party opposite. I hope that we shall discuss objectively the very awkward issue raised by this conflict, because this is the first time that a capital levy has come before the House of Commons, and I think we ought, as a matter of duty, to let the public know what are our considered views upon it.
It is perfectly true that the enormous redistribution of incomes after tax, which has taken place during the last 10 years, has not yet been matched by a similar redistribution of capital. In 1947, there were twice as many net incomes after tax of over £250 per year as there were in 1939, but between these years the net incomes over £1,000 after tax had gone down by one-third, and the incomes over £5,000 after tax had fallen from 12,000 to 840. That is a revolution. I assume that it is because no such revolution has yet taken place in the distribution of capital that this levy was greeted with such applause by Members opposite. If hon. Members will look into this a little deeper, they will see that redistribution of capital has already begun and is proceeding at a pace which is going to injure the real interests of those they represent in this House.
The Committee will appreciate that the steep rise in Estate Duties takes time to show effect. Furthermore, the inflation of capital values in the last three years, so assiduously fanned by the Chancellor of the Duchy of Lancaster, has concealed the fall in the real value of our capital assets. That period of deception is coming to an end, and there are signs that it may be coming to an end uncomfortably fast for everyone. But we must add to these factors the effect of the increased rates of Profits Tax, which in time must reduce the value of investments in British industry. Then there is the voluntary limitation of dividends, which I support, which will also cause a reduction in the value of certain shares.
All these things are working together to redistribute capital now, and the Labour Party must ask itself whether it is wise to accelerate the pace along the road they are already travelling. The real point is that the faster they go the smaller will be the flow of new savings. It is already quite clear that the savings of the public are insufficient to meet the nation's bill of capital expenditure. We dare not allow the rate of new capital formation to dwindle because we must have a widespread and rapid improvement in our capital assets, but where are the savings to come from to finance these improvements? Do the Labour Party really want to see the Government forced year after year to raise enormous sums by taxation in an effort, which will be a failure, to make good the deficiency in private savings? It is going to be hard enough to finance the cost of the expanded social services, without adding all the costs of the capital programme on top.
So far ahead as any of us can see, a large part of these new savings will be required for private enterprise. That is simply due to the fact that neither the Labour Party nor any other party can socialise even half the productive power of this country in our lifetime; it is administratively not possible to do it without courting ruin, and we are too sensible as a people to do that. In the meantime, they must rely upon the private sector of industry to maintain the flow of exports and the standard of life at home. Private industry cannot possibly discharge this responsibility unless it receives a steady flow of private capital.
What will happen if we go on in the way we are going now? Savings will dry up, trade and industry will decline, companies will not plough back profits, because they will not have earned any profits to plough back, and the standard of life will fall—and all for the sake of a political theory which was put across the public with a promise of increasing wealth. We have to find an economic policy which will give us both high production and a measure of social justice satisfactory to the nation as a whole. In that policy savings and capital have got to have their place, and we on these benches have got our part to play. We should explain by speech and example that private capital has its duties to the community, and on the other side they should recognise that private capital is essential to a healthy British economy. This is a bad tax. It is bad economically and it is bad morally. It will increase the demands for goods and services, and it will undermine the sense of social responsibility. I believe the Chancellor knows that to be true, and I hope he is big enough to put what he knows to be right in front of party prejudice.
4.15 p.m.
I have not previously had the privilege of addressing the Committee, and I therefore hope that hon. Members will be kind to me on this occasion. I take part in this Debate in order to express my strong support for the Clause and for the principle and practice of the Special Contribution. All sides of the Committee agree in thinking that the foremost duty which my right hon. and learned Friend the Chancellor of the Exchequer faced in forming this year's Finance Bill was the task of combating the developing of inflation which threatened such serious consequences for our whole economy. I believe that he has discharged that task to the full and discharged it to such an extent that it may be the dangers of a deflationary rather than an inflationary situation with which he will soon have to contend.
This Special Contribution is an indispensable weapon to the Chancellor in the fight which he is waging against inflation. I do not mean to suggest by this that I set very high store by the direct disinflationary effects of the Contribution. The direct disinflationary effects are probably small but, despite what the hon. Member for Chippenham (Mr. Eccles) said, they will be positive rather than negative. In this connection it is important to bear in mind the facts, first, that a large number of those who are called upon to make small payments under this Clause will do so out of income; and, secondly that a large number of those called upon to make large payments have in recent years been dis-savers rather than savers.
Therefore, on those two groups the levy will have the effect of reducing to some extent the amount of money which they are able to make available for current consumption. But as I say, it is not to the direct disinflationary effects of the Contribution that I attach importance. The Contribution will, of course, make up a substantial arithmetical share of the real Budget surplus, £50 million out of £330 million but its psychological share will be very much greater than this. In order to enable the Chancellor to build up this real surplus and to exorcise the spectre of inflation, a lot of people in this country will have to suffer real hardship, far greater than is involved in parting with a small portion of one's capital when one's total income is over £2,000.
I have recently been in close contact with the electors of a purely working class area of London, an area in which many people belong to the lowest paid groups amongst the working classes. In that area there are a great number of men with families, whose total earnings are so low that they got no benefit at all out of the changes in direct taxation which are part of the Finance Bill. They earn £4 10s. or £5 a week. The changes in direct taxes are no benefit to them, but the increases in the taxes on beer and tobacco affect them adversely.
Life is not easy on £4 10s. or £5 a week today and I know this Budget was not at first sight popular amongst people of the type that I have described. Yet it was possible to point out that it was better to have a somewhat harsh Budget, which would cure inflation rather than a generous, popular Budget which would merely undermine the purchasing power of the pound. It was also essential at the same time to point out that the rich through this Special Contribution were playing a part in building up a Budget surplus. Otherwise, there would be a widespread feeling that inflation was being cured by cutting down the effective purchasing power of the worst off section of the community.
I know hon. Members opposite pretend to be rather shocked by the thought that the Government are influenced by considerations of this sort. They regard it as playing politics, but I and the majority of Members on this side of the Committee do not regard it as playing politics. It is not a question of that, but a question of righting the balance and putting rather more on the shoulders of the rich, who were looked after so well by successive Conservative Governments, and putting less on the shoulders of the poor, who were not so well looked after by the same successive Conservative Governments. If the Labour Government abandoned this policy in its financial plans it would not only be politically foolish but morally wrong and socially unjust. Therefore, I submit, it would have been virtually impossible for the Chancellor to carry out the general design of his Budget without some additional impost on the rich.
No doubt there are alternatives which could have been used without resorting to the device of the Special Contribution, but I take the view that they were all very much less desirable than the Special Contribution. There is the question of the straightforward capital levy. I remember in his speech on the Second Reading the right hon. Member for North Leeds (Mr. Peake) seemed to suggest that he would have preferred a straightforward capital levy, and certain sections of the City Press have hinted at the same thing.
From the point of view of the party opposite that is a rash suggestion. We all know that a vast amount of administrative work would be involved in carrying out a valuation of the capital assets of the country, and if the Government were to take that step I do not think they would be content with the mere nibble at private capital involved in this Clause but would want a larger bite in order to compensate themselves for this trouble. That would not please those who do not like the principle of this Clause.
There were the alternatives of an increase in the Profits Tax or even of some statutory limitation on dividends. I believe that both of these would have been undesirable, the latter more so than the former. They would have affected incentive in industry in a way which the Special Contribution does not do. They would have made it difficult to get capital into speculative but not necessarily undesirable ventures in a way which again the Special Contribution does not do.
I do not claim that the Special Contribution is a perfect tax. I do not claim that it does not lead to certain injustices and anomalies, though I am glad that the Chancellor has been able to remedy the major injustices that affected working directors who get a certain amount of their earnings in dividends. Most taxes, and certainly indirect taxes, have many weaknesses and do not fall equitably on all people whom they affect, but that does not mean that we can rule them out altogether.
I claim for this tax that it is a tax which inflicts real hardship on no person in this country. It is a tax which does not conflict with the general economic principles of the Budget. It is a tax which will encourage others to bear equally necessary burdens. If it is a tax which fulfils all these conditions I do not believe it is a bad one. It is a useful tax, a tax which fits well and purposefully into the framework of a bold and challenging Finance Bill.
4.30 p.m.
Not infrequently it has been my duty to make some reference to a speech by an hon. Member who has spoken for the first time in this Chamber. There have been occasions when that duty has been a somewhat difficult one because one has had to balance the claims of candour and courtesy. This is not one of those occasions. I can say with complete sincerity that I have hardly ever heard an hon. Member speaking for the first time in this House, and without notes, who has spoken so charmingly and with such clarity as the hon. Member for Central Southwark (Mr. Jenkins). I say that with no less sincerity because I take a diametrically opposite view from him of the matter which we are discussing, for I support the Opposition to this Clause which has been expressed by the hon. Gentleman the Member for Chippenham (Mr. Eccles).
I do so on rather narrower grounds. I propose simply to advance these two contentions—first, that there is no respectable justification for a tax of this kind except that it should reduce inflationary pressure; and, second, that so far from doing that, its net result will be to increase it. With regard to the first of these contentions, this levy was proposed in the House by the Chancellor of the Exchequer on 6th April on this one ground only, that it was required to reduce the inflationary pressure. He indicated it as one of the contributory factors to a large Budget surplus.
He explained, and almost everyone in the House agreed—certainly I did—that the need for having a large Budget surplus for the purpose of reducing the inflationary pressure is an overwhelming and compelling one. I do not in the least question that, but a Budget surplus does not in itself reduce inflationary pressure. It depends upon how it is achieved. It is quite useless to increase a Budget surplus by £50 million if that additional £50 million is in a form which does not in any degree on balance reduce the inflation. It is worse than useless if that extra £50 million of surplus is obtained by means which actually, on balance, increase inflation. It is my contention that this method has that effect.
I said not only that this was the only reason given by the Chancellor but that it is the only respectable justification which could be given. There are other possible ones. The Economic Secretary to the Treasury, for example, referred to distribution of wealth as a thing desirable in itself. I agree that if we are trying to get a contribution for what is a real public purpose it is desirable to do it in such a way that the heavier part of the burden falls on those who can best carry it. But we ought not to reduce disparity in wealth merely by taking away from those who have more if no public pur- pose is served. Otherwise we could secure that object by requisitioning and confiscating, let us say, all the jewelry and dropping it in the sea. I do not think that even the Chancellor of the Exchequer would propose a method of that kind. But if it is true that the only public purpose to be served by this levy was to reduce the inflation and that it does not reduce inflation, it really becomes similar in character to confiscating all the jewelry and dropping it in the sea.
One other reason which has been suggested is that the levy is good on grounds of social justice. The hon. Member for Central Southwark suggested that it was good in that it would encourage other people to bear their burdens because they would see that the rich were being soaked. That also would be equally true if it were a justifiable and proper motive, of confiscating jewels and dropping them in the sea. But surely no one would really justify a tax merely on the grounds of giving satisfaction to people who do not pay it if it does not itself do some positive good.
As to my second contention, does this levy, in its net result, reduce inflation? I do not propose to repeat the arguments of the hon. Member for Chippenham, which were conclusive. When the Chancellor first introduced this proposal, I said that, for the reasons I then gave, its effect would be rather inflationary than deflationary. But speaking at this stage, I am content to proceed with my argument without repeating those reasons and relying mainly on what the Government have said through their various spokesmen. I should like to remind the Committee of the course of the argument of the Government on this point. When the Chancellor first introduced this proposal on 6th April he gave as the reason, and the only one, that "we must have a sufficient absolute excess of revenue over all payments out to enable us to diminish the inflationary measure." That was a 100 per cent. statement. But the very next day the Economic Secretary to the Treasury, with a wise caution and greater moderation, said: diminuendo so rapid and so complete within a fortnight or so.
Even since that last date of 21st April we have had the conclusive further argument of the returns showing the course of public savings. I would like the Chancellor of the Exchequer to answer this perfectly direct question: Whether in the light of that experience he now believes that the adverse affect upon the savings is likely to be less or greater than the reduction of consumption by the people who pay this levy? Quite obviously, if the adverse affect on savings is greater, the net result of this levy will be, as I certainly believe it will be, definitely inflationary and therefore harmful. When reference was made to this a little time ago the Financial Secretary said he thought the adverse effect had been greatly increased by speeches made by Members of the opposition.
Everybody in this House, however, knows perfectly well that all the speeches that have been made in or outside this Chamber on this subject have together not had anything like the effect of the single speech made by the Chancellor of the Duchy who was so recently Chancellor of the Exchequer. If anything could add to the perniciousness and harmful effects of that speech, it is the fact that, having made that speech in the period between his occupation of one Chancellorship and his occupancy of another, he should so quickly have been brought back not only to the Government but to Cabinet rank.
To sum up my argument, I say, first, that there is no respectable justification for this levy as, indeed, there is no ground for a large Budget surplus, except the one compelling reason that it should reduce inflationary pressure. Inasmuch as this Budget not only does not reduce it but, on balance, certainly increases it, it is definitely harmful to the public, quite apart from the hardships and injustices upon individuals. The hardships and injustices which result from this levy are innumerable. They result from the basic cause referred to by my hon. Friend. I would remind the Government of only one case given by the "Economist" in the last week. If a man has an investment income in 1947–48 of £2,000 and has earned nothing, he pays no levy at all. If, however, he has earned £800, as well as having his £2,000 personal income, he is taxed 100 per cent. upon those earnings by the addition of this levy to other taxation.
That is an intolerable position which cannot really be justified, and it is only one of any number that might be cited. Any tax involves some hardships, some anomalies, some injustices, but it is surely intolerable that all these should be involved if the only public purpose for which it is stated that the tax is required is completely illusory, and indeed not only illusory, but the direct opposite of the fact. Again I say that this tax is bad, not primarily or mainly because it involves injustices upon individuals but because, from the public point of view, it is inflationary in character and not disinflationary.
I am sorry that I was compelled to miss a large part of the speech of my right hon. Friend the Member for Oxford University (Sir A. Salter) and I should like to join with him in my congratulations on the maiden speech of the hon. Member for Central Southwark (Mr. Jenkins). The only point I would take up in that maiden speech is that its discription of the effect of the tax seemed to me the exact opposite of what the effect of the tax quite demonstrably is.
A good deal is being said about the merits or demerits of a capital levy. I agree with many economists who have written on this subject that it is a very interesting question whether in any circumstances a capital levy might be desirable. What is quite certain, however, is that the only capital levy which could in any circumstances be desirable is one based upon capital. The idea of a capital levy which is not preceded by any ascertainment of the thing to be taxed seems to me to be quite fantastic. The important precedent which the Government are setting this afternoon—and I am afraid it is a precedent which some hon. Members opposite will welcome—is that of instituting a tax which does not purport to be fair and is quite unfair on the face of it.
4.45 p.m.
Before we come to the details of the absurd effect that this tax will have, which may be more conveniently considered under numerous Clauses and other Amendments, I might, perhaps, summarise the two main faults from which all these anomalies flow. The Government are instituting a capital levy, and are basing the charge on a computation of income. That leads to two absurd results. The first is that the income may exist with no corresponding capital at all. The Government themselves have attempted to meet some of the anomalies which arise from that danger, but not all of them. There may be no capital in any way corresponding to the income to bear the tax.
There is, however, another source of absurd results, quite apart from that. Even if there is a capital which could bear the tax, the people who will suffer from that capital being taxed are not necessarily the people whose income forms the basis of computation and liability. Those two facts—sometimes one, sometimes the other, and sometimes both together—produce so many anomalies, injustices and absurdities, that, although the Opposition have done their best to frame Amendments, I believe, in common I think with most lawyers, that no Amendments can succeed in making this tax anything but intolerably unjust.
Now let us consider three of the effects it will have in defeating the declared objects of His Majesty's Government. I have not re-read the Budget speech of the Chancellor of the Exchequer but I remember it fairly accurately, and the object he declared was to secure a return from owners of capital for the purpose of deflation. I hope that no economist present will object to my preference for the word "deflation" to "disinflation"—my interest in the language is bound to overcome any prejudice that the economist may have.
The point of the right hon. Gentleman was that many rich people might be enjoying a higher standard of life than was now desirable by spending their capital. If I remember right, the hon. and gallant Member for North Portsmouth (Major Bruce) made a similar point in a letter to "The Times" some months ago. Assume that it is the object of the Government to discourage that sort of spending, what does he do? He institutes a levy that makes every owner of capital who has not indulged in that type of spending think, "What a fool I have been." The effect of this levy is to say to every owner of capital, "Unless you spend your capital as income, you will be the loser." That is the first effect as regards the object of the tax declared by the Chancellor of the Exchequer himself.
Let us consider two other effects. One is necessarily involved—the question of saving. The effect on saving, I think, is known to every hon. Member, and the attention of the Government was called to it by the leaders of the National Savings Movement. This levy has killed the Savings Movement to a very large extent. I am one of those who at times have tried to persuade people that it was a good thing to save. I am certain that at present it is desirable to save—I am with the Government in that—but what argument can be addressed to a man to encourage him to save? If one can manage to put it before him as a noble cause, well and good; but what we cannot now say is that it is a good thing for the man himself.
I thought that the Government wanted more and more people to work. I heard in the conclusion of the speech of my right hon. Friend the senior Burgess for Oxford University (Sir A. Salter) an example of the effect of working which would cause a man to be worse off than if he had not worked at all. Those circumstances can be multiplied again and again.
I did not actually say he would be worse off. I said that he would be taxed 100 per cent. upon his earnings over £2,000.
While I certainly accept that that is what my right hon. Friend said, he may not have worked out all the implications of the relevant Clauses, but I can assure him that under these Clauses there are cases where such a man would be much worse off. The other extraordinary result is that there will be many cases where quite different people will be much worse off. People who are at present infants will be much worse off when they grow up, as a direct result of their fathers or their mothers having undertaken work at this time and earning income.
I do not think that the Government can have worked out all the implications of this Measure. I believe that what they originally thought of was a capital levy, on which I say at once that there are arguments for and against. I believe that at present the arguments against it would be much stronger than the arguments for it, but the whole discussion of the advantages or disadvantages of a capital levy are utterly irrelevant to this form of capital levy which we are now considering. It is perfectly possible for an hon. Member opposite to be honestly in favour of a capital levy based on capital and charged on the owners of capital, but to reject with scorn this fantastic system of basing it on income returns.
The detailed absurdities, the effect on husband and wife, the difficulties of trustees and so on, can all be discussed under later Clauses and Amendments, but under this general Amendment I think it is desirable to accentuate what seem to me the three important points. First, that the levy cannot be deflationary but must be inflationary, because it encourages all owners of capital to spend. Secondly, it is an utterly unscientific and inaccurate way of computing capital, because the amount of the income in no sense indicates the amount of the capital. Even if there were not those two overwhelming disadvantages, there would still be the fundamental injustice that the people who will suffer and ultimately pay the capital levy may be utterly different people from those whose income is made the basis of the computation. When these matters and the injustices to which they give rise are taken into consideration, it will be seen that the main precedent which we will be setting up is to put upon the statute book a tax which does not purport to be fair, but is demonstrably and admittedly unjust.
The hon. and learned Member for the Combined English Universities (Mr. H. Strauss) and the right hon. Gentleman the senior Burgess for Oxford University (Sir A. Salter) both made two substantial cases against this proposed Special Contribution. They both queried whether it would in fact be deflationary, and they both took the line that it would injure the National Savings Movement. The right hon. Member for Oxford University quietly and gratuitously assumed that savings are in themselves desirable because they permit the financing of industrial capital development. The same fallacy ran right through the speech of the hon. Member for Chippenham (Mr. Eccles), who painted a picture of an industrial finance which has not existed for many years and which, I suppose, will never exist again.
Let us first consider the question whether the Special Contribution will or will not have a net deflationary effect. In passing, I would congratulate the hon. and learned Member for the Combined English Universities on having discouraged that abominable word "disinflation." I can assure him that no decent journalist would ever use it. Whether the net effect will be deflationary or otherwise depends entirely on two factors: first, whether the levy will raise the amount that it is calculated to raise, and thus make its contribution to the projected Budget surplus of £330 million; and secondly, what my right hon. and learned Friend, having got hold of the proceeds of the levy, does with them. On the former question, I have not the faintest notion; I am not in a position to judge, but I am assuming that the estimate of the Chancellor, he being the person he is, is fair and will in all probability will be realised.
Then the second question arises—and I put it to the Committee—that if this Budget surplus of more than £300 million, which is destined to be destroyed, is destroyed through the method of amortisation of Funded Debt, or debt yielding an income of 22½ or 3 per cent., then the net effect will be inflationary because the holders of such Debt will, in fact, be receiving money in exchange for script which will be destroyed. The script that endureth for ever will have given place to the money that is so easily blown away.
5.0 p.m.
If, on the other hand, my right hon. and learned Friend, having got his Budget surplus, proceeds to wipe out Floating Debt, then the effect most certainly is deflationary. It is very much too deflationary, and I do not like it at all for that reason. Already in 12 months the Floating Debt has been reduced by £540 million. I can only suppose that my right hon. and learned Friend, if he wants his Budget surplus to be deflationary in effect, will proceed to wipe out Floating Debt. There are £330 million of Budget surplus, which will make nearly £900 million of Foating Debt amortised in two years, quite apart from the considerable deflationary effect of Marshall Aid. I have very great misgivings about the whole policy of the Government, in so far as that policy claims to be deflationary. I am not in the least impressed by the argument of the senior Burgess for Oxford University and the hon. and learned Member for the Combined English Universities that the proposal with which we are dealing might be inflationary. I only wish there might be some little truth in that argument.
What about the other argument, that the proposal will discourage savings? The hon. and learned Gentleman, to whose concern for the purity of the English language I had the pleasure of paying a very genuine tribute, made a most extraordinary statement. He said that this special contribution had killed the savings movement to a large extent. I did not know there were degrees to which anything could be killed. I always understood that you were dead or you were alive, and that there was no halfway house. Perhaps the hon. and learned Member's concern for the purity of the English language does not extend to the verb "to kill." The hon. Member for Chippenham presented a grotesque picture of the effect upon savings. He seemed to think that if there is to be an expansion of private enterprise, and if private enterprise is to be really enterprising and put down capital to make a contribution to exports or to our domestic economy, investors will look round and say: "Here is a public need. Let us put money into it and start a business." Nothing of that sort happens.
We all know how industrial capital expansion is financed. It is done mainly in two ways, in the conditions of the epoch in which we live. It is not done by investors looking round to see what they can do with their money enterprisingly to meet some public need. It is done by boards of directors, businessmen—who know what they are doing, I have nothing to say against such people—making prudent allocations to reserve instead of distributing their profits to shareholders. Later on, they use their business sense to decide what to do with those accumulations.
The other way is for a business man to go to his bank manager and put up a proposition. If the bank manager thinks the proposition is right, he agrees to advance the money. The business man deposits some collateral. In these days of colossal National Debt there is plenty of collateral knocking about.
I would remind the hon. Member that the Amendment to which he is speaking relates only to the Special Contribution.
Very good, Sir Charles. The hon. Member for Chippenham (Mr. Eccles) used the argument that the Special Contribution discouraged savings and would lead to a diminution of the capital expansion so necessary in our country. I would point out that it is not the prudent saver who supplies the money, but the bank manager, who makes an advance to the enterprising business man, if he is satisfied that the proposition is good and that the collateral is there. This aspect of the matter is very important. My right hon. and learned Friend, in his tremendous zeal for deflation, which might have been justified, has taken quite a lot of money away from us all and from our constituents. I hope that he proposes to destroy the money by the method of wiping out Floating Debt and that he will take from banks the power to expand the amount of currency in the country by making advances and giving overdrafts.
I put it to the Committee that the Special Contribution may be necessary in the circumstances of this year. I accept the assurance of my right hon. and learned Friend that the Contribution is non-recurring and is "once for all." I do not like the Special Contribution, but I certainly have no use for that full-blooded capital levy to which many Members have referred in the course of their speeches today. I hope that this Contribution will be the last. I am under no illusion about the possibility of soaking the rich. That is not the proper way to develop our economy.
The hon. and learned Member for the Combined English Universities raised a further point, which was that we have to give savers reasons why they should save. I do not want people to save in order to put money into industry, I want them to save to keep their money out of the consuming market. The way to get people to save is to explain to them the facts of the situation. They must be shown how, under the Tory system of using investors' savings, the capital re-equipment of this country was very badly let down between the wars. British capital equipment was so badly let down technologically that we are now the laughing stock of the Americans, and every hon. Member opposite knows it. Unless we have better industrial equipment in the future our standard of living will come down. Let nobody harbour the illusion, fostered so sedulously by the orthodox experts on the other side of the House, that it is the people who save their money who make capital expansion possible.
The right thing to do is for us to have this Special Contribution this year. Let the Chancellor go on getting his Budget surplus of £330 million. Let him destroy it, making some £900 million of Floating Debt wiped out. But let him watch for deflationary tendencies now and be prepared to curb them.
I rather gathered from the remarks of the hon. Member for South Nottingham (Mr. Norman Smith) at first that he was opposed to the Special Contribution, but I think he later veered round to supporting the Chancellor of the Exchequer. Nevertheless, in so doing he gave a good deal of advice and warning about how the Chancellor should act in the future. On one point I shared his opinion, and that was on the question of "once for all." As the Chancellor of the Exchequer is here, I should like to ask him what he means by that phrase and how he defines it. I have asked him that question before in the House as well as in public. There is no reference to the matter in the Clause at all. I appreciate that it might be difficult to draft the Clause satisfactorily so as to bring it in, but that should not be impossible. If the right hon. and learned Gentleman intended that this should be a once for all contribution, no harm would be done by saying so in the Statute.
Although I fully recognise that one Parliament cannot bind its successors a statutory reference to the fact would impress us with the sincerity of the Government, and it would act as a warning to any Minister who tried to repeat the operation on a future occasion.
The first and foremost arguments advanced in favour of the capital levy was that of simplicity. The right hon. and learned Gentleman, in his opening speech on the Budget, gave some indication of that, and was very strongly supported by his predecessor, the right hon. Member for Bishop Auckland (Mr. Dalton), who is enthusiastic for this levy, particularly on the score of simplicity. I do not know why the right hon. Member arrived at that conclusion. He may possibly have done so out of an enthusiastic desire, in a eulogistic spirit, to encourage his successor in office. Possibly he may have done so with his tongue in his cheek, or perhaps through sheer crass ignorance, without having considered the effects of the proposal at all. Of one thing I am perfectly certain; the right hon. Member himself would not now claim that the effect of this Measure and its administration and the ramifications into which it will lead can possibly be described as simple. It will produce one of the greatest series of complications with which Treasury officials have had to cope for many years.
What is it all for? I said in an earlier discussion that it was not worth the amount the Government were seeking to secure, the sum of £50 million this year. I do not believe the Government will get the £50 million this year directy. I believe the cost of collecting it will be a vastly greater sum than anything for which they can have allowed, while the effect of the tax on the future will be a far greater diminution in tax returns than the £50 million collected this year. It is a tax of diminishing return, because it will diminish the return from Income Tax and Surtax in the future and from all other taxes which are raised on the productivity of industry.
I particularly mention one effect which is bound to happen. Far from being a deflationary tax, it will encourage the realisation of securities at present and discourage savings. It is not going to be a tax which will be met out of income even in lieu of the income being invested in savings. Even if it were, to that extent it would still not be a deflationary tax because, if income is passed to the Exchequer by way of capital levy, or saved and put into war bonds, or any other Government stock, it is taken out of the spending market and therefore is not increasing any inflationary tendency. What use the Chancellor of the Exchequer makes of it, whether it is increased savings, war loans or capital levy, is what determines whether it is used for inflationary purposes or not. From that point of view, it is entirely up to the right hon. and learned Gentleman whether the tax is inflationary or deflationary.
On the incidence of the tax, I do not believe—and I speak from a certain amount of practical experience—that with the exception of very small amounts, and people who are likely to contribute sums up to £50 but not more, it will be met out of income. Up to that point one might reasonably argue that the amount spent on the capital levy would not have been spent in savings, but beyond £50 the whole tendency will be inflationary because it will be paid out of capital in one way or another. From that point of view, once people are encouraged to spend their capital they are encouraged to spend capital in ordinary current use and the whole tendency is bound, indirectly and directly, to be inflationary.
5.15 p.m.
We have seen from the arguments adduced that this tax is not economic and not a tax put on for financial reasons. It has been put on solely for political reasons. I pay my tribute to the hon. Member for Central Southwark (Mr. Jenkins). I envy his ability to speak with such apparent self-confidence in a maiden speech and with such fluency and logicality. He pointed out the moral of the need for a political—may I say, after yesterday's Debate—"effervescent," or social salve of the conscience of the people, in order to let them feel that the Government are soaking the rich by this Measure.
They are not soaking the rich because the very rich—and there are a few of them, all too few in my opinion—who have to pay Income Tax and Surtax at the rate of 19s. 6d. in the £, are in a position in which the Government cannot soak them by a Measure of this sort. If a person in that position requires a capital sum, whether for paying the levy, buying a house, or any particular expenditure, he can always obtain that sum to use for whatever purpose he requires at the expense of the Government and at a profit to himself. It cannot properly be described as a tax which will succeed in the object of soaking the rich.
The tax is bad because it is inflationary, it is bad because it is a tax which is primarily directed, if at all, against the 80 per cent. of industry which still remains in the hands of private enterprise. I remind the right hon. and learned Gentleman that the bulk of this invested income is invested in companies, and therefore a person will have to find the capital levy by the sale of shares of those companies. That is not going to be of assistance in building up the industrial strength of this country in general, and in particular in regard to private companies. How some private companies will be able, particularly when shares are held by trustees, to find the sums needed to meet the levy, I do not know. It may well be that a great number of applications will have to be considered by the Treasury to enable private companies to make public flotations to provide a market in their shares for people to realise those shares to produce the money to pay the levy.
Does not the hon. Member think that much of this will be done by simple bank overdrafts?
Up to a point I quite agree, but what could be more inflationary than borrowing money like that? Another objection is that it may be argued that this tax is directed against those who have inherited money. That is a political argument and one of which I do not approve and with which I do not concur, but it is certainly one which it is legitimate to advance. That does not necessarily follow either. One can instance the case of a woman married to a man, industrious and thrifty, in humble circumstances, who has saved perhaps £4,000 before he dies, leaving four children. The woman marries again, this time a rich man, and he having died she inherits an income which brings her total to more than £2,000 per year. The £4,000 has been left by her first husband in trust for her during her lifetime and is then to be divided equally between his four children. In that case that £4,000 will be subject to this capital levy. But had the second husband died leaving say £100,000 to be divided equally between five children, not in trust, it might never have attracted the capital levy. Therefore, there is neither logic nor equity in a tax of this description.
There are many other points to which I should like to refer, but there will be opportunity later for discussing details. There is one point which I think should appeal to the Chancellor in his legal capacity. I refer to the position of trustees. The office of trusteeship of this country is one which has been held in high regard throughout generations, particularly so among lawyers. Compared with the vast number of trusteeships which exist, it is very seldom that a trustee is not regarded as a person of honour, morality and complete disinterestedness. For the first time in the whole of our history, so far as I am aware, we in this Committee are being invited, through this capital levy, to impose a personal liability upon trustees to meet a tax which is levied upon the beneficiaries for whom they are trustees, a tax for which they have no responsibility in any shape or form and for which they cannot possibly have made any provision. That is an attack upon the personal position of trustees which I do not think the people of this country realise, and I venture to suggest that it is something quite beyond anything which we in this Committee should desire to do.
Finally, I would refer to the dangers of this tax as a precedent. I started by asking the Chancellor to define what he means by "once for all." In conclusion, may I again ask him whether he considers that he is debarred from introducing a similar tax in the same circumstances or the same tax in different circumstances? It is easy to imagine what those circumstances might be. Alternatively, is he debarred, or is the right hon. Gentleman the Member for Bishop Auckland or any of his colleagues debarred from introducing a general capital levy upon a valuation basis?
The Committee may think it is a pity that the hon. Member for Chippenham (Mr. Eccles) was not here to listen to the reassurances which were given to him by his hon. Friend the Member for Chichester (Mr. Joynson-Hicks) towards the concluding part of his speech. I am sorry that I am having to say this in the absence of the hon. Member. [HON. MEMBER: "He is here."] It is a little unprecedented to have about 40 Members of the Opposition over there at one time, and I must apologise for not having seen the hon. Member.
They will not be here long when the hon. and gallant Member is speaking.
The hon. Member for Chippenham drew a very sombre picture, I think to some extent a reasonable one, towards the concluding part of his remarks, about there being a possibility of a deflationary period developing. Indeed, it is common knowledge amongst those of us who have been able to study current financial trends, and it has been commented upon by the "Economist" for some little time, that the inflationary tide, to use the "Economist" term, is "on the ebb." I observe from the "Financial Times" of today that there is a certain worry that deflation may set in with adverse consequences to the country.
I was interested to hear the hon. Member for Chichester reassure the hon. Member for Chippenham because if what the hon. Member for Chippenham said is correct, that there is a danger of deflation, the hon. Member for Chichester should welcome this capital levy, which according to him will to some extent actually have an inflationary effect. I notice that the right hon. Gentleman the senior Burgess for Oxford University (Sir A. Salter) was also endeavouring to reassure the hon. Member for Chippenham. He knows perfectly well that the inflationary effect of this levy, if there be an inflationary effect at all, is bound to be a very small one because the amount of the levy in one year will not in any case exceed £50 million, which except on margin is not liable to exercise a large inflationary or deflationary effect. I thought that the right hon. Gentleman was endeavouring to reassure the hon. Member for Chippenham, who was afraid that deflation was about to set in.
Do I understand that the hon. and gallant Member is basing his justification of this levy on the ground that it will serve as a counter to a deflationary danger?
Oh, no. I was merely drawing the attention of the Committee to the rather attractive picture of one section of the Opposition reassuring the other section partly because they were unable to make up their minds whether there was an inflationary or deflationary situation or not, and partly because they were merely expressing a certain irritation with the Special Contribution itself.
I regard the Special Contribution as a means of obtaining revenue. My view is that the Chancellor, in pursuing his policy of endeavouring to build up a surplus of £330 million, from which I have not heard any Opposition Member dissent, is doing it in an exceedingly able way, a way which on this occasion should command our support. The hon. and learned Member for the Combined English Universities (Mr. H. Strauss) seemed to be horrified that a Contribution of this kind should not be based upon a capital valuation in some form or other. He should know perfectly well that there are many cases in which the capitalised value of income is itself used as a measure of capital. I do not really think that his objection had any substance in it.
There has been some argument between hon. Members opposite as to whether this tax will on balance be inflationary or disinflationary. My own view is that persons tend to spend less if they feel worse off, which seems to be an ordinary commonsense approach to a matter of this kind. If hon. Members opposite feel that those who are to be subject to the levy will not feel worse off I do not see what they are arguing about. On the other hand if they feel worse off it seems to me that on balance they will tend not to spend so much as they did before. A case has been put forward about a tendency which may perhaps materialise, although I have not been able to detect it up to the moment, of people having to realise investments in order to pay the levy.
In so far as that takes place, I should have thought that it would have been warmly supported by the Tory Party, because what is obviously implicit in that is the beginnings of a property-owning democracy, to which hon. Members often pay considerable verbal tribute. To the extent that investments are distributed over a wider field, I should have thought that hon. Gentlemen opposite would have been willing to support this tax. Whatever else may be said for this Special Contribution I believe it will, to a limited extent perhaps but to some extent, catch up with some of the capital gains which have been realised over the past three years, although, of course, by the extent of the tax itself that tendency will not be very much.
5.30 p.m.
There is a danger of getting a disproportionate idea of the financial extent to which people are to be subjected to the imposition of this levy. As my right hon. Friend said in his Second Reading speech, only 125,000 people in the country are to be liable, or the amount involved is only £50 million. That seems to indicate that if we average it out over the whole 125,000, which of course does not materialise in practice, it would work out, approximately, at £400 per head or a little over £800 per head for the first complete fiscal year. Indeed, the 125,000 constitute about only one quarter per cent. of the population of this country. I do not really see, therefore, the necessity for kicking up this fuss. There would have been far more cause for alarm had my right hon. Friend adopted the course which I and several of my hon. Friends urged upon him on the occasion of the first Finance Bill put before this Committee in November last, and to which I am pleased to note that the hon. and learned Member for the Combined Universities seemed to be giving some approval and support, though he did qualify it at the present time. This Special Contribution is a mild levy compared with the levy many of us thought would be necessary last August and last Winter.
I hope this special imposition will be the last of its kind. I do not regard it as being the most admirable levy for this particular purpose. If a levy is required in the future it would be far better to adopt a far more comprehensive levy, as was put forward by the right hon. Member for Bishop Auckland (Mr. Dalton) many years ago. I am one of those who do not think, in the circumstances now obtaining, that the case that many of us made out for a large-scale capital levy in September and the Winter of last year is now so strong. Evidence is already quite clear that the inflation which the Opposition dismally apprehended, and to which they quite rightly drew public attention, is disappearing. That is very largely so because of the steps taken by my right hon. and learned Friend to meet it. Should, for any reason in the future, the imports of our country have to be restricted, whether by cessation of the Marshall Aid or by undue rises in prices, particularly in the United States; should these things necessitate drastic restrictions of imports before our own country is properly on its feet again, then many of my hon. Friends and myself would reserve our right once again to advocate the drastic form of levy which we advocated last December, and which, in those circumstances, would undoubtedly again be necessary.
Would the hon. and gallant Gentleman allow me? Does he realise that this heavy capital levy which he suggests, would act very detrimentally on the industries of this country and the producing power to pay for our imports?
The circumstances I was envisaging were those in which, for one reason or another, imports into this country have declined very considerably, through no will of our own, and in which we were in very grave and difficult circumstances in regard to foodstuffs and raw materials. Then I say we should have seriously to consider the imposition of a very heavy capital levy indeed, purely because the country would not be in a position to sustain the interest burden on its National Debt indefinitely. Neither would it be able to sustain the pressure of prices which would obtain if the currency in circulation and available were in considerable disproportion to the amount of consumer goods available for sale on the market—
The thesis which the hon. and gallant Gentleman is putting forward must really be corrected in one respect. Does he think that, if the Marshall Aid came to an end, or prices rose too much in America, any amount of capital levy on sterling would provide us with any dollars?
If the hon. Gentleman had listened more carefully, he would realise that I did not intend to suggest anything of the kind. Undoubtedly other steps by other Departments and indeed in other directions would be required, but in the circumstances I was endeavouring to suggest that this course would be necessary in the financial field which we are now discussing.
One thing that did impress me with regard to the opposition of hon. Members opposite to this particular Clause was their anger at the apparent injustices that were contained within it. I willingly concede that there are inequities amongst the classes affected by this particular impost, and that is one of the reasons why I hope it will not be repeated. But I cannot help thinking sometimes, when the Opposition talk of injustices, of other times when it would have been possible for them to exercise rather more justice towards the mass of the population than they have done in the past. It is often only when the interests of a few people are affected, 125,000 perhaps—as in this case—that the real anger of the Opposition is aroused. Otherwise I am afraid that when they talk of injustice it is usually used as a demagogic term. This imposition does not impose any substantial injustice at all. It is a very useful weapon in the armoury of the Chancellor and I hope that he will be able to carry the Clause.
The course of the Debate so far must make hon. Members in all parts of the Committee grateful to you, Sir Charles, for having permitted this general discussion, which has allowed arguments on both sides on this important matter to be deployed on a broad front. It has given us the opportunity of hearing the hon. and gallant Member for North Portsmouth (Major Bruce) whose speeches are always of interest, if only because he comes here as the mouthpiece of his master and to keep up the wicket of the Minister of Health in these financial matters. I listened with interest to the theory that there is only something like a quarter of one per cent. of the people who are affected by this Special Contribution, and the suggestion that it does not matter if we are being unjust only to a few people who, in other words, do not matter a tinker's cuss. It is just as well that the Parliamentary private secretary to an important Cabinet Minister should remind us from time to time of the real feelings which exist in certain quarters.
I support the views put before us by the right hon. Member for Oxford University (Sir A. Salter) regarding the impact of this particular proposal upon National Savings. I am glad to see present the Financial Secretary to the Treasury. He has given utterance on more than one occasion to the opinion that the run-down which is now taking place in that important movement is due to sabotage by the Tory Party. We have invited the right hon. Gentleman more than once to give us his evidence for that very harsh and cruel accusation against those who have so often appeared on National Savings platforms. I would now ask the right hon. and learned Gentleman whether—quite apart from the fact that there are some on the benches opposite who in the past have criticised the Savings Movement, one of whom is the hon. Member for South Nottingham (Mr. Norman Smith)—he is not impressed by the weekly figures of the Savings Movement since the announcement in the right hon. and learned Gentleman's Budget of his intention to introduce this Special Contribution. This is something which the Committee should consider for a moment. We should consider just how far the rather alarming figures, which now show a weekly deficit can be traced to this proposal. Withdrawals are beginning to exceed subscriptions to the National Savings Movement.
I would like to remind the Chancellor of the Exchequer that when, during the war, various efforts of a spectacular character were made to stimulate National Savings, all the Ministers in the Coalition used to appear in support of them. We all recall the Warships Week, the Wings for Victory and the Salute the Soldier efforts and, far more recently, the rather unfortunately named Silver Lining Campaign, in all of which attempts were made to stimulate National Savings.
I remember that on one occasion the Minister of Defence, as he is now, came down to the naval base where I was serving. He told a large audience that in lending their money to the Government they were making a great and splendid investment in what he called "British Consolidated Futures." "Let us have your money," he said, "and you will get it back when the war is over." What he should have said, was, "If you save too much, a Socialist Chancellor of the Exchequer will take it from you in due course." Indeed those who appear on National Savings platforms today might well say, "Those of you who really supported the National Savings campaign have been had for mugs, as we always intended that you should be." Of course, it is not surprising that this is beginning to have its effect.
I have no doubt that the Economic Secretary to the Treasury, who is to speak later, will say that these are only very small amounts of savings and that these people who make the weekly contributions will not come within the ambit of this Special Contribution except to the tune, perhaps, of a quarter of one per cent. Surely the point is that this kind of conduct is contagious and infectious. It may well be their turn next. Those who have subscribed to the National Savings campaign are beginning to feel that there must be some divestiture by those who have been caught by the Special Contribution. It may be that the amount which they have invested in National Savings just takes them across the line. There may well have to be a realisation or encashment of those savings. I say to the Government in all seriousness that the introduction of this Special Contribution has struck a blow at confidence in them and the National Savings campaign which certainly could not have been struck by any Opposition or Press campaign, or anything of that sort.
I want to make a few brief points. This falls most severely, we believe, on those who deserve it least. The Economic Secretary has expressed some views on this matter. He has said that the whole conception is to penalise those who have made substantial capital profits, but I am sure that our discussions, even so far as they have proceeded, have shown how fallacious that argument can be. A man who has money safely in cash or in the bank will get away scot-free. The man who has invested his money is the one who will be caught. Has the Chancellor thought of the impact of this upon the man with no pension rights? Has he thought of the effect on the man who has had to provide his own retirement income over a period of years by saving and investment? I have always felt how harsh it is to describe such an income as unearned. It is the result of years of thrift, great effort and extremely hard work. I should call it most hardly-earned income. I think that not only this Government but those who have gone before have erred in their definition of earned income.
5.45 p.m.
The hon. Member for South Nottingham made what I thought was a rather unhappy interjection from the point of view of the Government which he was sent here to support. He said that in many cases the levy will have to be found by going to the bank. For instance, those whose income is derived from property laid out in rents may have to do that. This levy cannot be met by selling part of a house—one cannot sell one floor. Persons thus affected will have to go into the bank and raise an overdraft in order to satisfy the Chancellor, who claims that this is a deflationary operation. Of course, everybody who does that is engaged in an inflationary act, and the right hon. and learned Gentleman must be the first to appreciate that.
The hon. and gallant Member knows perfectly well that where any overdraft is secured by the payer of the Special Contribution in that way, it is true that it is created out of nothing by the bank manager and, therefore, adds to the amount of money ostensibly; but none of that will get to the consumer markets. It will go straight to my right hon. and learned Friend who will proceed to amortise it.
Far be it from me to enter into any kind of investigation of the mental operations of those who follow Social Credit. I feel that not only would such a discussion be tedious to the Committee, but also it would be out of Order even in this extremely wide Debate. I would reiterate that the creation of bank overdrafts is in itself an inflationary operation. I do not think that many hon. Members will quarrel with that, least of all the Chancellor of the Exchequer. The discussion so far has shown how unsound and unwise is this proposal. His Majesty's Government should now have second thoughts upon it.
The hon. and gallant Member for Holderness (Lieut. - Commander Braithwaite) challenged me to give an example of Tory sabotage of the National Savings Movement. I would advise him to read his own speech in HANSARD tomorrow. I do not think that it will surprise the hon. Member for Chippenham (Mr. Eccles) if I tell him that we cannot accept his Amendment. He recognised that if we did it would very largely destroy this Measure. As a matter of fact, it would lose something like £50 million of the £105 million which we hope to raise. The primary object of this Special Contribution is to raise revenue. I think that that is the first answer to the senior Burgess for Oxford University (Sir A. Salter), who compared this measure with taking jewels from a lot of rich people and dropping them into the sea. My reply to that is that the money is flowing into the Treasury, and that we have already raised £2,500,000 of this levy.
Is there any reason for a very large Budget surplus except the reason that it helps to reduce inflationary pressure? In other words, if there were no inflationary pressure at this moment, or any prospect of it, would there be any reason for providing such revenue as to give as big a Budget surplus as that for which the Chancellor has budgeted?
That is one reason. I was coming to that in a moment. Another reason is that which was given by my hon. Friend the Member for Central Southwark (Mr. Jenkins) in his admirable maiden speech, upon which I also should like to compliment him. That reason is that this Special Contribution has helped to re-establish the confidence of the great mass of the working section of the community in the fair treatment which they are receiving at this time. After all, the workers of this country have not merely accepted heavy increases in indirect taxation in this Budget, in the interests of countering the inflationary pressure, but the organised trade union movement has shown great restraint and responsibility, in my opinion, in giving support to the Chancellor's policy on income and prices, which was introduced in the winter. We think it is right that there should be a fair distribution of burdens, and that it should quite openly be seen to be fair; that is one of the merits of this Measure.
The senior Burgess for Oxford University asked whether it was not one justification, or the main justification, for having a surplus that it was necessary to counter inflation. I agree with him that it certainly is so, but I would like entirely to repudiate the view which he and the hon. Member for Chippenham advanced that this Special Contribution is not anti-inflationary. In my opinion, it is, on balance, definitely and substantially anti-inflationary. When I hear these arguments put forward by hon. Gentlemen opposite that a capital levy is inflationary, I remember the period about the beginning of the war when I advocated a tax rather of this kind, which was criticised from all Conservative shades of opinion on the ground that it would obviously be deflationary, and that was not at that time desirable. I think it is a fantastic argument that a capital levy is inflationary, and I wonder whether the right hon. Gentleman, or the hon. Member for Chippenham, really thinks that he would, in a period of depression, when we want to stimulate demand and relieve unemployment, advocate a capital levy for that purpose.
Does the hon. Gentleman remember that a very important spokesman of the Government, who was handicapped both by special knowledge and honesty, has definitely stated that he does not think this will even help to cure the inflationary pressure?
The right hon. Gentleman has quoted one sentence from a speech made many weeks ago, but we have had a good deal more experience of the working of the system now. He does not, however, answer my question whether he would be prepared to advocate this Measure as a means of combating depression.
May I point out to the hon. Gentleman that I am in favour of having broad weapons ready to combat deflation if it comes round, but the weapons should deal with income. It is a great mistake to mix up the spending of capital with the spending of income, and it is that which makes it quite absurd to suggest to us that we would use this particular capital levy to deal with the shortage of effective demand for consumer goods, if that should come about.
I notice that the hon. Gentleman does not answer my question either. The reason the Special Contribution is anti-inflationary is perfectly clear. First, quite a number of people will pay at least some of it out of income, and, so far as they do that, it is quite definitely anti-inflationary. Secondly, as my hon. and gallant Friend the Member for North Portsmouth (Major Bruce) very rightly said, the main effect of the levy will be to make all those who pay it, including those who have to pay it out of capital, feel that they have less purchasing power and therefore tend to spend less. I think the right hon. Gentleman will agree that it was always assumed, before the war, that a slump on the Stock Exchange had a deflationary effect.
I quite agree that there will be some reduction in the consumption of consumer goods, but I think it will be much less than the adverse effect on savings, for the reasons which have been stated. Therefore, I did not say that there was anything which would contribute by itself to inflation; I said that, on balance, it tended towards inflation.
I think the right hon. Gentleman has come nearer to our point of view. I am arguing that, on balance, it is definitely anti-inflationary, and I do not accept the view which he and other hon. Members have put that the introduction of this Measure has had any adverse effect on savings. As proof of that, I would quote the fact that the decline in the weekly figures of National Savings began several months before this Measure was introduced. The flow of small savings in January and February of this year was very much smaller than in the same period last year, and, if hon. Members like to look at the figures week by week, they will find that the reduction since the Budget is not materially different from before the Budget. The real reason for the reduction in these figures, I am inclined to think, is that, as several hon. Members have pointed out, we have succeeded in checking the inflationary pressure. The fact is that there is now less money chasing more goods, and that, surely, is exactly what we wanted to bring about. If there has been any adverse effect on small savings since the Budget was introduced, it is not due to the introduction of this Measure, but to the persistent efforts of hon. Members opposite to impugn the good faith of the Chancellor in giving the pledge that this Measure will not be repeated.
In any case, this Special Contribution is not a tax on the small saver, the ordin- ary saver, or on the generality of savers at all. It is really, in the main, a tax on large owners of inherited wealth, as hon. Members will see if they look at one or two simple figures. In the first case, as much as 57 per cent. of the yield of this Contribution will actually be paid by people who will pay £2,000 or more in individual contributions, and, of course, those are, broadly speaking, the very rich. Secondly, it emerges from an interesting table on page 84 of the Report of the Board of Inland Revenue, which I expect hon. Members have seen, that a much higher percentage of very large incomes consists of unearned income than of smaller incomes. It is also a well-established fact that the larger portions of the unearned incomes in this country are derived from inherited property and not from the actual savings of the individuals in question.
If we take these three facts together, it is clear that this levy is, in fact, a surcharge on large inherited wealth. Our main defence is that it is perfectly fair that, in this Special Contribution, some part of the burden should fall on those people who are best able to bear it. The owners of inherited wealth in this country have had a pretty good time for about 50o years, and, in my opinion, it is perfectly right that, in the cause of countering inflation, they should make some contribution to the reduction of the National Debt, and also, incidentally, to the costs of the war because that also is what this Special Contribution achieves.
The hon. Member for Chichester (Mr. Joynson-Hicks) appeared to say that this Contribution would not in any way fall upon those very wealthy persons. If, of course, we could get the revenue without anybody paying, that would be a very remarkable miracle. If we take the more orthodox view that, in fact, they will make a sacrifice, I think it is perfectly fair and right that they should do so. We defend this Contribution, therefore, first of all on the grounds that it raises revenue which we must have; secondly, because, as everybody really knows, it is definitely anti-inflationary; and thirdly, because it makes a contribution, if only a small one, to social justice and to the better distribution of property.
6.0 p.m.
We have had an extremely interesting Debate and one which has been well worth while. I have not risen for the purpose of bringing it to an end, but in order that I might have an immediate opportunity of speaking after the Economic Secretary to the Treasury.
Before I turn to his speech, I would like to refer to the speech of the hon. Member for Central Southwark (Mr. Jenkins). He made a most admirable maiden speech which we all enjoyed enormously, with a pleasure which was not diminished by the affectionate remembrance in which many of us hold his father. Apart from the many other qualities of the speech upon which comment has been made, the one I particularly would mark out was its candour, a quality which in the future all of us will admire and we on this side will hope very much to enjoy, because he did say, for the first time, quite directly what was the real object of the tax we are discussing. It was, as he put it, to encourage the other taxpayers.
It will be recalled that about 200 years ago the idea was that every now and then one should shoot an admiral in order to encourage the others, and apparently such are the financial ideas of this Government—that if we soak one taxpayer every now and then, it acts as a tremendous incentive to everybody else. That line of reasoning, has, of course, been made quite plain by the speech we have just heard from the Economic Secretary to the Treasury. He has really discarded, this time, all the pretence, which I agree was wearing very thin, that this Special Contribution had anything at all to do with the fight against inflation.
No.
On the contrary, that reason started by being placed very high. We remember the broadcast of the right hon. and learned Gentleman on the night of his Budget speech and the appeal to those who were going to pay, in terms to which obviously any who listened would pay great attention, to feel that they were playing their part in that fight against inflation, a fight which was of as great an interest to them as it was to anyone else. It has now been made perfectly plain by the Economic Secretary, as it was made plain earlier in the Debate by the hon. Member for Central Southwark, that this has nothing at all to do with inflation and that the only reason it was introduced was to act as some counter-balance to the real anti-inflationary measure which the Chancellor brought in, and which it is admitted was hard on, and unpopular with, his supporters.
I really must point out to the right hon. Gentleman that I said that the main purpose of this Contribution was to raise revenue. He may not agree with that, but he really should not deny that I said it.
I accept, of course, any amendment to his speech which the hon. Gentleman cares to make. All I was saying was that when he got up to defend this Contribution, the first argument he put before the Committee was an argument based upon the encouraging effect it will have on other taxpayers.
No.
It was only after that point that he passed to the secondary point of its effect on inflation. We on this side of the Committee entirely disagree with the idea—even if it were the object of this tax to help in the fight against inflation—that it would, in fact, be at all effective in that. I agree that the direct and immediate effect of this tax might be very slightly deflationary, but only very slightly, and that effect would be immensely outweighed by the indirect effect which, we submit, will be wholly inflationary. The deflationary effect will be very small.
Some of the figures which the hon. Gentleman gave in his speech have completely destroyed the argument to which he attached great importance on the previous occasion on which he addressed us. He told us then—and I think in an interjection he told us again today—that a great deal of this money would be paid out of income. He has given us one set of figures which I certainly had not seen before—a most interesting set—which show that 57 per cent. of the total will come out of payments of £2,000 and over. I do not think for one moment that the hon. Gentleman suggests that any of that 57 per cent. will be paid out of income. The number of people who have a spare £2,000 to draw on is not very great, and he must recognise that at least the whole of that 57 per cent. will come out of capital.
He has not given us—I wish he had—the proportion which will be paid in contributions of over £1,000, because I personally cannot think there is likely to be anybody who can produce as much as £1,000 out of income today. In fact, a few hundred pounds is an amount it might be possible for a certain number of people to find out of income, but everything else will have to come out of capital. This, in fact, is a levy on capital, and nothing else. As such, we claim that the transfer of investment capital from the hands of the private individual to the Chancellor has no effect whatsoever on the inflationary position.
Our first reason for opposing this tax is that it is dishonest in its motive and ineffective in its result. Our second reason is that it is wholly unfair. It is unfair as between individuals because it penalises the people who have taken the most responsible course in the guidance of their money affairs, who have listened most closely to the appeals of various Chancellors of the Exchequer and who, therefore, one would have thought, would be the class of capitalist whom one would most wish to encourage. It falls most lightly, on the other hand, on others who have disregarded all appeals. When the hon. Gentleman told us that this Contribution does something to hit those who have made capital gains, it does not do much to hit people who have made capital gains in the non-dividend paying Kaffir market. They have no income at all. They will pay nothing, yet they have probably made the biggest capital gain of any from the Dalton bull market.
When we come to discuss the details of this contribution, as we shall later in the course of the Debate, it will be apparent to anyone that there will be a number of individual cases which will be put to the Chancellor of the Exchequer and which he will be quite unable to answer, except on the grounds that, after all, this scheme is the simplest way in which to do the job, and that if one chooses simple administration inevitably one makes hard cases. That is our second ground of attack; that this is unfair. Thirdly, we believe that in the long run it is extremely damaging; that the effect upon savings is great now and will be lasting. The hon. Gentleman was perhaps a little ingenuous when he told us there had been some decline in small savings. Small savings over the course of the last few weeks have entirely disappeared. There has, in fact, been a draw on small savings. Apparently the only comfort the hon. Gentleman can draw is the fact that this had already started before the Budget, and is merely the continuation of a course which had been set before by the Government.
The hon. Gentleman did say something to which I take exception. He said that we impugned the good faith of the present Chancellor of the Exchequer in his pledge of "once for all." I have certainly not done that, and I do not believe that any of my hon. Friends have. In the Budget Debate I was careful to say that I knew that, as far as the right hon. and learned Gentleman himself was concerned, a pledge of that kind involved his honour, and that in no circumstances would he be a party to the reintroduction of a measure of this kind. I believe that to be true. But, of course, any good effect that may have come from that statement by him was quite immediately destroyed by the man who was his predecessor, and who, for all we know, at some other time may be his successor.
After all, the right hon. and learned Gentleman is not immortal, although he may not be subject to all the risks that we more ordinary mortals run: no lurking fishbone lies in wait for him; nor will tottering post-prandial footsteps ever place him in any danger. But the effect of that pledge was largely destroyed within 24 hours by the speech of the present Chancellor of the Duchy of Lancaster, and I am afraid that it would be a forlorn hope for the hon. and gallant Member for North Portsmouth (Major Bruce) to think that the fact that, today, he has publicly declared that he has changed his opinion on the question of the capital levy, will entirely undo the harm which has been done by the right hon. Gentleman.
It is for these three reasons: that this tax is dishonest in its motive, that it is unfair in its incidence, and that in the long run it will be extremely damaging in its effect, that we oppose it, and shall certainly go into the Lobby against it.
Question put, "That the words proposed to be left out stand part of the Clause."
The Committee divided: Ayes, 271; Noes, 139.
Division No. 169.] AYES. 6.14 p.m. Adams, Richard (Balham) Ewart, R. Mann, Mrs. J. Adams, W. T. (Hammersmith, South) Fairhurst, F. Manning, C. (Camberwell, N.) Allen, A. C. (Bosworth) Farthing, W. J Manning, Mrs. L. (Epping) Allen, Scholefield Crewe) Fernyhough, E. Marquand, H. A Alpass, J. H. Field, Capt. W. J. Mellish, R. J. Anderson, A. (Motherwell) Fletcher, E. G. M. (Islington,, E.) Messer, F. Anderson, F. (Whitehaven) Follick, M. Middleton, Mrs. L. Attewell, H. C. Foot, M. M. Millington, Wing-Comdr. E. R Austin, H. Lewis Forman, J. C. Monslow, W Awbery, S. S. Fraser, T. (Hamilton) Moody, A S. Ayles, W. H. Gaitskell, Rt. Hon. H. T. N. Morley, R. Ayrton Gould, Mrs. B. Ganley, Mrs. C. S. Morgan, Dr. H. B. Balfour, A. George, Lady M. Lloyd (Anglesey) Morrison, RI. Hon H. (Lewisham, E) Barnes, Rt. Hon. A. J. Gibbins, J. Murray, J. D. Barton, C. Gibson, C. W. Nally, W. Bechervaise, A. E. Glanville, J. E. (Consett) Naylor, T. E Benson, G. Goodrich, H. E. Neal, H. (Claycross) Berry, H. Gordon-Walker, P. C. Nichol, Mrs. M. E. (Bradford, N.) Beswick, F. Granville, E. (Eye) Nicholls, H. B. (Stratford) Bing, G. H. C. Greenwood, A. W. J (Heywood) Noel-Buxton, Lady Binns, J. Grenfell, D. R. Oldfield, W. H. Blenkinsop, A. Grey, C. F. Oliver, G. H. Blyton, W. R. Griffiths, D. (Rother Valley) Orbach, M. Bottomless, A. G. Griffiths, W. D. (Moss Side) Palmer, A. M. F Bowden, Fig. Offr. H. W. Guest, Dr. L. Haden Pargiter, G. A. Bowles, F. G. (Nuneaton) Guy, W. H. Parker, J. Braddock, Mrs. E. M. (L'pl, Exch'ge) Haire, John E. (Wycombe) Parkin, B. T. Braddock, T. (Mitcham) Hale, Leslie Paton, Mrs. F. (Rushcliffe) Bramall, E. A. Hall, Rt. Hon. Glenvil Paton, J. (Norwich) Brook, D. (Halifax) Hamilton, Lieut.-Col. Pearson, A. Brooks, T. J. (Rothwell) Hardman, D. R. Peart, T. F. Brown, T. J. (Ince) Hardy, E. A. Perrins, W. Bruce, Maj. D. W. T. Harrison, J. Popplewell, E. Burden, T. W. Hastings, Dr. Somerville Porter, E. (Warrington) Butler, H. W. (Hackney, S.) Hewitson, Capt. M. Porter, G. (Leeds) Carmichael, James Holman, P. Price, M. Philips Champion, A. J. Holmes, H E. (Hemsworth) Proctor, W. T. Chater, D. Horabin, T. L. Pryde, D. J. Chetwynd, G. R. House, G. Pursey, Cmdr. H. Cluse, W. S. Hay, J. Randall, H. E. Cobb, F. A. Hudson, J. H. (Ealing, W.) Ranger, J. Cocks, F. S. Hughes, Hector (Aberdeen, N.) Rankin, J. Collindridge, F. Hutchinson, H. L. (Rusholme) Reid, T. (Swindon) Collins, V. J. Hynd, H. (Hackney, C.) Rhodes, H. Colman, Miss G. M. Hynd, J. B. (Attercliffe) Richards, R. Comyns, Dr. L. Irvine, A. J. (Liverpool) Ridealgh, Mrs. M. Cook, T. F. Irving, W. J. (Tottenham, N.) Roberts, Emrys (Marioneth) Cooper, Wing-Comdr. G. Isaacs, Rt. Hon. G. A Roberts, Goronwy (Caernarvonshire) Corbel, Mrs. F. K. (Camb'well, N.W.) Jay, D. P. T. Royle, C. Corlett, Dr. J. Jeger, G. (Winchester) Sargood, R. Crawley, A. Jeger, Dr. S. W. (St. Pancras, S. E.) Scott-Elliot, W. Cripps, Rt. Hon. Sir S. Jenkins, R. H. Segal, Dr. S. Grossman, R. H. S. Johnston, Douglas Shackleton, E. A. A. Daines, P. Jones, D. T. (Hartlepool) Sharp, Granville Dalton, Rt. Hon. H. Jones, J. H. (Bolton) Shawcross, C. N. (Widnes) Davies, Ernest (Enfield) Keenan, W. Shawcross, Rt. Hn. Sir H. (St. Helens) Davies, Harold (Leek) King, E. M Shurmer, P. Davies, R. J. (Westhoughton) Kinley, J. Silkin, Rt. Hon. L. Davies, S. O. (Merthyr) Kirkwood, Rt. Hon. D. Silverman, J. (Erdington) Deer, G. Lang, G. Silverman, S. S. (Nelson) de Freitas, Geoffrey Lawson, Rt. Hon. J. J Simmons, C. J. Delargy, H. J. Lee, F. (Hulme) Skeffington, A. M. Diamond, J. Leonard, W. Skeffington-Lodge, T. C. Dodds, N. N. Leslie, J. R. Skinnard, F. W. Donovan, T. Levy, B. W. Smith, C. (Colchester) Dugdate, J. (W. Bromwich) Lewis, J. (Bolton) Smith, H. N. (Nottingham, S.) Dumpleton, C. W. Lipton, Lt.-Col. M. Snow, J. W. Durbin, E. F. M. Longden, F. Salley, L. J. Dye, S. Lynn, A. W. Sorensen, R. W. Ede, Rt. Hon. J. C. McAdam, W. Soskice, Sir Frank Edelman, M. McAllister, G. Sparks, J. A. Edwards, John (Blackburn) McGhee, H. G. Stamford, W. Edwards, N. (Caerphilly) McKinley, A. S Strauss, Rt. Hon. G. R. (Lambeth, N.) Edwards, W. J. (Whitechapel) Maclean, N. (Govan) Stress, Dr. B. Evans, Albert (Islington, W.) McLeavy, F. Swingler, S. Evans, E. (Lowestoft) Mallalieu, E. L. (Brigg) Sylvester, G. O. Evans, S. N. (Wednesbury) Mallalieu, J. P. W. (Huddersfield) Symonds, A. L. Taylor, R. J. (Morpeth) Walkden, E Willey, O. G. (Cleveland) Taylor, Dr. S. (Barnet) Walker, G. H. Williams, D. J. (Neath) Thomas, D. E. (Aberdare) Wallace, G. D. (Chislehurst) Williams, J. L. (Kelvingrove) Thomas, I. O. (Wrekin) Wallace, H. W (Walthamstow, E) Williams, R. W. (Wigan) Thomas, George (Cardiff) Watkins, T. E. Williams, W. R. (Heston) Thorneycroft, Harry (Clayton) Watson, W. M. Willies, E Thurtle, Ernest Weitzman, D. Wills, Mrs. E A Tiffany, S. Wells, P. L (Faversham) Woods, G. S. Titterington, M. F Wells, W T (Walsall) Yates, V. F. Tolley, L. West, D. G. Young, Sir R. (Newton) Turner-Samuels, M Wheatley, Rt. Hn. J. (Edinburgh, E.) Ungoed-Thomas, L. White, H. (Derbyshire, N.E.) TELLERS FOR THE AYES: Vernon, Maj. W. F Whiteley, Rt. Hon. W. Mr. Joseph Henderson and Viant, S. P Wilkins, W. A. Mr. Hannan. Wadsworth, G Willey, F. T. (Sunderland)
NOES. Amory, D. Heathcoat Harvey, Air-Cmdre. A. V Peaks, Rt. Hon. O. Assheton, Rt. Hon. R. Haughten, S. G. Polo, Brig. C. H. M Astor, Hon. M. Head, Brig. A. H. Pickthorn, K. Baldwin, A. E Henderson, John (Cathcart) Pitman, I. J. Beamish, Maj. T. V. H. Hinchingbrooke, Viscount Ponsonby, Col. C. E. Birch, Nigel Hogg, Hon. Q. Poole, O. B. S. (Oswestry) Boles, Lt.-Col. D. C (Wells) Holmes, Sir J. Stanley (Harwich) Prior-Palmer, Brig. O. Bossom, A. C. Hulbert, Wing-Cdr. N. J. Ramsay, Maj. S Bowen, R. Hutchison, Lt.-Cm. Clark (E'b'rgh, W.) Rayner, Brig. R Bower, N Hutchison, Col. J. R. (Glasgow, C.) Reed, Sir S. (Aylesbury) Boyd-Carpenter, J. A. Jeffreys, General Sir G Reid, Rt. Hon. J. S. C. (Hillhead) Braithwaite, Lt.-Comdr. J. G. Jennings, R. Roberts, H (Handsworth) Bromley-Davenport, Lt.-Col. W Joynson-Hicks, Hon. L W Roberts, P. G. (Ecclesall) Buchan-Hepburn, P. G. T. Keeling, E. H. Roberts, W. (Cumberland, N.) Bullock, Capt. M Lambert, Hon. G. Ropner, Col. L. Byers, Frank Lancaster, Col. C. G. Ross, Sir R. D. (Londonderry) Carson, E. Legge-Bourke, Maj. E. A H Salter, Rt. Hon. Sir J Challen, C. Lennox-Boyd, A. T. Sanderson, Sir F. Cannon, H. Lindsay, M. (Solihull) Scott, Lord W. Clarke, Col. R. S. Lloyd, Maj. Guy (Renfrew, E.) Shepherd, W. S. (Bucklow) Conant, Maj. R. J. E. Lloyd, Selwyn (Wirral) Snadden, W. M. Crookshank, Capt. Rt. Hon. H. F. C Low, A. R. W. Spearman, A. C. M. Crowder, Capt. John E Lucas, Major Sir J. Stanley, Rt. Hon. O Darling, Sir W. Y. Lucas-Tooth, Sir H. Stewart, J. Henderson (Fife, E.) Davidson, Viscountess MacAndrew, Col. Sir C. Strauss, H. G. (English Universities) De la Bère, R. MacDonald, Sir M. (Inverness) Sutcliffe, H. Digby, S. W. Macdonald. Sir P. (I. of Wight) Taylor, C. S. (Eastbourne) Donner, P. W McFarlane, C. S. Taylor, Vice-Adm. E A. (P'dd't'n, S.) Drayson, G. B Mackeson, Brig. H. R Teeling, William Drewe, C. McKie, J. H. (Galloway) Thomas, J. P. L (Hereford) Duncan, Rt. Hn. Sir A. (City of Lond.) Maclay, Hon. J S. Thorneycroft, G. E. P. (Monmouth) Eccles, D. M. Maclean, F. H. R. (Lancaster) Thornton-Kemsley, C. N. Elliot, Rt. Hon. Walter MacLeod, J. Thorp, Brigadier R. A. F. Erroll, F. J Macpherson, N. (Dumfries) Touche, G. C Fletcher, W. (Bury) Maitland, Comdr. J. W. Turton, R. H. Fraser, H. C. P. (Stone) Manningham-Buller, R. E. Vane, W. M. F. Fraser, Sir I. (Lansdale) Marlowe, A. A. H. Wakefield, Sir W. W Galbraith, Cmdr. T. D. Marsden, Capt. A. Wheatley, Colonel M. J. (Dorset, E.) Gammans, L. D. Marshall, D. (Bodmin) White, Sir D. (Farnham) Gates, Maj. E. E Mellor, Sir J. Williams, C. (Torquay) George, Maj. Rt. Hn. G. Lloyd (P'ke) Molson, A. H. E. Willoughby de Eresby, Lord Glyn, Sir R. Moore, Lt.-Col. Sir T. Winterton, Rt. Hon. Earl Gomme-Duncan, Col A Morrison, Maj. J G. (Salisbury) York, C Gridley, Sir A. Morrison, Rt. Hon. W. S. (Cirencester) Grimston, R. V. Mott-Radclyffe, C. E. TELLERS FOR THE NOES: Harden, J. R. E. Nield, B. (Chester) Commander Agnew and Harris, F. W. (Croydon, N.) Odey, G. W. Mr. Studholme. Harris, H. Wilson (Cambridge Univ.) Orr-Ewing, I. L
I beg to move, in page 33, line 13, at the end to insert: This Amendment is designed to allow a certain amount of relief for married persons and for those with children and other dependants. In the general discussion what has become clear is the difference of view on wealth between the two sides of the Committee. The Government side have taken the view that wealth comes down as manna from heaven, with a certain injudicious discrimination upon the just and the unjust, usually upon the the unjust; whereas we on this side regard wealth as imposing obligations which have to be discharged. If we are to have a Special Contribution—and the result of the recent Division is in the affirmative—let us make it as just as we can between those who are to pay it.
As at present drafted, this new tax burden will fall with special severity on those persons who have the greater responsibilities to discharge. Professional men who have retired and who have children to educate will have to pay the same contribution as the bachelor with no obligations. That, I would suggest to the Chancellor, is an injustice which he should try to remove. It is quite clear that this tax will fall especially heavily on older men, who have saved out of their earnings with the intention of giving their children a good education. The type of father I have in mind will have to pay £150 a year at least for the education of his child at a public school. Therefore, I have suggested that the reduction should be £100 for each child or other dependant.
The other anomaly is that the married person has the disadvantage of his wife's income being aggregated with his own. He receives Income Tax relief in respect of the fact that he is married, but as this Clause is drafted, no relief is given to him at all in respect of his wife's income. He is, therefore, at a grave disadvantage owing to the fact that he is a married man. The clearest way in which I can put this case is to take an illustration of someone who is affected by this tax, looking at the burden which he will have to pay if he is a single man, and, alternatively, at the burden which he will have to pay if he is a married man with children. It will be easier to illustrate my case without any of the qualifications which the Chancellor makes for those with unearned income of just over £2,000, and I will take the figure of £3,000 a year unearned income.
If a man has a wife and two children, and he has an income of £3,000 a year, he will pay under this Clause a special contribution of £825. He is already paying Income Tax and Surtax amounting to £1,282 10s., and he will, therefore, have left from his income £892 10s. If he has two children to educate, he will have to deduct, on my basis of £150 a child, £300, leaving him £592 10s. out of which to feed himself, his wife and two children, quite apart from any other responsibilities. That man has an unduly large burden under these provisions compared with the bachelor with the same amount of income. As the Clause is drafted, he will pay the same Special Contribution of £825. His Income Tax and Surtax will amount to £1,368 which will leave him with a net income of £807. Therefore, he has the advantage over the married man with two children of getting an extra £214 10s. to spend, although he has only himself to feed and house, instead of four people in the case of the married man with two children.
6.30 p.m.
The Committee can rightly ask what will be the effect of the allowances I have suggested—£250 for a married person and £100 for each child, on that illustration. It will be that the married man with two children would pay a Special Contribution of £665, and would still be worse off by £55 than the bachelor with no responsibilities instead of being worse off by £214 10s., as he is under the Chancellor's recommendation.
This is a not unreasonable request to make to the Chancellor. It is quite true that on Surtax there is not an allowance for a married person with dependants; but, as I understood the argument which the Financial Secretary addressed to the Committee yesterday, his justification for that was that the married person with dependants got the advantage in Income Tax, and as Surtax was part of Income Tax he was receiving an advantage. Under this Special Contribution there is at present no such advantage.
I hope that the Chancellor will see the reasonableness of this request and will make deductions, either by the amount that I have suggested, or some other amount that he considers reasonable. The professional classes, who will really be hit, who are trying to educate their children at public schools, are being very hard pressed; it is quite wrong that at the present stage of this country's economic position the Government should put an unduly heavy burden on those with children to educate.
During the last two and a half hours we have heard ample evidence of the fact that the Special Contribution violates all accepted principles of taxation, in that it operates quite arbitrarily between one man and another, and, therefore, quite unfairly. However, since the Government are determined to impose the levy, I am sure the Chancellor will not be impervious to arguments which are designed at least to reduce the element of unfairness. After all, the Government have many times claimed —and no one on this side of the Committee would disagree with them—that it is essential to build up the family unit in our national life. Indeed, in both Income Tax law and in family allowances concessions are made with this object in view.
Why is this principle ignored in the Special Contribution? What possible argument can be advanced in its favour? My hon. Friend the Member for Thirsk and Malton (Mr. Turton) has just given some interesting figures—I would call them devastating figures—to indicate how far worse off under the levy is the man with a wife and family than the bachelor. The object of our Amendment is to distribute the burden of this Special Contribution more equitably in relation to the responsibilities of the man with a wife and family to support. Unless this Amendment is accepted, and unless concessions are given to the married man with a family, so far as I can see the individual would be far better off, in the financial sense, if he were to divorce his wife, and to live with another woman, and I am sure the Chancellor would not approve of those ethics.
I think that this Amendment has been put down under a misconception as to the purpose and working of this tax. The right hon. Member for West Bristol (Mr. Stanley) emphasised the fact that he looked upon this tax as a capital levy. Obviously, if it is a capital levy it is not an appropriate place in which to make an allowance for an annual expenditure in regard to children or a wife. The proper place for those reliefs, of course, is in Income Tax, and that is, in fact, where those reliefs are now given. I hesitate to think what would be the effect if one were, quite partially, to give further assistance to the wife and family aspect in this very limited section without spreading it over the whole area of the Income Tax code.
If further reliefs of this kind are to be given, then obviously, in fairness, they must be applied to a man whether he has earned income or unearned income. Let me give an example. The man with earned income will not be paying this levy at all: the man with unearned income will. One could not distinguish between the amount of allowances in those two cases, and the man with the earned income would have every right to say: "If you are going to allow so much for the wife and children of a man with the same income as myself, who has not earned it but is getting it from investments, then obviously you must allow me something of the same kind."
It is because of the fallacy of this being considered as a recurring tax that hon. Members who put down this Amendment have pressed it. This is a non-recurring tax which, in many cases, as I said in my Budget speech, will be paid out of capital but not out of income. It is not appropriate in this case to make an allowance on the basis that these people are given, and properly given, reliefs under Income Tax, and I regret very much that I cannot accept the Amendment.
One part of the right hon. and learned Gentleman's speech contained the astounding statement that relief could not be given to a particular class of people who are called upon to pay one tax unless one is prepared to extend some equivalent relief to a whole lot of people who are not called upon to pay that tax at all.
indicated dissent.
That was the argument. The Chancellor said: "I could not give this to the people who will come under the Special Contribution, because those people with earned incomes who do not come under the Special Contribution at all would want the same relief from a tax which they have got to pay." That really was the most extraordinary argument. He went on to say that as this was a non-recurring tax it was impossible to give relief of this kind. I accept, as I said before, that he intends this to be a non-recurring tax; but I see no reason why, because a tax is to be for only one year, no allowances should be made for that year.
The Amendment says that, in fact some allowance is already made, even though it is a non-recurring tax. The first £250 of everybody's investment income is ignored, and all this Amendment asks is that for people who have special obligations and responsibilities rather more than £250 should be ignored. I feel that the two arguments used by the right hon. and learned Gentleman were unworthy of his well-known reputation for logicality, and I can only think that he was not prepared to deal with the really cogent argument as to the needs and liabilities, and indeed the discriminations, which now exist between the single people and those with the burdens which were put forward by my hon. Friends. Certainly I hope they will be prepared, not only to press their case in Debate, but also to take it into the Division Lobby.
I should like to support this Amendment very strongly, and to take great exception to the lack of logic of the Chancellor in the reason that he gave for rejecting it. I will give him the benefit of the doubt that he really meant something different, but I agree that he did say what my right hon. Friend the Member for West Bristol (Mr. Stanley) said that he said; giving him the benefit of all those doubts, what he meant was that it was irrelevant to consider any principle other than that of purely raising revenue. In effect, he has said that because benefit from taxation on smoking is given on age—which is irrelevant to revenue raising—the person who is below that age has a perfect right to say, "Because you are giving that relief to old age pensioners you should give it to me." That is the height of illogicality for not granting a matter of high policy and general principle.
Past Governments have been very hard on married people with children. The present Government have been consistently and even harsher. On a number of occasions in Parliament I have exhibited graphs which showed clearly how the rate of discrimination against married people with children has been worsened instead of bettered by the present Government. Yesterday we discussed the question of smokes. One of the reasons why people form the expensive habit of smoking is that in their youth they have money literally to burn, because the weight of taxation on bachelors and spinsters is then singularly beneficial in comparison with the time when they will be married and have children, when the rate of taxation is singularly onerous.
If there is one thing which this Committee ought to do, it is to encourage marriage and the building up of families. It is irrelevant for the Chancellor to say that this is not the right opportunity for doing so. Every and any opportunity of taxation can and ought to be taken to load the dice in favour of married people with children, and in proportion to the number of their children. It is a pernicious doctrine to say—as the Chancellor has said—that fiscal policy must not take account of these very human factors in the load which it puts on the taxpayer.
The technique of the right hon. and learned Gentleman is very interesting and we shall watch its development. He pushes my hon. Friend the Member for Thirsk and Malton (Mr. Turton) from one part of the Finance Bill to another and from one part of the Income Tax law to another; he did so to me yesterday and will probably do the same thing on Report stage. The right hon. and learned Gentleman now says that the matter we have raised is not applicable to this part of the Bill at all; that the ordinary Income Tax law is the proper place for giving concessions which effect the whole of the community. My hon. Friends have dealt with the lower scale incomes, but it is quite clear that any provisions which may confer benefits do not apply to the so-called capitalists.
Let me, in my turn, do a little pushing around. If the right hon. and learned Gentleman regards this matter merely as part of Income Tax, let him look at one of the Clauses in his own Bill which effectively separates husbands and wives, namely, that part of the Bill which provides for relief for women earning money in industry. He challenged my hon. Friend the Member for Thirsk and Malton on the question of this imposition being a capital duty. Let us suppose that it is a capital duty. If it is not a capital duty, however, then parts of the Finance Bill which give trustees the right to break trusts and so on do not apply. Of course it is a capital tax—we all know that it is; well, then, let it be regarded as a capital tax.
What is the precedent for separating husbands and wives on capital taxation in the Estate Duty field? Is it not clear that the incomes of husbands and wives are separated where Estate Duties are exacted? Of course it is. When the property of a deceased man passes on to his family, it attracts less duty if it passes direct to his children than if it passes to remoter connections in the family, who
pay a fuller rate of duty. Of course the principle is recognised in the capital form, and I do not see that the Chancellor can adduce any possible argument which would be either relevant to this Debate or acceptable in the country to prevent the acceptance of this Amendment.
Question put, "That those words be there inserted."
The Committee divided: Ayes, 123; Noes, 267.
Division No. 170.] AYES. [6.47 p.m. Amory, D. Heathcoat Henderson, John (Cathcart) Poole, O. B. S. (Oswestry) Assheton, Rt. Hon. R. Hinchingbrooke, Viscount Prior-Palmer, Brig. O. Astor, Hon. M. Hogg, Hon. Q. Ramsay, Maj. S. Baldwin, A. E. Holmes, Sir J. Stanley (Harwich) Reed, Sir S. (Aylesbury) Beamish, Maj. T. V. H. Howard, Hon. A. Reid, Rt. Hon. J. S. C. (Hillhead) Boles, Lt.-Col. D. C. (Wells) Hulbert, Wing-Cdr. N. J. Roberts, H. (Handsworth) Bossom, A. C. Hutchison, Lt.-Cm. Clark (E'b'rgh, W.) Roberts, P. G. (Ecclesall) Bowen, R Hutchison, Col. J. R. (Glasgow, C.) Roberts, W. (Cumberland, N.) Bower, N. Jeffreys, General Sir G. Ropner, Col. L. Braithwaite, Lt.-Comdr. J. G. Joynson-Hicks, Hon. L. W Boss, Sir R. D. (Londonderry) Bromley-Davenport, Lt.-Col. W Lambert, Hon. G. Salter, Rt. Hon. Sir J. A Bullock, Capt. M. Legge-Bourke, Maj. E. A. H. Sanderson, Sir F. Byers, Frank Lindsay, M. (Solihull) Scott, Lord W. Challen, C. Lloyd, Maj. Guy (Renfrew, E.) Shepherd, W. S. (Bucklow) Clarke, Col. R. S. Lloyd, Selwyn (Wirral) Snadden, W. M. Crookshank, Capt. Rt. Hon. H. F. C Low, A. R. W. Spearman, A. C. M. Crowder, Capt. John E Lucas, Major Sir J. Stanley, Rt. Hon. O. Darling, Sir W. Y. Lucas-Tooth, Sir H. Stewart, J. Henderson (Fife, E.) Davidson, Viscountess MacAndrew, Col. Sir C. Strauss, H. G. (English Universities) De la Bère, R. Macdonald. Sir P. (I. of Wight) Studholme, H. G. Digby, S. W. McFarlane, C. S. Sutcliffe, H. Donner, P. W. Mackeson, Brig. H. R. Taylor, C. S. (Eastbourne) Drayson, G. B. McKie, J. H. (Galloway) Taylor, Vice-Adm. E. A. (P'dd't'n, S.) Drewe, C. Maclay, Hon. J. S. Teeling, William Eccles, D. M. Maclean, F. H. R. (Lancaster) Thomas, J. P. L. (Hereford) Elliot, Rt. Hon. Walter MacLeod, J. Thorneycroft, G. S. P. (Monmouth) Erroll, F. J. Maitland, Comdr. J. W Thornton-Kemsley, C. N. Fraser, H. C. P. (Stone) Manningham-Buller, R. E. Thorp, Brigadier R. A. F Fraser, Sir I. (Lansdale) Marlowe, A. A. H. Touche, G. C. Galbraith, Cmdr. T. D. Marshall, D. (Bodmin) Turton, R. H. Gammans, L. D. Mellor, Sir J. Vane, W. M. F. Gates, Maj. E. E Molson, A. H. E. Wakefield, Sir W. W. George, Maj. Rt. Hn. G. Lloyd (P'ke) Moore, Lt.-Col. Sir T. Wheatley, Colonel M. J. (Dorset, E.) Glyn, Sir R. Morrison, Maj. J. G. (Salisbury) White, Sir D. (Fareham) Gomme-Duncan, Col. A Morrison, Rt. Hon. W. S. (Cirencester) Williams, C. (Torquay) Gridley, Sir A. Mott-Radclyffe, C. E. Williams, Gerald (Tonbridge) Grimston, R. V. Field, B. (Chester) Willoughby de Eresby, Lord Harden, J. R. E. Odey, G. W. Winterton, Rt. Hon. Earl Harris, F. W. (Croydon, N.) Orr-Ewing, I. L York, C. Harris, H. Wilson (Cambridge Univ.) Pickthorn, K. Harvey, Air-Cmdre. A. V. Pitman, I. J. TELLERS FOR THE AYES: Haughton, S. G. Ponsonby, Col. C E Commander Agnew and Major Conant.
NOES Adams, Richard (Balham) Benson, G. Burden, T. W. Adams, W. T. (Hammersmith, South) Berry, H. Butler, H. W. (Hackney, S.) Allen, A. C. (Bosworth) Bevan, Rt. Hon. A. (Ebbw Vale) Callaghan, James Allen, Scholefield (Crewe) Bing, G. H. C. Carmichael, James Alpass, J. H. Binns, J. Champion, A. J. Anderson, A. (Motherwell) Blenkinsop, A. Chater, D. Anderson, F. (Whitehaven) Blyton, W. R. Chetwynd, G. R. Attewell, H. C. Bottomley, A. G. Close, W. S. Austin, H. Lewis Bowden, Fig. Offr. H. W. Cobb, F. A. Awbery, S. S. Bowles, F G. (Nuneaton) Cocks, F. S. Ayles, W. H. Braddock, Mrs. E. M. (L'pl, Exch'ge) Callindridge, F Ayrton Gould, Mrs. B. Braddock, T. (Mitcham) Collins, V. J. Balfour, A. Bramall, E. A. Colman, Miss G. M. Barnes, Rt. Hon. A. J Brook, D. (Halifax) Comyns, Dr. L. Barton, C. Brooks, T. J. (Rothwell) Cook, T. F. Bechervaise, A. E Brown, T. J (Ince) Cooper, Wing-Comdr. G. Belcher, J. W. Bruce, Maj. D. W. T. Corbet, Mrs. F. K. (Camb'well, N.W.) Corlett, Dr. J Hynd, J. B. (Attercliffe) Randall, H. E Cove, W. G. Irving, W. J. (Tottenham, N.) Ranger, J Crawley, A. Jay, D. P. T. Rankin, J. Cripps, Rt. Hon. Sir S Jeger, G. (Winchester) Reid, T. (Swindon) Crossman, R. H. S. Jeger, Dr. S. W. (St. Pancras, S.E.) Rhodes, H. Daines, P. Jenkins, R. H. Richards, R. Dalton, Rt. Hon. H. Johnston, Douglas Ridealgh, Mrs. M. Davies, Ernest (Enfield) Jones, D. T. (Hartlepool) Roberts, Emrys (Marioneth) Davies, Harold (Leek) Jones, J. H. (Bolton) Roberts, Goronwy (Caernarvonshire) Davies, Haydn (St. Pancras, S.W.) Jones, P. Asterley (Hitchin) Royle, C. Davies, S. O. (Merthyr) Keenan, W Sargood, R. Deer, G. Kenyon, C Scott-Elliot, W. Delargy, H. J King, E. M. Segal, Dr. S. Diamond, J. Kinley, J. Shackleton, E. A. A Dodds, N. N. Kirkwood, Rt. Hon. D. Sharp, Granville Donovan, T. Lang, G. Shurmer, P. Dumpleton, C. W. Lawson, Rt. Hon. J. J Silverman, J. (Erdington) Durbin, E. F. M. Lee, F. (Hulme) Silverman, S. S. (Nelson) Dye, S. Leonard, W. Simmons, C. J. Ede, Rt. Hon. J C Leslie, J. R. Skeffington, A. M. Edelman, M. Levy, B. W. Skeffington-Lodge, T. C Edwards, John (Blackburn) Lewis, J. (Bolton) Skinnard, F. W Edwards, N. (Caerphilly) Lipton, Lt.-Col. M. Smith, C. (Colchester) Edwards, W. J. (Whitechapel) Longed, F Smith, H. N. (Nottingham, S.) Evans, Albert (Islington, W.) Lyne, A. W Snow, J. W. Evans, E. (Lowestoft) McAdam, W. Solley, L. J. Evans, S. N. (Wednesbury) McAllister, G. Sorenson, R. W Ewart, R. McGhee, H. G. Soskice, Sir Frank Fairhurst, F. McKinlay, A. S Sparks, J. A. Farthing, W. J. Maclean, N. (Govan) Stamford, W. Fernyhough, E. McLeavy, F. Stross, Dr. B. Field, Capt. W. J. Mallalieu, E. L. (Brigg) Swingler, S Fletcher, E. G. M. (Islington, E.) Mallalieu, J. P. W. (Huddersfield) Sylvester, G. O Follick, M. Mann, Mrs. J. Taylor, R. J. (Morpeth) Foot, M. M. Manning, C. (Camberwell, N.) Taylor, Dr. S. (Barnet) Forman, J. C. Manning, Mrs. L (Epping) Thomas, D. E. (Aberdare) Fraser, T. (Hamilton) Marquand, H. A. Thomas, I. O. (Wrekin) Gaitskell, Rt. Hon. H. T N Mellish, R. J. Thomas, George (Cardiff) Gallacher, W. Messer, F. Thorneycroft, Harry (Clayton) Ganley, Mrs. C. S. Middleton, Mrs. L. Turtle, Ernest George, Lady M. Lloyd (Anglesey) Millington, Wing-Comdr. E. R Tiffany, S. Gibbins, J. Monslow, W. Titterington, M. F Gibson, C. W. Moody, A. S. Tolley, L. Glenville, J. E (Consett) Morley, R. Turner-Samuels, M. Goodrich, H. E. Morgan, Dr. H. B. Ungoed-Thomas, L. Gordon-Walker, P. C. Morrison, Rt. Hon. H. (Lewisham, E) Vernon, Maj. W. F Granville, E. (Eye) Murray, J. D Vivant, S. P. Greenwood, A. W. J. (Heywood) Nally, W. Wadsworth, G Grenfell, D. R. Naylor, T. E Walkden, E. Grey, C. F. Neal, H. (Claycross) Walker, G. H. Griffiths, D. (Rother Valley) Nichol, Mrs. M. E. (Bradford, N.) Wallace, G. D. (Chislehurst) Griffiths, W. D. (Moss Side) Nicholls, H. R. (Stratford) Warbey, W. N. Guest, Dr. L. Haden Noel-Buxton, Lady Watkins, T. E. Guy, W. H. Oldfield, W. H. Watson, W. M. Haire, John E. (Wycombe) Oliver, G. H. Wells, P. L. (Faversham) Hale, Leslie Orbach, M. Wells, W. T. (Walsall) Hall, Rt. Hon. Glenvil Paling, Rt. Hon. Wilfred (Wentworth) West, D. G. Hamilton, Lieut.-Col. R. Palmer, A. M. F. White, H. (Derbyshire, N. E.) Hardman, D. R. Pargiter, G. A. Whiteley, Rt. Hon. W Hardy, E. A. Parker, J. Wigg, George Harrison, J. Parkin, B. T. Wilkins, W. A. Hastings, Dr. Somerville Paton, Mrs. F. (Rushcliffe) Willey, O. G. (Cleveland) Hewitson, Capt. M. Paton, J. (Norwich) Williams, D. J. (Neath) Hobson, C. R. Pearson, A. Williams, J. L. (Kelvingrove) Holman, P. Peart, T. F. Williams, R. W. (Wigan) Holmes, H. E. (Hemsworth) Perrins, W. Williams, W. R. (Heston) Horabin, T. L. Popplewell, E. Willis, E. House, G. Porter, E. (Warrington) Wills, Mrs. E A Hoy, J. Porter, G. (Leeds) Woods, G. S. Hudson, J. H. (Ealing, W.) Price, M. Philips Young, Sir R (Newton) Hughes, H. D. (W'lverh' pton, W.) Proctor, W. T Hutchinson, H. L. (Rusholme) Pryde, D. J. TELLERS FOR THE NOES: Hynd, H. (Hackney, C.) Pursey, Cmdr. H Mr. Joseph Henderson and Mr. Hannan.
I beg to move, in page 33, line 15, after "amount," to insert: I think that everyone who has spoken today has agreed that there are anomalies about this Special Contribution, and this Amendment attempts to raise one of the most obvious. I say straight away that the actual wording may not best describe the object we have in view. The purpose of the Amendment is to raise this question of marginal relief. Marginal relief was promised by the Chancellor of the Exchequer in his Budget speech, and subsection (2) states:
What will be the effect upon an individual of that sort? I suggest that he will have the strongest possible disincentive to further remunerated work. The right hon. and learned Gentleman spoke in his Budget speech of disincentives to savings, but here is a very clear disincentive to remunerated work. I had an example of this from one of my constituents. He has an investment income of £2,200, and although he is well past retiring age he is still fitted to do remunerated work for a fairly small salary. He is getting on in years, and he has to do a rather difficult journey to get to the office each day. He has continued to do this work, not really to earn the money, but because he thought it was his duty to do so. That gentleman has reacted in exactly the way I have described. He feels that he has been had for a "mug" for working last year, and he has received a very strong disincentive to further remunerated employment. What is the consequence of that? We hear on every side of the need for production, for people to work, of the shortage of labour and so forth, and I should have thought the one thing we wanted to do was to get as many people as possible to continue in remunerative employment. The consequence of this tax will be that such people will not continue.
7.0 p.m.
In my submission it will have one further effect, and that is upon the revenue, because from the point of view of the revenue it is very much in the Government's interest to keep such people at work. If we look at the £800 which the person in my first example was earning, he was paying, without this contribution, £427 10s. in taxation. Those people who have a substantial income will not be encouraged to continue working, and this factor will adversely affect the revenue in future years. I can assure hon. Members that the persons in the category to which I have referred are very much on the watch with regard to these matters. They feel that they have been bitten once, and they will take every step in their power to avoid continuing to work for nothing.
The strange thing about the various speeches made today by hon. Members on the other side of the Committee is that not one of them has attempted to justify in any sense of the term this sort of treatment of people. Not one word has been said in defence of the proposition that such a man should be taxed. I hope that the Financial Secretary will consider the wording of the Amendment to see whether this marginal relief cannot be extended rather further than already occurs in Subsection (2).
I am sorry to say that we cannot accept this Amendment. There are a number of cogent reasons for our refusing so to do. To start with, the cost of this proposal would be something like £40 million, which is completely prohibitive. Secondly, it would completely change the nature of the marginal relief which is provided. That relief is intended to prevent hardship to a person who has a comparatively small income from investments. If the Amendment were accepted, it would convert it from being a marginal relief to assist the small investor into a general limitation, which would effect an extremely large reduction in the case of high incomes. I will endeavour later to give my reasons in terms of figures for saying so.
First, I should like to deal with the case that was instanced by the hon. and learned Member for Wirral (Mr. Selwyn Lloyd). If I took down his figures correctly, he gave as his example a person with an investment income of £2,000 and an earned income of £800. After all, it is not a very clear way of reasoning it out to attribute to the investment income the Income Tax and Surtax which is applicable not only to the investment income but to the earned income as well. To add the Income Tax, the Surtax and the Contribution together and say that they come to, I think he said, £27 in excess of the investment income does not prove anything.
The Solicitor-General misunderstood what I said. I was not attributing any part of the Income Tax or Surtax on the unearned income. I did not talk about that at all. I was referring to the Income Tax and Surtax on the earned parts, which comes to £427 10s.
In that case I have got his figures the wrong way round. He is talking about an investment income of £800—
No.
An earned income of £800 and an investment income Of £2,000. It should be remembered that the top rate is only 10s. in the pound. Only 1½ per cent. of the capital on an ordinary interest-bearing basis would be involved, and I do not think that that could be said to be such a high or an oppressive rate for a tax upon capital.
May I indicate what would be the consequences in terms of figures if we accepted this Amendment? Take an income of £100,000. If we deduct Income Tax and Surtax upon the excess which is described in Subsection (2), the net result would be that the total tax on the investment income of £100,000 would be £4,938. Upon the assumption that the income was an investment income and there was no earned income, it would, in other words, reduce the amount from £49,125, which would be the Contribution attributable to the investment income on £100,000, to £4,938. I take that as an example of what I mean when I say that if a deduction of Income Tax and Surtax is made by this Amendment, instead of merely a marginal relief, it will result in a general wholesale scaling down of the Contribution with the result it would cost something like £40 million.
If we take the lower scales of investment income I can give figures to illustrate what I am trying to say. Suppose we take an investment income of £50,000. Under the Clause as it stands, the Contribution attributable on an investment of that kind would be £24,125, but if we apply the relief which would be applicable if this Amendment were accepted, that £24,000 would be scaled down to £3,688. Therefore, to accept this Amendment would completely alter the purpose of Subsection (2), which, as I pointed out, is simply to assist the small investor. Without the relief the position would be this—supposing there was a person with a total income of £2,000, £500 from investment and the rest earned income, he would pay nothing as his total income would not exceed £2,000. But supposing he had £1 more, or a total income of £2,001 and still had in that sum £500 investment income, he would have to jump right up and the Contribution would be £25.
The object of this marginal relief is to see that if there is a case of that sort the Contribution attributable to it would be limited to £1. That is what I mean by saying that this is intended to produce marginal relief for the small investor. If a deduction is made in respect of Income Tax and Surtax, it is quite obvious that the relief would grow with regard to every increase in the investment income. The higher the investment income the greater would be the relief. Therefore instead of its being a relief to the small investor and preventing an anomaly of the kind I have described, it would result in a great deal of contribution not being taxable at all, costing a figure which would be entirely prohibitive, as it would defeat the object of the imposition of the tax. For those reasons, I cannot accept the Amendment.
The Solicitor-General has not appreciated at any rate the real substance of the marginal point raised by my hon. Friend. He has gone away up in the heights to deal with the marginal case. I should like him to address his mind to the case which was advanced by my hon. Friend and which was mentioned by the senior Burgess for Oxford University (Sir A. Salter), namely, the case of the man with an investment income of £2,000 and an earned income of £800. As my hon. Friend told him, making all allowances for earned income, etc., the tax on the top £800 is £427 or thereabouts. That works out at about—I am having to be very quick in my mathematics and am probably wrong—10s. 5d. in the £, which is 9s. Income Tax and the rest Surtax. The exact figure is £402 10s. In addition to that, that extra £800 as a result of working brings that man into the tax for this Special Contribution. The tax is not on the £2,000 but on the whole £2,800, and, as such, it brings that amount of taxation above £402 10s. to £827 10s. It actually exceeds the £800 which he got from his earnings.
It is all very well for the Solicitor-General to go away up into the clouds and talk about people with an unearned income of £100,000 when it is marginal cases that we are considering. It is all very well for him then to bring it down to people with only £50,000. To me that is a very big sum and I am interested to hear that he thinks that it is a small income. What we want him to direct his mind to is the case of the man with £2,000 investment income and £800 earned income, and to ask him specifically what he is going to do about it. Hon. Members opposite must realise that this is a very hard tax on this marginal case.
What will the Chancellor do to stop a palpable iniquity of this kind. Even hon. Members opposite who have supported this Special Contribution have said that there are anomalies and have said they hoped that they will be put right. I am confident that this is one of the anomalies which they had in mind, and that nobody desires to tax people at over the rate of 100 per cent. taxation, and to do it for working. Clearly, the Solicitor-General must think out his own proposals in regard to this if he does not like ours. He has not met the case, and he has not directed his mind to the case we have put to him. He must in the interests of the nation deal with what has been put to him when he comes to that Box, and not hypothetical cases of people with an investment income of £100,000 a year.
7.15 p.m.
As my hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) said, we realise that this Amendment goes very much too far and that, having got the principle of the levy through the Committee, one must try to make the thing work. The result of our Amendment would be that the higher one's income was, the greater would be the relief. I can well see that that is not acceptable. On the other hand, there are these marginal cases which are not dealt with fairly by Subsection (2), and I want to suggest to the Solicitor-General that on the Report stage some Amendment must be put down which will make it impossible for some one who earns a small salary to find that the result of that is that he has less than he had when he started, in other words, that the taxation which his earnings attract is greater than the sum which he receives for that work.
I suggest that the Special Contribution should not exceed three-quarters of the amount by which the total income exceeds £2,000. The effect of that would be that there would be a relief up to an income of £3,400 of investment, gradually tapering off, and at £3,400 there would no longer be any relief and the full rate would apply. That would be a distinct advantage on Subsection (2). I hope that the Solicitor-General will consider an Amendment of that kind at a later stage.
In the hope of giving the Solicitor-General an opportunity of saying a further word, I would like to make a few remarks on this point. It is a very serious point. The Chancellor of the Exchequer has stressed the fact, and the Committee have accepted it, that the levy is not intended to be a levy on earnings but upon the capital from which investment income is derived. The hon. and learned Gentleman just now said that this is intended to be a tax on capital. For that we are very grateful indeed. However, the object of this business is that it should not be a levy or tax on earned income. It is to achieve that object that this Amendment has been put down. The object of the Amendment is to give relief on earned income. The point which the Solicitor-General failed to appreciate on the first occasion was that, as the tax is at present drawn, the incidence of Surtax plus capital levy on an earned income of £800 coming on top of an investment income of £2,000, which would not attract either Surtax or capital levy, completely does away, and more than does away, with the benefit of those earnings. If this is intended not to be a tax on earnings, it fails in its object because in this instance it is the earnings, and the earnings alone, which attach the tax to that sum.
I have risen as I said in order to give the Solicitor-General a further opportunity of saying something because it was impossible for him to appreciate the significance of the argument on the first hearing of it. It is an argument of fact and an argument worthy of his attention. I hope he will now give the Committee an assurance that if our Amendment goes beyond the scope of what it is intended to achieve, he will put forward some alternative suggestion at a later stage.
I followed the figures first given. I thought for a moment from an interjection, that I had them the wrong way round but I had not. The hon. Gentleman who moved this Amendment took the rare case of a person with an investment income of £2,000, which is a very substantial investment income, earning an extra sum of money. It is a rare case. [An HON. MEMBER: "No, a real case."] It may be a real case but that does not prevent it from being on the whole an unusual one. Hon. Members have said that it is a comparatively small earned income, but one might just as well say, logically, that it is the top slice of the investment income which produces the high rate of tax rather than the earned income.
The way in which one must look at this is that there are two categories of income. One is investment income and it attracts this Contribution which, applicable to that income looked at by itself, is not a high tax at all. After all a round rate of interest of, say, 4 per cent. on an investment income of £2,000 would represent a capital of some £20,000, if my arithmetic is correct, and the Contribution attributable to that capital is £425—
The hon. and learned Gentleman must correct his arithmetic.
That would be on a capital of £50,000.
Anyhow, if my arithmetic is wrong it is on the low side. I should have said £80,000, but that strengthens my argument so far as that part of it is concerned. If one looks at the income separately, the rate of Contribution is a low one and the answer to the argument is that this is a tax which, so far as it is concerned, is ultimately attributable to the capital assets behind that investment income. As I say, there is no reason for saying that it is because the taxpayer earns the £800 that his tax rate goes up. It is the other way round, and one could say with equal cogency, that because he has a high investment income his tax goes up. For those reasons I suggest that the argument which supported this Amendment is an invalid one, but quite apart from the fact of whether it is invalid or not, I think the hon. Member for Chippenham (Mr. Eccles) accepted the fact that the Amendment on the Order Paper went much too far. I quoted £100,000 simply by way of the highest income but, if one goes down the scale, the rate of relief decreases according to the rate at which the taxpayer's Income Tax and Surtax would decrease. Yet the effect of the Amendment would be that the more the income goes up, the more does the limitation apply, so that it does not become a marginal relief at all but completely transforms the tax altogether.
The hon. Gentleman suggested a different form of limitation. It is difficult to work that out on paper here, but whatever its consequence would be, the maximum amount of relief which we think is applicable to a case like this is the relief we have provided in Subsection (2). That is a marginal relief to assist the small investor and to prevent the anomaly which might arise in the extreme case, as between an income of £2,000 and an income of £2,001 which, if £500 of it were investment income, would produce without this marginal relief a jump of £25.
I do not know whether the error of calculation which the Solicitor-General made just now when he said £20,000 was the capital and it should have been £50,000—
No, £80,000.
—has added to the confusion of the Committee. However, we want to get at a very simple proposition—it was not £80,000, for he said 4 per cent., and 4 per cent. of £50,000 is £2,500—
You are all wrong.
However, I do not want to pursue that point but to go into the reasons. The case put up to the hon. and learned Gentleman is this: here is a taxpayer who last year earned £800. As a result of this new imposition, in consequence of his earning £800, he has to pay £827 10s. in tax. It is not fair in the eyes of those of us on this side of the Committee, it is not a reasonable thing, and I do not believe that, if hon. Members opposite think it out, they will think it is fair either. If this man had not worked at all, he would not have to pay any tax—
Let him stop working.
As he worked and earned £800 during the year, he has to pay £827 10s. in tax, and that cannot be thought to be fair by this Committee.
I want to say how disappointed I am at the response which this Amendment has received from the Solicitor-General. In moving it I conceded that it went too far, and that its precise form was not desirable, but I can assure the hon. and learned Gentleman that there are substantial numbers of people who come within this category. He suggested it was an exceptional case, but he really does not know the facts. There are many old people who have saved and accumulated a substantial investment income who are carrying on at comparatively small salaries or on a small share of the profits in order to keep a business going. They are doing a useful job at a time when there is said to be a shortage of labour, and they will get precious little encouragement from this Government to continue to work.
The Solicitor-General clearly has not applied his mind to this problem, and I would ask him, in a final appeal, to give an assurance that between now and the Report stage he will reconsider this matter. It is quite plain from his observations just now that the psychological effect of what the Government are doing has not been considered, and the Solicitor-General seemed to think that only a few people were affected. I can assure him that I was surprised by the number of people in my own constituency who have approached me who fall into just this category. They have either just over or just under £2,000 investment income, all are working, all are earning £500, £600, £800 or £1,000 a year, and they now find that as a result of working they either pay more in tax than they have earned, or a sum approximately equal to that figure.
Surely the Solicitor-General cannot be serious when he says, as he said in his opening remarks, that to accept this Amendment in order to bring some relief and to remove the oppressive incidence which falls upon this group of people would cost £40 million. Such a cost applies, surely, to the larger incomes which he had in mind and cannot possibly apply to this group of people. But if £40 million are involved, that is an argument in favour of accepting the Amendment, since it is not fair that people in this group should be asked to contribute to the Exchequer such a great sum. He has overlooked entirely the psychological effects of this tax. Here is a Government crying out about the need for more production and more work.
This is not a matter affecting half a dozen people. Thousands of people in this country are affected by this Amendment, all of whom now have the greatest disinclination to continue to work. Unless the Government accept this Amendment, or do something to remove the sense of injustice which a man must feel at being required to pay more in tax than he earns, all these people will make sure, since they do not believe this is the last tax of its kind, that in future their investment income will be just under £2,000. They will make quite sure in future that their investment income is just under £2,000, and many of them will give up their employment which they are now carrying on not because they need it but because they feel they ought to make some contribution to the nation's needs.
7.30 p.m.
Perhaps I may make a second attempt to help the Solicitor-General to give us on this side of the Committee what we are asking, which is an assurance that if we are right in our mathematics, which we believe we are, he will look into the matter and introduce a satisfactory Amendment on the Report stage. We are asking very little, particularly as it can involve only a few pounds in the amount of the Contribution. This is surely a marginal Clause and, as has been stated, it is designed to cover the man with an investment income which rises from £2,000 to £2,001—a very small marginal difference.
The Solicitor-General asks why we wish to apply this proposal to an increase from £2,000 to £2,800. There are two factors. The first involves a question of mathematics. When the Solicitor-General looks into it he will find that the facts as we on this side of the Committee have stated them are right. The second point is that there is a big difference between £1 of investment income and £800 earned income, in that the recipient feels that he did not have to earn it and that it was optional. That is the real essence of the matter. He need not have worked for the extra £800 earned income. To tax him at the rate of more than 100 per cent. in Income Tax, Surtax and Special Contribution because of that additional £800 is just the kind of marginal case with which the Solicitor-General says this Subsection seeks to deal, I hope the Solicitor-General will agree that if he finds we are right in our statement of the facts, he will consider this Amendment. It is very little to ask.
Amendment negatived.
I beg to move, in page 33, to leave out line 18.
Perhaps at the same time I may deal with the next Amendment in my name, in page 33, line 19, leave out "in that year resident therein," and insert: in my opinion it does not carry out the Chancellor's intention. I would like to read out the Clause as it would be with my Amendments inserted. It would read:
There is another point, which is that as the Subsection stands with the word "domiciled" in line 18 and the word "resident" in line 20, it must raise a confusion in the minds of many people as to what is their actual situation.
I should like the Government to consider two cases. One concerns a man with property in this country and, therefore, presumably domiciled, who has served overseas for seven or eight years in the war. Will he not get some concession? Such a man has not been enjoying the amenities and privileges, if we can so call them, of living in Britain. Yet he is taxed just as highly as the man who has been resident and domiciled in this country for those seven or eight years. The other case is of the man who has property in this country but who is employed in the Colonial Service. He may have let his property while serving in Nigeria or one of our Colonies overseas, and he gets no reward whatsoever for the work which he is doing overseas on behalf of the country. I believe the Government want to give the impression that I hope I shall have created if this Clause is amended. It would not only be just but would give the appearance of being just to all those who will be affected—and there will be quite a number of them—by this provision.
It is rather refreshing to come to an Amendment which does not involve any calculation of figures. This simply asks for equality of treatment for Britishers. I think the confusion in the Clause undoubtedly lies in the definition of the words "resident" and "domiciled"—"resident" applying to someone resident abroad, and "domiciled" referring to people who have their permanent homes in England. It is very difficult to understand exactly why exemption was made on the ground of non-residence, and why it should be limited to persons who are not domiciled in the United Kingdom. To put that in plain and non-technical language, it means foreigners. What we are asking is that there shall be equivalent treatment for Britishers.
I understood from the argument that was advanced in support of the Amendment that its object was to seek information rather than to amend this Subsection in the specific terms of the Amendment. As the hon. and gallant Member for Ayr Burghs (Sir T. Moore) knows, Surtax payers and Income Tax payers who are not resident or not ordinarily resident here have certain reliefs. They do not pay tax on all their income such as is paid by the person who is resident and domiciled here. The effect of that relief is that in respect of certain categories of income, notably certain Government securities, they do not have to pay Income Tax or Surtax. It would take some time to run over the various categories of relief to which they are entitled, but they certainly are entitled to various categories of relief if they are not ordinarily resident in this country.
In Clause 47 we provide that total income from any source is to be ascertained on Surtax principles. In other words, that Clause means that anybody subject to any exception that may appear in any other part of the Bill is entitled to the ordinary relief which a Surtax payer has. That is to say, he is entitled to certain reliefs if he is not resident or ordinarily resident here. We have made a further exception and have said that a person who is not domiciled here—that is to say a person who is probably not even a British subject—is entitled to a still further measure of relief. In his case, unless he is resident and has been so ordinarily for 10 years past he is not within the scope of the Contribution at all.
Take the person who is not domiciled, a foreigner. He is not within the scope of the tax at all, unless he is both resident and has also been ordinarily resident here for the past 10 years. That is the case of the non-domiciled person. The person who is domiciled is in exactly the same position as a Surtax payer, and he gets absolutely the same reliefs as a Surtax payer in his shoes would get. If he is not ordinarily resident he gets certain kinds of relief. We think that is a fair way of doing it. A person who has his home here, to use the ordinary term, a person whose country this is, to whom this country is his permanent home, gets the ordinary reliefs. The person whose permanent home is in some foreign country is not within the scope of this tax unless it can be said of him that he is resident here and has been ordinarily so resident for 10 years past.
That is exactly how my Amendment reads. I think it is much more precise than the wording of the Clause.
Perhaps I may add that the hon. and gallant Member's Amendment would have rather astonishing consequences. It would mean, for example, that a person who had not been here during 1947 would be entirely outside the scope of the tax, and that a person who had lived here in 1947 but had been absent for one year in the last preceding 10 years, although an Englishman in every sense of the term—
Or a Scotsman.
—would be outside the scope of the tax. That would be one of the consequences, and I do not think that the hon. and gallant Gentleman would desire it to be the position.
I beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
I beg to move, in page 33, line 24, to leave out "end of the year 1947–48," and to insert: that it would be equitable to say that as the tax is not to be payable until 1st January, 1949, the estate of anybody who dies before that date should not have to bear both the Contribution and Death Duties. The Chancellor of the Exchequer said in his Budget speech that the Contribution was to be regarded as a charge upon capital. I suggest that it would be inequitable to have a double charge upon capital.
Everyone knows that when a large estate is faced with Death Duties there are serious practical difficulties about meeting the duties. In this case there would only be a restricted class. It would mean double Death Duties or a double charge upon capital in the course of nine months. I hope that the Solicitor-General will not meet this request with the answer that only a few people will be concerned. This is an injustice and one which the Government will do well to remedy.
7.45 p.m.
I should like to say a word in support of my hon. and learned Friend's Amendment. I never did like the Estate Duty very much, but now it will not only follow us to the grave but may very well follow us beyond the grave. There is a great danger in the wording of the Subsection as it stands. The estate of a man who died since 5th April might become liable to two forms of taxation We ask for an assurance, if the Amendment cannot be accepted, that the amount due on 1st January next will be deducted from the estate before the estate is valued for probate. As I understand it, if a man died, say, tomorrow, his tax being still due, his estate would be valued for probate, as on the day he died, and might attract not only this tax but Death Duty at the higher amount. That is not really fair.
I should like to support this Amendment, at any rate to get an answer on this matter from the Government. Perhaps it will be for the Committee's convenience if I were allowed to refer to an almost identical point in an Amendment standing in my name and the names of some of my hon. Friends, in page 33, line 38. It is a question of double payment of taxation, both Estate Duty and levy. I feel sure that the Government will give us reassurance on this matter. It should go on record that I am asking that where a man dies after the date of the passing of the Bill into law but before an assessment has been made upon him, and the estate consequently becomes liable for this special levy, the special levy shall come as a deduction from his estate before the estate becomes liable for Death Duties.
The Amendment is intended to remove a danger of a kind of double tax being imposed upon the estate of an individual who has died. I do not really think that the fear is justified. Suppose a person dies and his personal representative pays the Contribution due in respect of the tax on 6th April. That Contribution will be deducted for the purpose of valuing his estate. Therefore, Estate Duty will only be borne upon the reduced value of the estate. It will be a debt which has to be taken into account for valuing the estate. It really cannot be said that there are two capital charges upon the same capital. There is Estate Duty charged upon the residue of the capital. The date chosen is 6th April, and if the taxpayer dies before that date his estate is not subject to the Contribution. That is the date immediately after the close of the financial year. A date has to be selected and as I think there is no reason for the fears with which hon. Members seem to have been actuated when they put down the Amendment, I hope they will withdraw it.
The Solicitor-General has not met my point. I wanted to go further than my hon. Friend. I feel that if a person dies between 6th April and 1st January it is equitable that his estate should not have to pay the Contribution. The position will be that if no assessment has been made and no Contribution paid and a man dies on 1st May, the estate will have to pay the whole of the Contribution, 100 per cent., and then have to pay Death Duties. I suggest that the operative date should be 1st January, 1949, and that if anyone dies before that date his estate should not be liable to the Contribution.
The assessment is based on a date which already exists and when the assessment is actually made that is the really overt act—the payment on a date which already exists.
What my hon. and gallant Friend the Member for Central Glasgow (Colonel J. R. H. Hutchison) desires in his Amendment and what is desired by those supporting the Amendment which is in the name of several hon. Friends and myself is an assurance that if any individual assessed for a particular Contribution dies before the assessment could be made, that liability has been discharged. We want a specific assurance that the liability shall be taken into account before the calculation of Death Duties.
Under the Finance Act, 1894, in valuing an estate we deduct duties except those in respect of which there is a right of recovery, and if there is a right of recovery a figure is put on the value of the right of recovery. We value the debt and take into account the question that there may be a right of recovery. I cannot quite give the assurance which has been asked for because there might be a right of recovery against trustees, and in the ordinary case that right of recovery would be as good as payment and the right of recovery against trustees has to be set against the amount of the debt. If for any reason the right of recovery should not be exercisable and the property became valueless, which is unlikely to happen, the debt would have to be discharged at its full value.
It is rather a pity that we should be discussing an Amendment which we have not yet reached, but, as the Solicitor-General has answered on that point, I presume he will find no difficulty in accepting the later Amendment, in line 38, which appears to be put down in almost identical words to those which he has been using.
That Amendment is technically imperfect and we shall not be able to accept it—but perhaps I had better give the answer when we come to it.
I also very much regret that we seem largely to be discussing not the Amendment in the name of my hon. and learned Friend the Member for Wirral (Mr. S. Lloyd) but one which appears later on the Order Paper in the name, among others, of my hon. and gallant Friend the Member of Central Glasgow (Colonel J. R. H. Hutchison). Because of that, a great deal of the point made by my hon. and learned Friend the Mem- ber for Wirral has been missed. The point of that Amendment is precisely that the special contribution is really a capital levy. It is intended to anticipate amongst the living a process of taxation of capital which shall achieve for the living what Estate Duties are intended to achieve in the course of the natural processes of mortality. That Estate Duty process is dividing up the property of this country and spreading it in capital taxation just as Surtax does in terms of income taxation. We have to accept that the majority opposite wish to accelerate that process of taxing capital, but there should not be two taxations so quickly. The purpose of this levy is to do it amongst the living and not amongst the dead, and if anyone dies between 6th April this year and 1st January it is too close for the double taxation to take place.
indicated dissent.
I see the Financial Secretary to the Treasury is shaking his head, but there will be double taxation.
Hon. and right hon. Gentlemen opposite are muddling the date when it is due and becomes payable to the Exchequer, 1st January, 1949, with the fact that it is charged for a particular year which starts from 6th April, 1948. That is where they have gone wrong. As from that date, although it is not technically due in the sense that it is to be paid, nevertheless in another sense it is due as from that date, and if an individual dies, it becomes due to the Crown, and for that reason can be deducted from his estate before the final total is arrived at for Estate Duty.
I must have made myself singularly unclear, because, as I see the situation, it is that if anyone dies before 6th April this year their estate is to pay this tax. They are going to be assessed for this Contribution—
rose —
They are not going to pay—I meant "not," but I said the wrong thing. If, on the other hand, they die after that, they are going to pay it—or their estates will as they will not be here by then because they have died. Similarly, that estate will have to pay Death Duties and from these people the State is to get two quick slices of capital taxation. Admittedly they escape taxation on the taxation of the first slice, but the Revenue get two whacks at that estate, and in quick succession. The point of the Amendment moved by my hon. and learned Friend the Member for Wirral is that the two whacks should not be in too quick succession. We ask that the date should be 1st January, 1949, so as to have a close season for that particular game of a mere 9 months, and that is not at all unreasonable.
Amendment negatived.
8.0 p.m.
I beg to move, in page 33, line 38, at the end, to add:
"and the provisions of this Part of this Act as to individuals assessed or liable to contribution or by whom contribution is payable shall apply accordingly with the necessary modifications."
This is an Amendment to clarify a particular point and to remove a possible doubt which might have arisen. An individual has various rights in respect of appealing against an assessment, etc. He has a right to appeal against an assessment made upon him; he has the right of recovery; he has various rights which he can exercise when he is called upon to pay the Contribution. As the Clause is worded, it could just be argued that in the event of his death before the final settlement has been arrived at those rights do not pass to his personal representative. That was never intended. It was intended that in the event of the individual dying his personal representative should have precisely the same rights in the matter of appeals, etc., as he had. As the Clause stands it could be said that there is some degree of doubt whether those rights vest in his personal representative. Therefore, we simply seek to add these words at the end of the Clause in order to remove any possible doubt about that, and to make sure that those rights will vest equally in his personal representative.
Amendment agreed to.
I beg to move, in page 33, line 38, at the end, to add:
"and the contribution shall be treated as a debt due by the estate for the purposes of the Estate Duties."
In view of the discussion we have had on what I thought was an analogous point, I would say that the answer which the hon. and learned Member gave meets our case. I am still in a little doubt as to what is the objection to the incorporation of the words of the Amendment because the hon. and learned Gentleman's words and ours are really identical. Perhaps he will again consider whether in fact he cannot use these words. I can see no objection.
When the right hon. Gentleman asked me earlier why we could not accept this Amendment in view of what I had said in answer to the previous one, I intimated that there would be a technical objection to it. That arises because of the wording of Section 7 (1) of the Finance Act, 1894. To cut a long story short, the objection would be that, having regard to the particular way in which that Section was framed, the acceptance of this Amendment would make the debt something which had to be deducted from the estate even though there was a right of recoupment.
My hon. and gallant Friend will be quite content to rely on any promise of the Solicitor-General that on the Report stage he will correct the technical defect of this Amendment and put it into proper form. It is clear that our intention is exactly the same, and as the technical knowledge and resources of the Solicitor-General are obviously greater than ours, we shall be only too glad to avail ourselves of his services when we reach the Report stage.
As my right hon. Friend has said the difference that separates us is so minute that I am sure that the Government will have no difficulty in getting over it by the insertion of some such words as "subject to recovery" after the word "debt" in the Amendment. I beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."
The Committee divided: Ayes, 276; Noes, 105.
Division No. 171.] AYES. 8.5 p.m. Adams, Richard (Balham) Foot, M. M. Morgan, Dr. H B Adams, W. T. (Hammersmith, South) Forman, J. C. Murray, J. D Allen, A. C. (Bosworth) Fraser, T. (Hamilton) Nally, W. Allen, Scholefield (Crewe) Freeman, J. (Watford) Naylor, T. E Alpass, J. H. Gaitskell., Rt. Hon. H. T. N Neal, H. (Claycross) Anderson, A. (Motherwell) Gallagher, W. Nichol, Mrs. M. E. (Bradford, N) Anderson, F. (Whitehaven) Ganley, Mrs. C. S. Nicholls, H. R. (Stratford) Attewell, H. C. George, Lady M. Lloyd (Anglesey) Noel-Baker, Capt. F. E. (Brentford) Austin, H. Lewis Gibbins, J. Noel-Baker, Rt. Hon. P J. (Derby) Awbery, S. S. Gibson, C. W. Noel-Buxton, Lady Ayles, W. H. Glanville, J. E. (Consett) Oldfield, W. H. Ayrton Gould, Mrs. B Goodrich, H. E. Oliver, G. H. Balfour, A. Gordon-Walker, P. C Orbach, M Barton, C. Granville, E. (Eye) Paget, R. T Bechervaise, A. E. Grey, C. F. Paling, Rt. Hon. Wilfred (Wentworth) Belcher, J. W. Griffiths, D. (Rother Valley) Palmer, A. M. F Bellenger, Rt. Hon. F. J Griffiths, W. D. (Moss Side) Parker, J. Benson, G. Guest, Dr. L. Haden Parkin, B. T. Berry, H. Guy, W. H. Paton, Mrs. F. (Rushcliffe) Beswick, F. Haire, John E. (Wycombe) Paton, J. (Norwich) Bing, G. H. C. Hale, Leslie Pearson, A. Binns, J. Hall, Rt. Hon. Glenvil Peart, T. F Blenkinsop, A. Hamilton, Lieut.-Col. R Perrins, W. Blyton, W. R. Hannan, W. (Maryhill) Popplewett, E. Bottomley, A. G. Hardman, D. R. Porter, E. (Warrington) Bowden, Fig. Offr. H. W. Hardy, E. A. Porter, G. (Leeds) Braddock, Mrs. E. M. (L'pl, Exch'ge) Harrison, J. Price, M. Philips Braddock, T. (Mitcham) Hastings, Dr. Somerville Proctor, W. T Bramall, E. A. Henderson, Rt. Hon. A (Kingswinford) Prvde, D. J. Brook, D. (Halifax) Henderson, Joseph (Ardwick) Pursey, Cmdr. H Brooks, T. J. (Rothwell) Hewitson, Capt. M Randall, H. E Brown, George (Belper) Hobson, C. R Ranger, J. Brown, T. J. (Ince) Holman, P. Rankin, J. Bruce, Maj. D. W. T. Holmes, H. E. (Hemsworth) Reid, T. (Swindon) Burden, T. W. Horabin, T. L. Rhodes, H. Butler, H. W. (Hackney, S.) House, G. Richards, R. Carmichael, James Hoy, J. Ridealgh, Mrs. M. Champion, A. J Hudson, J. H. (Ealing, W.) Roberts, Emrys (Merioneth) Chater, D. Hughes, Emrys (S. Ayr) Roberts, Goronwy (Caernarvonshire) Chetwynd, G. R. Hughes, H. D. (W'lverh'pton, W.) Royle, C. Cluse, W. S. Hynd, H. (Hackney, C.) Sargood, R. Cobb, F. A. Hynd, J. B. (Attercliffe) Scott-Elliot, W. Cocks, F. S. Irvine, A. J. (Liverpool) Segal, Dr. S. Collins, V. J. Irving, W. J. (Tottenham, N.) Shackleton, E. A. A Colman, Miss G. M. Jay, D. P. T. Sharp, Granville Comyns, Dr. L. Jeger, G. (Winchester) Shawcross, C. N. (Widnes) Cook, T. F. Jeger, Dr. S. W. (St. Pancras, S.E.) Shurmer, P. Cooper, Wing-Comdr. G. Jenkins, R. H. Silkin, Rt. Hon. L. Corbel, Mrs. F. K. (Camb'well, N.W.) Johnston, Douglas Silverman, S. S. (Nelson) Corlett, Dr. J. Jones, D. T. (Hartlepool) Simmons, C. J. Cove, W. G. Jones, J. H. (Bolton) Skeffington-Lodge, T. C Cripps, Rt. Hon. Sir S. Jones, P. Asterley (Hitchin) Skinnard, F. W. Daines, P. Keenan, W. Smith, C. (Colchester) Dalton, Rt. Hon. H. Kenyon, C. Smith, H. N. (Nottingham, S.) Davies, Ernest (Enfield) King, E. M. Snow, J. W. Davies, Haydn (St. Pancras, S.W.) Kinghorn, Sqn.-Ldr E Solley, L. J. Davies, R. J. (Westhoughton) Kinley, J. Sorensen, R. W. Davies, S. O. (Merthyr) Lang, G. Soskice, Sir Frank Deer, G. Lawson, Rt. Hon. J. J Sparks, J. A. de Freitas, Geoffrey Lee, F. (Hulme) Stamford, W. Delargy, H. J. Leonard, W. Stewart, Michael (Fulham, E.) Diamond, J. Leslie, J. R. Stokes, R. R. Dodds, N. N. Lewis, J. (Bolton) Stross, Dr. B. Donovan, T. Longden, F. Summerskill, Dr. Edith Driberg, T. E. N. Lyne, A. W. Swingler, S. Dugdate, J. (W. Bromwich) McAdam, W. Sylvester, G. O. Dumpleton, C. W. McAllister, G. Taylor, R. J. (Morpeth) Dye, S. McGhee, H. G. Taylor, Dr. S. (Barnet) Ede, Rt. Hon. J. C. McKinley, A. S. Thomas, D. E. (Aberdare) Edelman, M. McLeavy, F. Thomas, I. O. (Wrekin) Edwards, John (Blackburn) Mallalieu, E. L. (Brigg) Thomas, John R. (Dover) Edwards, N. (Caerphilly) Mallalieu, J. P. W. (Huddersfield) Thomas, George (Cardiff) Evans, Albert (Islington, W.) Mann, Mrs. J. Thorneycroft, Harry (Clayton) Evans, E. (Lowestoft) Manning, C. (Camberwell, N.) Thurtle, Ernest Evans, S. N. (Wednesbury) Manning, Mrs. L (Epping) Tiffany, S. Ewart, R. Marquand, H. A. Titterington, M. F. Fairhurst, F. Mayhew C. P Tolley, L. Farthing, W. J. Messer, F. Turner-Samuels, M. Fernyhough, E. Middleton, Mrs. L Ungoed-Thomas, L. Field, Capt. W. J. Mikardo, Ian Vernon, Maj. W. F Fletcher, E. G. M. (Islington, E.) Moody, A. S Viant, S. P. Follick, M. Morley, R. Wadsworth, G Walker, G. H. Whiteley, Rt. Hon. W Wills, Mrs. E. A Wallace, G. D. (Chislehurst) Wigg, George Wilson, Rt. Hon. J. H Warbey, W. N Wilcock, Group-Capt. C. A. B. Woods, G. S. Watkins, T. E. Willey, F. T. (Sunderland) Wyatt, W. Watson, W M. Willey, O. G. (Cleveland) Yates, V. F Weitzman, D. Williams, D. J. (Neath) Young, Sir R. (Newton) Wells, P. L. (Faversham) Williams, J. L. (Kelvingrove) Younger, Hon. Kenneth Wells, W. T (Walsall) Williams, R. W. (Wigan) West, D. G. Williams, Rt. Hon. T. (Don Valley) TELLERS FOR THE AYES: Wheatley, Rt. Hn. J. (Edinburgh, E.) Williams, W. R. (Heston) Mr. Collindridge and Mr. Wilkins. White, H. (Derbyshire, N.E.) Willis, E.
NOES. Agnew, Omdr. P. G Henderson, John (Cathcart) Pensonby, Col. C. E. Amory, D. Heathcoat Hinchingbrooke, Viscount Poole, O. B. S. (Oswestry) Assheton, Rt Hon. R Holmes, Sir J. Stanley (Harwich) Reed, Sir S (Aylesbury) Baldwin, A. E. Howard, Hon. A. Reid, Rt. Hon. J. S. C. (Hillhead) Beamish, Maj. T. V. H. Hulbert, Wing-Cdr. N. J Roberts, H. (Handsworth) Beechman, N. A. Hurd, A. Roberts, W. (Cumberland, N.) Boles, Lt.-Col. D. C. (Wells) Hutchison, Lt.-Cm. Clark (E'b'rgh, W.) Robinson, Roland Bossom, A. C. Hutchison, Col. J. R. (Glasgow, C.) Sanderson, Sir F Bower, N Jeffreys, General Sir G. Scott, Lord W. Boyd-Carpenter, J. A. Jennings, R. Shepherd, W. S. (Bucklow) Braithwaite, Lt.-Comdr. J. G. Joynson-Hicks, Hon. L. W. Snadden, W. M. Bromley-Davenport, Lt.-Col. W Legge-Bourke, Maj. E. A. H. Spearman, A. C. M Buchan-Hepburn, P. G T Lindsay, M. (Solihull) Stanley, Rt. Hon. O. Bullock, Capt. M. Linstead, H. N. Stewart, J. Henderson (Fife, E.) Butler, Rt. Hon. R A. (S'ffr'n W'ld'n) Lloyd, Selwyn (Wirral) Strauss, H. G. (English Universities) Challen, C. Low, A. R. W. Studholme, H. G. Clarke, Col. R. S. Lucas, Major Sir J. Sutcliffe, H. Conant, Maj. R. J. E. Lucas-Tooth, Sir H. Taylor, C. S. (Eastbourne) Corbett, Lieut.-Col. U. (Ludlow) Macdonald. Sir P. (I of Wight) Taylor, Vice-Adm. E. A. (P'dd't'n. S.) Crookshank, Capt. Rt. Hon. H. F. C. McFarlane, C. S. Thomas, J. P. L. (Hereford) De la Bère, R. Maclay, Hon. J. S. Thornton-Kemsley, C. N. Digby, S. W. Maitland, Comdr. J. W. Thorp, Brigadier R. A. F Donner, P. W. Manningham-Buller, R. E. Touche, G. C. Drewe, C. Marshall, D. (Bodmin) Turton, R. H. Dugdate, Maj. Sir T. (Richmond) Maude, J. C. Vane, W. M. F. Eccles, D. M. Medlicott, Brigadier F. Wheatley, Colonel M. J. (Dorset, E.) Erroll, F. J. Mellor, Sir J. White, Sir D. (Fareham) Fraser, Sir I. (Lansdale) Molson, A. H. E. Williams, C. (Torquay) Galbraith, Cmdr. T. D. Moore, Lt.-Col. Sir T. Williams, Gerald (Tenbridge) George, Maj. Rt. Hn. G. Lloyd (P'ke) Morrison, Maj. J. G. (Salisbury) Willoughby de Eresby, Lord Gomme-Duncan, Col. A. Mott-Radclyffe, C. E. Winterton, Rt. Hon Earl Grimston, R. V. Nield, B. (Chester) York, C. Hannon, Sir P. (Moseley) Odey, G. W. Young, Sir A. S L. (Partick) Harris, F. W. (Croydon., N.) Orr-Ewing, I. L Harvey, Air-Cmdre. A. V. Pickthorn, K. TELLERS FOR THE NOES: Houghton, S G Pitman, I. J. Major Ramsay and Brigadier Mackeson.
Clause, as amended, ordered to stand part of the Bill.
CLAUSE 47.—(Ascertainment of income and total income.)
I beg to move, in page 33, line 42, at the end, to add:
"and subject as aforesaid income shall be treated for the purposes of this Part of this Act as income of an individual if it would be so treated for the purposes of Surtax."
This Amendment is to remove certain doubts which have arisen as to the precise effect of Clause 47. When we were discussing an earlier Amendment, I called attention to a particular Clause the object of which is to provide that when something is treated as income for Surtax purposes, it is also so treated for the purpose of assessing income for Contribution purposes. This Clause, as hon. Members will see, at the moment includes the words:
"shall be ascertained for the purpose of this Part of this Act as they are ascertained for the purpose of Surtax."
Therefore, we seek to make it beyond doubt that when income is income for Surtax purposes, it shall be treated as income for the purpose of the Contribution.
8.15 p.m.
I take it from what the hon. and learned Gentleman has said that this Amendment is to remove doubts which are rather difficult for the ordinary layman to see, but I accept them from him. Included in the proposition is the fact that by passing this Amendment it will not be possible for us to call attention subsequently by our own Amendment to the difficulties we feel about this Clause and the dislike we have of it in that it aggregates for this purpose the income of man and wife. Therefore, I argue against this Clause on the grounds that if it is inserted it will mean that the income of the husband and the wife will be aggregated for this purpose. I start by saying that it is not a matter in which I personally am the least interested. Nobody could be less interested. I never have been, nor am I, and I am certainly not likely to be, married—
The right hon. and gallant Member is getting to a dangerous age.
I can only express my own views on the subject without having any wished upon me, even in the presence of two hon. Ladies, both of whom are happily married, I hope, and both of them victims—or possible victims, because I do not know their income arrangements—of this Clause. I hope that they will take it from me that if it is their cause I am fighting, it is a gallant action on my part. It does seem to us that it is wrong to aggregate the income of husband and wife for the purpose of this Special Contribution—
"Whom God hath joined …"
I do not know what the Communist Party has to say about this.
I merely remarked, "Whom God hath joined let no man put asunder."
A very interesting proposition, which I have heard at various weddings which I have been privileged to attend, but which seems to have no relevance at all to what I am now saying. The question is that it has not yet been made absolutely clear: the Bill itself, as it is now drawn, never comes down definitely on one side or the other as to whether or not this Special Contribution is a contribution from income or a contribution from capital. All the way through, so far as I can understand it, the Chancellor of the Exchequer is trying to get the best of both worlds. When it suits him he wants it as income and when, on the other hand it suits better as capital, then as capital it is considered. Generally speaking, I think that as time marches on the general taxation of the husband and wife's income will become an anachronism. It is interesting to notice that, while it still survives here, it is getting less and less the fashion, and greater are the reliefs in that direction which are given, for example, in the United States. If the Chancellor likes to see the methods of taxation in that country, he will find that very great changes have emerged in that direction.
Here, on the other hand, there are the beginnings of a change. We were yesterday discussing Clause 27. We cannot reopen that discussion. There may be some here who were not present at that time and who would like to be reminded that, in this very Bill, we are taking steps to give relief on the earned income of a woman and separating it from that of her husband. We are doing that when it is a question of relief under Clause 27, but 20 Clauses later, in Clause 47, we are going out of our way to aggregate her income with his income in order that upon the joint income may fall the Special Contribution. That is on the assumption that the Special Contribution is a tax on income.
But not an hour ago the Solicitor-General, speaking on an Amendment to the previous Clause, definitely used the words that this tax is to be considered a tax on capital. That is what he said. As a matter of fact, if hon. Gentlemen like to look ahead a little—again I do not wish to anticipate any Debate—to Clause 55 and read it in the interval between now and the time when we reach it, they will find that there the matter is dealt with as a capital tax. Special provisions are there taken for recovery from trustees. That means recovery of money from trustees in order to pay the Special Contribution should it not be possible to pay it out of income.
There we have the dilemma. At one stage it is considered an income contribution: at another stage it is considered as a capital contribution. Of course, the whole difference is that if one comes down purely on the income basis then the right hon. and learned Gentleman would no doubt be justified, according to existing law, in taking the income of husband and wife as one. If he does that, then he must abandon all hopes of using Clause 55 and the others to recover capital from trustees, because if he is dealing with it as a capital problem then, on the analogy of Estate Duties, husbands and wives are separate.
I invite the right hon. and learned Gentleman to come down on one side or the other and not to try in the same Bill to make the best—or the worst from the point of view of people who have to pay—of both worlds. It is really an impossible situation in which he has put the Committee because of the anomalies and difficulties that we see in the working out of this Special Contribution. On this point the fair thing to do would be to separate the husband and the wife for this purpose, and only for this purpose. For that reason, I should be inclined to vote against this Amendment on the ground that, as I understand it, it makes it absolutely certain that the incomes of the husband and the wife will be aggregated for this purpose. We do not think that that is the right answer.
I wish to support what has been said by my right hon. and gallant Friend. It is not only in the United States that the funds of the husband and the funds of the wife are treated separately. That is also done in the Dominions, with perhaps the exception of South Africa of which I am not quite sure. This really is an anachronism. It is cheaper to live together unmarried than to get married. That is a bad thing. We ought to remove this advantage to immorality which the tax at present encourages. It cannot be said—and I speak as a husband, and not as a bachelor—that the husband now has control of his wife's money. There was a time when he had control, but with the Married Women's Property Act, and one thing and another, the husband has not now got control of his wife's money. Let us face the consequences of that. The consequences are that it is much better that the wife should be assessed for taxation herself. Then she will be responsible for her tax and she will not spend so much money.
It is high time that we altered the law. The present Chancellor is not content with maintaining this anachronism. If we look forward, we find a Clause in which the Chancellor aggregates the income not only of husband and wife but of husband and wife and of ex-wives together, plus all illegitimate children. Really, of all the ancient tribal customs, this seems to be the limit. I hope that the Committee will not pass this Amendment, but will vote against it as a protest against the treatment of married women in what is said to be an enlightened age but in what I am afraid is not.
The Chancellor puts the Committee in a difficulty in dealing with this Amendment. In the discussion of an Amendment to Clause 46, moved by the hon. Member for Thirsk and Malton (Mr. Turton) the right hon. and learned Gentleman said it would be wrong to grant the relief or allowances suggested by my hon. Friend then, because if a tax was a capital tax, it was wrong to take into account what would in fact be the annual expenditure. I know that I have not quoted the exact words, but I do not think that I have misinterpreted the arguments which he adduced on that occasion. As far as that part of the right hon. and learned Gentleman's remarks went, I thought there was some force in his argument. It was only when he proceeded to give other reasons that I took the view that we should vote against the Government.
In that instance, I thought that there was considerable force in his argument. It was that if a tax was on capital it was wrong to ask for relief based on annual expenditure. Now we come to the point when the Chancellor appears to be saying that this is a capital tax and, for the purpose of assessing it, we must take into account the rules relating to Surtax and Income Tax as they apply to income rather than the arrangements which exist for Death and Succession Duties in regard to capital. Surely, that cannot be justified. It seems fantastic that the right hon. and learned Gentleman in the space of perhaps two or three hours, should adduce two arguments which exactly contradict and cancel out each other. Before we allow this Amendment to be approved, we should have a clear explanation of how the Government reconcile the statements made on that occasion with the attitude which they now take.
8.30 p.m.
I hope that the Solicitor-General will feel that this short Debate gives adequate reason for the Government to have second thoughts on this matter. The difficulty in which the Chancellor finds himself is one which has already arisen in our discussions today. On the Chancellor's own showing earlier, this is a levy which, in some cases, will be met out of investment income, but I think that 57 per cent. of the participants who will have to find £2,000 or more, will have to find the money out of capital.
Surely what the Committee have to decide is what would be the most convenient machinery to deal with this question. As it has been shown that a very large majority of those upon whom the levy will fall will have to meet this impost out of capital, surely there is great force in the arguments put forward by the hon. Members who have spoken in this rather revealing Debate as to whether, as it will fall on capital, the system should not obtain under which husband and wife are, in fact, separated for this purpose, as they are when capital is under consideration. Everyone will have admired the altruism of my right hon. and gallant Friend in acting as sponsor in this matter, though I am not sure whether I admire the frankness of my hon. Friend the Member for Chippenham (Mr. Eccles) in giving some of the possible impacts upon wives of the proposal we are now discussing. Surely, the palm of this Debate must go to the hon. Member for West Fife (Mr. Gallacher), who, as the representative of the Communist Party, rested himself on the Book of Common Prayer of the Church of England. That is something that should go on the records of the House with some satisfaction.
Will the hon. and gallant Gentleman credit me with the fact that I have been guided by the Chancellor, who has been telling us that spiritual things are much more important than material things?
The right hon. and learned Gentleman has, indeed, an achievement to his credit if he has succeeded in converting the hon. Member for West Fife (Mr. Gallacher), and that is something on which we should congratulate him. I feel that a strong case has been made for reconsideration of this matter and I hope that the Chancellor will have another look at it.
This Amendment has been opposed, I submit, upon a misconception. Hon. Members have asked the question, "Is it a tax on capital or on income?" It is a Contribution to be paid by taxpayers, some of whom will pay it out of income, while those who have to pay the larger amounts will, no doubt, pay it out of capital. We have had a discussion on that earlier. Hon. Members have been saying that the income of husband and wife should not be aggregated—
May I interrupt the Solicitor-General? I do not think he should say that. The Chancellor of the Exchequer, a very short time ago, used exactly the opposite argument and said it was a tax on capital. It is quite wrong of the Solicitor-General to say that.
To dub it with a name does not alter its character. It is simply a tax to be paid by taxpayers, and it is their concern whether they pay it out of capital or out of income, though the taxpayer who has to pay the larger sum will, of course, have to pay it out of capital. That is a proper description of the tax, and it seems to me to be wholly fallacious to oppose it by way of analogy with Estate Duty, on the argument that the income of husband and wife should not be aggregated. The two cases are in no sense analogous. Estate Duty is charged upon a death; this tax is charged upon the living. The two things are wholly different, different in conception and different in the circumstances in which they are imposed. The basis of the tax is that it is assessed upon Surtax principles, and Clause 47, which we are now discussing, lays down that the income of the contributor is assessed upon Surtax principles. That being so, is there any reason to depart from that principle?
The question whether the income should be aggregated in this sense was one of the questions considered in 1920 by the Royal Commission which considered Income Tax and Surtax, and it recommended that the system of aggregation should be continued for the reason that the criterion which should be adopted was the criterion of ability to pay. If husbands and wives have separate incomes they are, from the practical and commonsense point of view, regarded as a single entity. I submit that there is no case for departing from that principle, which is the principle upon which aggregation for Surtax and Income Tax purposes is based. In point of fact, if the proposal were accepted, it would cost a fairly substantial sum—some £5 million. That being so, and there being no argument founded upon a principle that I, personally, can discern, I ask the Committee to say that there is no reason for accepting the proposal which has been argued upon the present Amendment, although it is a subject of a later Amendment on the Order Paper.
May I ask a question? The Solicitor-General based his remarks on the fact that this proposal is founded on the Surtax principle. If the whole of the tax is based on Surtax principles, what is the position of farming losses? Are they also based on Surtax principles? The hon. and learned Gentleman cannot have it both ways every time.
Losses can be carried against earned income. We are talking about investment income.
I really cannot accept the statement put forward by the Solicitor-General, who, in fact, led us back to the year 1920, when it was reported that the aggregation of the incomes of husband and wife for Income Tax and Surtax purposes was a desirable thing. The Solicitor-General has said that, if it was desirable then, it is also desirable now, but I submit that circumstances have changed very much. Both Income Tax and Surtax have been very much raised, and now this new tax is piled upon them.
A remark was made by an hon. Member earlier to which I think too little
attention was paid. It was that the tendency was either for marriages not to take place or to be broken up, and that it was constantly growing. I assure the Government that it is a feeling which goes quite deep in the country, and that I have had constituents come to me and say that marriages were broken up for this very reason. [Interruption.] The hon. Member may laugh at it and treat the matter with levity, in rather the same objectionable way as that in which he treated the Prayer Book. This is a serious matter, and the more husbands and wives are penalised by their income being taken together for all tax purposes, the more this tendency will spread.
It becomes increasingly obvious to us that the Government are trying to have it both ways. They are trying to run with the hare and hunt with the hounds. My simile is not, perhaps, a particularly happy one in respect of the Front Bench, who would have a good deal of difficulty in either running with the hare or hunting with the hounds—they certainly would not be able to do both at the same time. I therefore suggest that they should not try to do it now.
Question put, "That those words be there added."
The Committee divided: Ayes, 273; Noes, 110.
Division No. 172.] AYES. 8.40 p.m Adams, W. T. (Hammersmith, South) Brown, T. J. (Ince) Donovan, T. Allen, A. C. (Bosworth) Bruce, Maj. D. W. T. Driberg, T. E. N. Allen, Scholefield (Crewe) Burden, T W. Dugdale, J. (W. Bromwich) Alpass, J. H. Butler, H. W. (Hackney, S.) Dumpleton, C. W. Anderson, A. (Motherwell) Carmichael, James Dye, S. Anderson, F. (Whitehaven) Champion, A. J. Ede, Rt. Hon. J. C. Attewell, H. C. Chetwynd, G. R. Edelman, M. Austin, H. Lewis Cluse, W. S. Edwards, John (Blackburn) Awbery, S. S. Cobb, F. A. Edwards, N. (Caerphilly) Ayles, W. H. Cocks, F. S. Evans, Albert (Islington, W.) Ayrton Gould, Mrs. B Collindridge, F. Evans, E. (Lowestoft) Balfour, A. Collins, V. J. Evans, S. N. (Wednesbury) Barton, C. Colman, Miss G. M. Ewart, R. Bechervaise, A. E. Comyns, Dr. L. Fairhurst, F. Belcher, J. W. Cook, T. F. Farthing, W. J. Bellenger, Rt. Hon. F. J Cooper, Wing-Comdr. G. Fernyhough, E. Benson, G. Corbel, Mrs. F. K. (Camb'well, N.W.) Field, Capt. W. J. Berry, H. Corlett, Dr. J. Fletcher, E. G. M. (Islington, E.) Beswick, F. Cove, W. G. Follick, M. Bing, G. H. C. Cripps, Rt. Hon. Sir S Foot, M. M. Binns, J. Daises, P. Fraser, T. (Hamilton) Blenkinsop, A Dalton, Rt. Hon. H. Freeman, J. (Watford) Blyton, W. R. Davies, Ernest (Enfield) Gaitskell Rt. Hon. H T N Bottomley, A. G. Davies, Haydn (St. Pancras, S.W.) Gallacher, W. Bowden, Fig. Offr. H. W. Davies, R. J. (Westhoughton) Ganley, Mrs. C. S. Braddock, Mrs. E. M. (L'pl, Exch'ge) Davies, S. O. (Merthyr) George, Lady M. Lloyd (Anglesey) Braddock, T. (Mitcham) Deer, G. Gibbins, J. Bramall, E. A. de Freitas, Geoffrey Gibson, C. W. Brook, D. (Halifax) Delargy, H. J. Glanville, J. E. (Cornett) Brooks, T. J. (Rothwell) Diamond, J. Goodrich, H. E. Brown, George (Belper) Dodds, N. N Gordon-Walker, P. C. Granville, E. (Eye) Marquand, H. A. Sorensen, R. W. Grenfell, D. R. Mayhew, C. P. Soskice, Sir Frank Grey, C. F. Messer, F. Sparks, J. A. Griffiths, D. (Rother Valley) Middleton, Mrs. L. Stamford, W. Griffiths, W. D. (Moss Side) Mikardo, Ian Stewart, Michael (Fulham, E.) Guest, Dr. L. Haden Moody, A. S. Stokes, R. R. Guy, W. H. Morley, R. Strauss, Rt. Hon. G. R. (Lambeth, N.) Haire, John E. (Wycombe) Morgan, Dr. H. B. Stross, Dr. B. Hale, Leslie Murray, J. D. Summerskill, Dr. Edith Hall, Rt. Hon. Glenvil Nally, W. Swingler, S. Hamilton, Lieut.-Col. R Naylor, T. E. Sylvester, G. O. Hannan, W. (Maryhill) Neal, H. (Claycross) Taylor, R. J. (Morpeth) Hardman, D. R. Nichol, Mrs. M. E. (Bradford, N.) Taylor, Dr. S. (Barnet) Hardy, E. A. Nicholls, H. R. (Stratford) Thomas, D. E. (Aberdare) Hastings, Dr. Somerville Noel-Baker, Rt. Hon. P. J. (Derby) Thomas, Ivor (Keighley) Henderson, Rt. Hon. A. (Kingswinford) Noel-Buxton, Lady Thomas, I. O. (Wrekin) Henderson, Joseph (Ardwick) Oldfield, W. H. Thomas, John R. (Dover) Hewitson, Capt. M. Oliver, G. H. Thomas, George (Cardiff) Hobson, C. R. Orbach, M. Thorneycroft, Harry (Clayton) Holman, P. Paget, R. T. Thurtle, Ernest Holmes, H. E. (Hemsworth) Paling, Rt. Hon. Wilfred (Wentworth) Tiffany, S. Horabin, T. L. Palmer, A. M. F Titterington, M. F. House, G. Parker, J. Tolley, L. Hoy, J. Parkin, B. T. Turner-Samuels, M. Hudson, J. H. (Ealing, W.) Paton, Mrs. F. (Rushcliffe) Ungoed-Thomas, L. Hughes, Emrys (S. Ayr) Paton, J. (Norwich) Vernon, Maj. W. F. Hughes, H. D. (W'lverh'pton, W.) Pearson, A. Viant, S. P. Hynd, H. (Hackney, C.) Peart, T. F. Wadsworth, G. Hynd, J. B. (Attercliffe) Perrins, W. Walker, G. H. Irvine, A. J. (Liverpool) Papplewell, E. Wallace, G D. (Chislehurst) Irving, W. J. (Tottenham, N.) Porter, E. (Warrington) Warbey, W. N. Jay, D. P. T. Porter, G. (Leeds) Watkins, T. E. Jeger, Dr. S. W. (St. Pancras, S.E.) Price, M. Philips Watson, W. M. Jenkins, R. H. Proctor, W. T. Weitzman, D. Johnston, Douglas Pursey, Cmdr. H Wells, P. L (Faversham) Jones, D. T. (Hartlepool) Randall, H. E. Wells, W. T. (Walsall) Jones, J. H. (Bolton) Ranger, J. West, D. G. Jones, P. Asterley (Hitchin) Rankin, J. Wheatley, Rt. Hn. J. (Edinburgh, E.) Keenan, W. Reid, T. (Swindon) White, H. (Derbyshire, N.E.) Kenyon, C. Rhodes, H. Whiteley, Rt. Hon. W. King, E. M Richards, R. Wigg, George Kinghorn, Sqn.-Ldr. E. Ridealgh, Mrs. M. Wilcock, Group-Capt. C. A B Kinley, J. Roberts, Emrys (Merioneth) Wilkins, W. A. Lee, F. (Hulme) Roberts, Goronwy (Caernarvonshire) Willey, F. T. (Sunderland) Leonard, W. Roberts, W. (Cumberland, N.) Willey, O. G. (Cleveland) Leslie, J. R. Royle, C. Williams, D. J. (Neath) Levy, B. W. Sargood, R. Williams, J. L. (Kelvingrove) Lewis, J. (Bolton) Scott-Elliot, W. Williams, R. W. (Wigan) Lindgren, G. S. Segal, Dr. S. Williams, W R. (Heston) Longden, F. Shackleton, E. A. A. Willis, E. Lyne, A. W. Sharp, Granville Wills, Mrs. E. A. McAdam, W. Shawcross, C. N. (Widnes) Wilson, Rt. Hon. J. H McAllister, G. Shurmer, P. Woods, G. S. McGhee, H. G. Silverman, J. (Erdington) Wyatt, W. McKinlay, A. S. Silverman, S. S. (Nelson) Yates, V. F. McLeavy, F. Simmons, C. J. Young, Sir R. (Newton) Mallalieu, E. L. (Brigg) Skeffington-Lodge, T. C Younger, Hon. Kenneth Mallalieu, J. P. W. (Huddersfield) Skinnard, F. W. Mann, Mrs. J. Smith, C. (Colchester) TELLERS FOR THE AYES Manning, C. (Camberwell, N.) Smith, H. N. (Nottingham, S.) Mr. Snow and Manning, Mrs. L. (Epping) Solley, L. J. Mr. Richard Adams
NOES. Agnew, Cmdr. P. G. Crookshank, Capt. Rt. Hon. H. F. C. Henderson, John (Cathcart) Amory, D. Heathcoat De la Bère, R. Hinchingbrooke, Viscount Assheton, Rt. Hon. R. Digby, S. W. Holmes, Sir J. Stanley (Harwich) Baldwin, A. E. Donner, P. W. Howard, Hon. A. Beamish, Maj. T. V. H. Drewe, C. Hulbert, Wing-Cdr. N. J. Beechman, N. A. Dugdale, Maj. Sir T. (Richmond) Hurd, A. Boles, Lt.-Col. D. C. (Wells) Eccles, D. M. Hutchison, Lt.-Cm. Clark (E'b'rgh, W.) Bossom, A. C. Erroll, F. J. Hutchison, Col. J. R. (Glasgow, C.) Bower, N. Foster, J. G. (Northwich) Jennings, R. Boyd-Carpenter, J. A. Fraser, H. C. P. (Stone) Joynson-Hicks, Hon. L. W. Braithwaite, Lt.-Comdr. J. G. Fraser, Sir I. (Lonsdale) Legge-Bourke, Maj. E. A. H Bromley-Davenport, Lt.-Cal. W. Fyfe, Rt. Hon. Sir D. P. M Lennox-Boyd, A. T. Buchan-Hepburn, P. G. T. Gage, C. Lindsay, M. (Solihull) Bullock, Capt. M. Galbraith, Cmdr. T. D. Linstead, H. N. Butler, Rt. Hon. R. A. (S'ffr'n W'ld'n) George, Maj. Rt. Hn. G. Lloyd (P'ke) Lloyd, Maj. Guy (Renfrew, E.) Carson, E. Gomme-Duncan, Col. A. Lloyd, Selwyn (Wirral) Challen, C. Grimston, R. V. Low, A. R. W. Clarke, Col. R. S. Harris, F. W. (Croydon, N.) Lucas, Major Sir J. Conant, Maj. R. J. E. Harvey, Air-Cmdre. A. V. Lucas-Tooth, Sir H. Corbett, Lieut.-Col. U. (Ludlow) Haughton, S. G. Macdonald Sir P. (I. of Wight) McFarlane, C. S. Ponsonby, Col. C. E. Thornton-Kemsley, C. N. Maclay, Hon. J. S. Poole, O. B. S. (Oswestry) Thorp, Brigadier R. A. F Macpherson, N. (Dumfries) Price-White, Lt.-Col. D. Touche, G. C. Maitland, Comdr. J. W. Ramsay, Maj. S. Turton, R. H. Manningham-Buller, R. E. Reed, Sir S. (Aylesbury) Vane, W. M. F. Marshall, D (Bodmin) Reid, Rt. Hon. J. S. C. (Hillhead) Walker-Smith, D. Maude, J. C. Renton, D. Wheatley, Colonel M. J. (Dorset, E.) Medlicott, Brigadier F. Roberts, H. (Handsworth) White, Sir D. (Fareham) Mellor, Sir J. Robinson, Roland Williams, C. (Torquay) Molson, A. H. E. Shepherd, W. S. (Bucklow) Williams, Gerald (Tonbridge) Moore, Lt.-Col. Sir T. Snadden, W. M. Willoughby de Eresby, Lord Morrison, Maj. J. G. (Salisbury) Spearman, A. C. M. Winterton, Rt. Hon. Earl Mott-Radclyffe, C. E. Stanley, Rt. Hon. O. York, C. Nield, B. (Chester) Stewart, J. Henderson (Fife, E.) Young, Sir A. S. L. (Partick) Odey, G. W. Strauss, H. G. (English Universities) Orr-Ewing, I. L Sutcliffe, H. TELLERS FOR THE NOES Pickthorn, K. Taylor, C. S. (Eastbourne) Mr. Studholme and Pitman, I. J Thomas, J. P. L. (Hereford) Brigadier Mackeson
I beg to move in page 33, line 42, at the end, to add:
For example, a man who earned an income of £2,000 a year and had some £20,000 which he had invested in, say, fairly risky concerns bringing in 6 per cent., would be drawing an investment income—and here I must be careful to see that the Solicitor-General agrees upon the mathematics—which, according to my computation would be £1,200. Is the hon. and learned Gentleman at one with me on that point? The Special Contribution would be between £200 and £250. He retires either just before or just after the end of the financial year 1947–48. He is left with the interest on his savings, in other words, this sum of £1,200, to live on. It is rather unfair, I suggest, that such a person should be called upon to pay this special Contribution at all.
We were told by the Chancellor of the Exchequer when he made his Budget speech that the purpose of the Contribution was that those who possessed large capital assets should make some contribution. One can hardly describe such a person whose case I have outlined as one possessing large capital assets. It has been said that the measure of the Contribution should be income. Here is a man whose income has very substantially changed; his earned income has disappeared very shortly after the end of the financial year or even before it. I suggest it would be much fairer in such a case that a man in that position should not be called upon to pay a contribution calculated on more than what he earns in the financial year 1948–49. I think the hon. and learned Gentleman will understand what I have said without my going into the detailed wording of the Amendment. If a man retires about the material time he ought not be assessed on the earned income he was making just before his retirement.
I appreciate the object behind the hon. and learned Gentleman's Amendment. The difficulty is that if we make a change in the tax in that case, where else are we to apply it? There are, after all, all sorts of varieties of circumstances in which the income of an individual in 1948–49 may be less than his income in 1947–48. Conversely, of course, there are a great many circumstances in which it may be more. If one is to say that, for the reason of retirement a person's income declines and one should take the 1948–49 income in preference to the 1947–48 income, what is one to say in the case of a person who, for one reason or another, earns a great deal more in 1948–49 than he earned in 1947–48? One has to consider both sides, the taxpayers and the Revenue.
If one is to be logical about it, one should say that if we are prepared to treat any case of that sort—a reduction of income in the year 1948–49—as an argument for scaling down contributions, we should equally, in the event of various circumstances there may be which cause an increase in the income in 1948–49, scale it up. Once one embarks on that course it is impossible to tell where one is going to end. After all, not merely may retirement be the cause of an income being less in 1948–49 than in 1947–48. There may be business losses; there may be illness; there may be a variety of misfortunes which may bring about the result that a taxpayer has, perhaps, through no fault of his own, and in spite of his endeavours in 1948–49, a reduced income.
If one accepts this Amendment in the case of retirement it is very difficult to see why in the case of misfortune, where there may be a much stronger case, one will not grant equal concessions. Once we start doing that we do get into appalling administrative difficulty. We get to the stage where, instead of having a tax which in point of administration is simple—I do not say in the point of the framework of the Bill, but in the point of administration—we shall embark on an almost interminable series of inquiries, trying to ascertain whether the reason for a decline of income in 1948–49 is or is not one which will bring the case within the scope of the various concessions for which a case can be made out. For those reasons, while I entirely appreciate the motive behind the hon. and learned Gentleman's proposal, I feel it would be quite impossible to accept the Amendment. If we accept the proposal in this case, then there are many other cases which can be brought forward with equal cogency.
The Solicitor-General has based his objection to this Amendment mainly, as I understand it, on administrative difficulties. He has also pointed out that if he gave way to my hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) it would mean that other unfair cases would come up. Surely, it is our job as Members of the Committee, in dealing with these matters, to see that there are no unfair cases, if we possibly can. That really seems to be the strength of the Amendment—that if we make it, we may reveal other unfair cases. That, surely, is only an argument—and a very simple and fair argument—for a further inquiry to be made to put the matter right. I have never accepted, and the party to which I belong will, I think, never accept, that because a thing is unjust, it is not the duty of a Committee of the House of Commons or the House of Commons itself to put the matter right.
Let me give an illustration. The words in the Amendment are
9 p.m.
That is only one point of view. An even more likely event is that there will be a considerable change in the Membership of this Committee in the next six months, and then we should find that some of my hon. and learned Friends on this side were sitting on the Treasury Bench. I am looking at this purely from a lawyer's point of view, because I have often been accused, not being a lawyer, of saying hard things about lawyers. I notice that there are few lawyers taking part in these discussions, and I think they ought to come in and support my hon. and learned Friend the Member for Wirral.
Would the leadership of a great political party be an "active profession?" Supposing he was deposed in the middle of this coming year, he might lose a large amount of income overnight. The arguments which I am giving are really for the purpose, and I am sure the Government will take it that way, of showing that this is a good Amendment. I am asking that the Government should, as they have acknowledged and gone three-quarters of the way towards accepting the Amendment, go into the matter again between now and the Report stage, when they might find from other cases that might be brought in. I support the Amendment very strongly, and I would ask the right hon. and learned Gentleman seriously to consider whether, having gone so far, he cannot accept it.
May I refer to the Solicitor-General's argument which I believe to be entirely fallacious in principle on two grounds. First of all, he sought to belittle the virtues of the Amendment by saying that many other cases of hardship of an analogous description might be introduced. The majority of the cases to which he referred appeared to be applicable solely to unearned income, whereas this Amendment deals entirely with earned income.
I said business declining or something of that sort—business misfortunes.
If it is business declining, that may still be earned income, but equally it may be unearned income, if resulting from diminution of investments from that business.
The second line of argument is, I believe, even stronger. In fact the hon. and learned Gentleman said, although he did not use these words, that a contributor must take the rough with the smooth, and certain aspects of the matter might be disadvantageous to him, but, on the other hand, might be advantageous to him in certain circumstances. That may be an argument which is applicable to an annual tax. Where there is a running taxation going on from year to year, it may be legitimate to say that the person has to take the rough with the smooth, but it is not applicable to a once-for-all levy. Surely, it is the duty of the Government and of this Committee to ensure that the levy applies with the minimum possible hardship upon the individual contributor or taxpayer. It is in order to try to reduce that hardship by removing at least one anomaly that I heartily support the Amendment.
May I say once again how disappointed I am at the reaction of the Government to this Amendment. This is the third Amendment which I have endeavoured to put before the Committee. The first dealt with the question of the man discouraged from continuing to work; the second with regard to the estate that would have to bear double Death Duties, and the third was with regard to the man who retires and whom the Solicitor-General admits will be hard hit by this Special Contribution. The conclusion that I am coming to is that the Government's attitude with regard to the Special Contribution is that they not only want to inflict a thoroughly bad tax on the community but that they are being vindictive as well.
indicated dissent.
Amendment negatived.
I beg to move, in page 33, line 42, at the end, to add— [Interruption.] I appreciate the kindly spirit with which I appear to be received. I should warn hon. Members opposite that this Amendment includes the word "nationalisation," and, therefore, it is improbable that they will give it that unprejudiced attention which I had hoped they would give to my last Amendment. This Amendment raises what I submit to the Committee are extremely hard cases. The Contribution is supposed to be a charge upon capital. I did not understand the argument on the last Amendment but one, when it was rather suggested that this was not a tax on capital, because the Chancellor of the Exchequer definitely said in his Budget speech that the Contribution would be largely payable out of capital. This is a charge upon capital, and the measure of that charge is to be the income for 1947–48. The unfairness and arbitrary nature of that measure is shown by the case of the holders of compensation stock for nationalised concerns who are liable to pay the Contribution.
The purpose of the Amendment is to alter the measure so far as such holders are concerned and to make the test, instead of the actual income which they receive from the stock of the nationalised concern, the income from the amount of compensation stock which was allotted to the holding. If I may tell the Committee of the practical effects, it may cause some astonishment as to the extent to which the holders of stocks of nationalised concerns have suffered diminution of income.
If we take the holder of 1,000 Great Western Railway ordinary shares, the dividend for 1947 was £72 16s. The compensation given for that holding was £590 13s. 6d. of compensation stock. The interest on that at 3 per cent. would amount to £17 14s., a difference of £55 2s. between the interest actually paid on the stock of the concern that was nationalised and the amount that is payable on the compensation stock allotted. Take the case of the Southern Railway. In 1947 the holders of £1,000 of Southern Railway Ordinary Stock received £46; the compensation is £240 worth of stock, on which the interest is £7 4s.—a difference of £38 16s.
In another branch of nationalised undertakings, the electricity industry, on £1,000 worth of County of London Electricity Ordinary Stock the dividend was £100; the compensation is £2,470, giving an interest of £74. That is nothing like as large a difference as in the case of the railway stock, but is, nevertheless, a substantial difference. I believe that precisely the same results will affect the colliery undertakings when the precise amount of compensation is assessed in each individual case.
I submit that when people have been compulsorily expropriated in this way, and their income forcibly reduced by the action of the Government, the only fair thing to do is to take as a test the income, which is so much less, derived from the compensation stock allotted. It may be I shall be told that the answer to my point is contained in Clause 60; and that Clause 60 is designed to deal with precisely this circumstance. If the hon. and learned Gentleman will tell me that Clause 60 will cover the case of railway stock and other stock in nationalised concerns, that will go some way to meet my point.
I am obliged to support this Amendment. I was extremely disappointed with the arguments advanced by the learned Solicitor-General in answer to Amendments, put forward from this side of the Committee, dealing with these matters of detail, but based upon considerations of equity. After all, earlier this afternoon we had a general discussion on the principles of this' Special Contribution, and we on this side of the Committee have accepted our beating upon the general principle. The Solicitor-General indignantly shook his head when my hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) said that he felt the treatment which was being accorded by the Government to our detailed Amendments showed that the intentions of the Government in this matter were vindictive. If the Solicitor-General is saying that the attitude of the Government in this matter is not vindictive, then we should expect the Government to be prepared to give sympathetic consideration to Amendments, more or less of detail, put forward from this side of the Committee which, in view of the Division that took place earlier this afternoon, is accepting the general principles of the Special Contribution.
We are genuinely attempting to ensure that this Special Contribution, if it has got to be paid, will operate reasonably equitably between man and man. After the Opposition has put forward its general case, its subsequent duty is to try to improve the Bill and to ensure that justice is done. The arguments put forward by the Solicitor-General on the last Amendment were, if I may say so, hardly worthy of a Law Officer of the Crown. In order to argue against the case put forward by my hon. and learned Friend, the Solicitor- General proceeded to give a number of other cases of hardship, and said that the Amendment did not cover them. I am surprised that in order to defend the provisions of this Bill he should point to the number of hardships which must necessarily happen, and which are not remedied by the Amendment under discussion.
That was not on this Amendment.
I am dealing with the general points which are being raised in these Amendments in order to ensure that no injustice is done in the operation of this Clause. When you, Mr. Beaumont, call me to Order, and not before, I shall defer to your Ruling; but I am not prepared to break off my argument because of an interruption from the hon. Member for West Fife (Mr. Gallacher).
I am only trying to give the hon. Member good guidance.
I was about to say that the Solicitor-General, in answering the argument that where the income in the datum year has suddenly fallen some concession should be made, advanced the argument that in some other cases there might have been an unexpected increase in the income. My hon. Friend the Member for Chichester (Mr. Joynson-Hicks) said that the argument of the Solicitor-General was that any contributor must be prepared to take the rough with the smooth.
9.15 p.m.
As the Solicitor-General has not spoken on this Amendment, it appears to me that the hon. Member for the High Peake (Mr. Molson) must be referring to and dealing with a speech on a previous Amendment.
There is a series of Amendments dealing with the case where there has been a sudden reduction in income in the datum year.
I think the hon. Member will appreciate that we are not discussing the series of Amendments now. We are discussing one specific Amendment.
I take it, Mr. Beaumont, having heard—as I was able to do and you were not—the answer of the Solicitor- General on a previous Amendment, that it is reasonable to anticipate that his arguments on this occasion will not necessarily be entirely inconsistent with his arguments on the previous occasion. I was about to say that if the Solicitor-General advances now the same argument as on the previous occasion, it would be that the Government are not prepared to accept an Amendment to deal with cases of hardship where the income has declined since the datum year because there might be other cases in which the income had increased.
My hon. Friend the Member for Chichester said that the Solicitor-General's argument was that the contributor must be willing to take the rough with the smooth. With all due respect to my hon. Friend, he is giving the Solicitor-General credit for a far more logical argument than he actually advanced. What the Solicitor-General said was that Smith must be prepared to take the rough because there might be a case where Brown had taken the smooth. If that is the best argument that can be put forward for the Government, it is quite clear that this Contribution is intended to be completely arbitrary, based upon a certain year's aggregated income, and that they are not in the slightest degree concerned to ensure that the contribution shall not bear extremely arbitrarily and harshly upon any Special Contributor.
I ask the Solicitor-General to consider the Amendment, and, if he is not able to accept it on this occasion, I ask that before the Report stage he will try to persuade the Chancellor of the Exchequer to give effect to what he himself has indicated; and that the Government in carrying this Special Contribution through Parliament—because they consider it necessary to raise this revenue—will at any rate do what they can to ensure that it does not operate unfairly as between one contributor and another. I also ask the Solicitor-General, as a Law Officer of the Crown, not to base his argument solely on considerations of administrative convenience. There is, after all, the question of fairness, and I hope that the Government have not entirely abandoned the idea of trying to ensure that any tax, whatever its nature, shall be fair and equitable as between one contributor and another.
The hon. Member for The High Peak (Mr. Molson) fairly accurately forecast some of the arguments I propose to adduce. As regards my argument about shareholders, I have not heard any answer to it. Supposing one accepted this Amendment and then on the Report stage found a whole series of other Amendments asking that, as there had been a reduction in dividend through no fault of the shareholders, they should be treated in the same way as the shareholders mentioned by the hon. and learned Member for Wirral (Mr. Selwyn Lloyd), what would be the position? In their case also the income of 1948–49 would be substituted for the income of 1947–48. If this Amendment were accepted, what logical reason could be put forward for rejecting those other Amendments?
The arguments which I advance are not founded solely on administrative convenience, but are logical considerations as well as considerations of consistency. The argument in regard to this Amendment put forward by hon. Members opposite is that the shareholder in a concern taken over by the State receives a lesser rate of dividend from his holding in the State concern than he received before, and so should get this concession. But what is the position of the shareholder in other concerns, the earnings of which have gone down as compared with the preceding year through no fault of the shareholder? He could claim that because the dividend had gone down through no fault of his, he should be accorded the same treatment as the shareholder in the nationalised undertaking. What logical reason could there be for withholding similar treatment from the shareholder in the other concern? On the previous Amendment I was addressing the Committee about embarking on the course of measuring the contribution by reference to fluctuations, and if that is embarked upon here there is no limit to it. If once started, there is no logical point at which to stop.
I am putting in this Amendment a perfectly logical and definite limit. The limit is that of compulsory acquisition which has been made the law of the land by an Act of Parliament.
I am coming to that, but I submit to the Committee that it is a perfectly valid answer to the proposal to say that equal treatment should be given to the shareholder in the non-nationalised concern where the dividend return, through no fault of the shareholder, goes down in the succeeding year. With some hesitation, in view of the language used about it, I venture to repeat the argument about the shares which bring a higher dividend return in 1948–49. It is only logical that the Inland Revenue should be entitled to ask that where there is a higher return, that should be substituted for the 1947–48 return. One would have to go through an endless series of calculations and investigations in order to apportion the appropriate relief in all the various circumstances of companies in which shareholders hold shares. That would be highly impracticable and to stop short half way would be illogical. This Amendment does involve injustice as between one shareholder and another.
Can the Solicitor-General give an instance in the nationalised industries of the dividends on the shares going up by reason of nationalisation?
I was talking about shareholders in concerns which have not been nationalised.
And we were talking about shares in nationalised industries.
I am deploying arguments which, for reasons I have submitted, are sufficient to make it impossible for the Amendment to be accepted. I hope that, in view of those arguments, the Committee will feel satisfied that it would not be practical or logically consistent to accept the Amendment.
Unfortunately, I did not hear the reply of the hon. and learned Gentleman on the previous Amendment, but if it was anything like the one he has just given, it fully merited the epithets bestowed upon it. I presume that the Solicitor-General has either missed or designedly eluded the whole point of my hon. and learned Friend's Amendment. I do not think he was in the Committee on an earlier Amendment when the Chancellor of the Exchequer, in resisting the Amendment moved by one of my hon. Friends, underlined the fact that this was a capital levy and that, therefore, the tax provisions must be those appropriate to a tax on capital. We say that that being admitted, the only use of the income in a particular year is because that is a rough and ready, and not very accurate effort by the Treasury to ascertain in relation to the income what is the capital on which this levy is to be made. That, in any case, we all agree is an inaccurate method, but we should avoid those cases where it is quite certain that the income in the particular year does not bear, and never can bear, the proper relation to the capital which it represents.
That is why the case of the nationalised industry is chosen where—because of various reasons connected both with the compensation in the year after and the reliefs of various kinds and, therefore, increased dividends during the final year—the income in the year selected as the basis on which to estimate the capital is not in fact the true, regular income, so that any attempt on that basis to establish a capital on which the levy is to be made only results in an inflated capital and, therefore, an excessive levy. We feel that we are perfectly justified in this matter. We feel that the hon. and learned Gentleman has not attempted to meet the arguments that have been deployed, and certainly we shall press this matter to a Division.
I should like to advance one additional reason, that the owners of the shares in these nationalised industries have already borne a capital levy because the Government issued stock which went immediately to a discount and has stayed at a discount ever since. No compensation stock yet
issued has ever seen par and I submit that there is a strong reason why they should be exempted. I think that, having regard to the shabby treatment that has been served out to the stockholders of these nationalised industries, an exception should be made in their favour in this case.
May I put one point to the hon. and learned Gentleman before the Question is put? I really do not think he can have fully realised the position. He kept on talking about other shares. It has nothing whatever to do with other incomes from anything else except industries that have been nationalised. What happens to individuals or trusts having all their shares in railways before they were nationalised? The income might quite well be reduced from £5,000 to £4,500, and all they would have in hand to pay the tax would be this depreciated Government stock. First of all the Government are compelling the individual to sell to them a security at the lowest value, they then proceed to tax him on his previous income, and they make him pay when he has a lower income due to the fault of the Government. If he cannot pay it out of income, he has to pay it out of shares which have been depreciated by the folly of the present and the previous Chancellor of the Exchequer. Could anything be more stupid or unfair than this Clause, unless we amend it in the way suggested?
Question put, "That those words be there added."
The Committee divided: Ayes, 119; Noes, 263.
Division No. 173.] AYES. [9.31 p.m. Agnew, Cmdr. P. G. Digby, S. W. Howard, Hon. A. Amory, D. Heathcoat Donner, P. W. Hulbert, Wing-Cdr. N. J. Assheton, Rt. Hon. R. Drayson, G. B. Hurd, A. Baldwin, A. E. Drewe, C. Hutchison, Lt.-Cm. Clark (E'b'rgh, W.) Beamish, Maj. T. V. H. Dugdale, Maj. Sir T. (Richmond) Hutchison, Col. J. R. (Glasgow, C.) Beechman, N. A. Eccles, D. M. Jennings, R. Boles, Lt.-Col. D. C. (Wells) Erroll, F. J. Joynson-Hicks, Hon. L. W Bossom, A. C. Foster, J. G. (Northwich) Lambert, Hon. G. Bower, N. Fraser, H. C. P. (Stone) Legge-Bourke, Maj. E. A. H Boyd-Carpenter, J. A. Fyfe, Rt Hon. Sir D. P. M. Lennox-Boyd, A. T. Braithwaite, Lt.-Comdr. J. G. Gage, C. Lindsay, M. (Solihull) Bromley-Davenport, Lt.-Col. W. Galbraith, Cmdr. T. D. Linstead, H. N. Buchan-Hepburn, P. G. T. George, Maj. Rt. Hn. G. Lloyd (P'ke) Lloyd, Selwyn (Wirral) Bullock, Capt. M. George, Lady M. Lloyd (Anglesey) Low, A. R. W. Butler, Rt. Hon. R. A. (S'ffr'n W'ld'n) Gomme-Duncan, Col. A Lucas, Major Sir J. Carson, E. Granville, E. (Eye) Lucas-Tooth, Sir H. Challen, C. Grimston, R. V. Macdonald, Sir P. (I of Wight) Clarke, Col. R. S. Hannon, Sir P. (Moseley) McFarlane, C. S. Conant, Maj. R. J. E. Harris, F. W. (Croydon, N.) Maclay, Hon. J. S. Corbett, Lieut.-Col. U. (Ludlow) Harvey, Air-Cmdre. A. V. MacLeod, J. Crookshank, Capt. Rt. Hon. H F C Haughton, S. G. Macpherson, N. (Dumfries) Crowder, Capt. John E. Henderson, John (Cathcart) Maitland, Comdr. J. W. Davidson, Viscountess Hinchingbrooke, Viscount Manningham-Buller, R. E. De la Bère, R. Holmes, Sir J. Stanley (Harwich) Marshall, D. (Bodmin) Maude, J. C. Renton, D. Thorp, Brigadier R. A. F. Medlicott, Brigadier F. Roberts, Emrys (Merioneth) Touche, G. C. Mellor, Sir J. Roberts, W. (Cumberland, N.) Turton, R. H. Malson, A. H. E. Robinson, Roland Vane, W. M. F. Moore, Lt.-Col. Sir T. Roane, Col. L. Walker-Smith, D. Morrison, Maj. J. G. (Salisbury) Ross, Sir R. D. (Londonderry) Wheatley, Colonel M. J. (Dorset, E.) Morrison, Rt. Hon. W. S. (Cirencester) Sanderson, Sir F. White, Sir D. (Fareham) Mott-Radclyffe, C. E. Smith, E. P. (Ashford) Williams, C. (Torquay) Nield, B. (Chester) Snadden, W. M. Williams, Gerald (Tonbridge) Odey, G. W. Spearman, A. C. M. Willoughby de Eresby, Lord Orr-Ewing, I. L Stanley, Rt. Hon. O. Winterton, Rt. Hon. Earl Pickthorn, K. Strauss, H. G. (English Universities) York, C. Pitman, I. J. Sutcliffe, H Young, Sir A. S. L. (Partick) Ponsonby, Col. C. E. Taylor, C. S. (Eastbourne) Poole, O. B. S. (Oswestry) Taylor, Vice-Adm. E. A. (P'dd't'n, S.) TELLERS FOR THE AYES Ramsay, Maj. S Thomas, J. P. L. (Hereford) Mr. Studholme and Brigadier Mackeson Reed, Sir S (Aylesbury) Thornton-Kemsley, C. N
NOES. Adams, Richard (Balham) Driberg, T. E. N. Jones, J. H. (Bolton) Adams, W. T. (Hammersmith, South) Dugdale, J. (W. Bromwich) Jones, P. Asterley (Hitchin) Allen, A. C. (Bosworth) Dumpleton, C. W. Keenan, W. Allen, Scholefield (Crewe) Durbin, E. F M. Kenyon, C. Alpass, J. H. Dye, S. King, E. M. Anderson, F. (Whitehaven) Ede, Rt. Hon. J. C. Kinley, J. Attewell, H. C. Edelman, M Lawson, Rt. Hon. J. J. Austin, H. Lewis Edwards, John (Blackburn) Lee, F. (Hulme) Awbery, S. S. Edwards, N. (Caerphilly) Leonard, W. Ayles, W. H. Evans, Albert (Islington, W.) Leslie, J. R. Ayrton Gould, Mrs. B Evans, E. (Lowestoft) Levy, B. W. Balfour, A. Evans, S. N. (Wednesbury) Lewis, J. (Bolton) Barton, C. Ewart, R. Lindgren, G. S. Bechervaise, A. E. Fairhurst, F. Lipton, Lt.-Col. M. Belcher, J. W. Farthing, W. J. Longden, F. Bellenger, Rt. Hon. F. J. Fernyhough, E Lyne, A. W. Benson, G. Field, Capt. W. J. McAdam, W Berry, H. Fletcher, E. G M (Islington, E.) McAllister, G. Beswick, F. Follick, M. McGhee, H. G. Bing, G. H. C Foot, M. M. Mack, J. D. Binns, J. Fraser, T. (Hamilton) McKinlay, A. S. Blenkinsop, A Freeman, J. (Watford) McLeavy, F. Blyton, W. R. Gaitskell, Rt. Hon. H. T. N. Mallalieu, E. L. (Brigg) Bottomley, A. G. Gallacher, W. Mallalieu, J. P. W. (Huddersfield) Bowden, Fig. Offr. H. W. Ganley, Mrs. C. S. Mann, Mrs. J. Braddock, Mrs. E. M. (L'pl, Exch'ge) Gibbins, J. Manning, C. (Camberwell, N.) Braddock, T. (Mitcham) Gibson, C. W. Manning, Mrs. L. (Epping) Bramall, E. A. Glanville, J. E. (Consett) Marquand, H. A. Brook, D. (Halifax) Goodrich, H. E. Messer, F. Brooks, T. J. (Rothwell) Gordon-Walker, P. C. Middleton, Mrs. L Brown, George (Belper) Grenfell, D. R. Mikardo, Ian Brown, T. J. (Ince) Grey, C. F Monslow, W Bruce, Maj. D. W. T. Griffiths, D. (Rother Valley) Moody, A. S Burden, T. W. Griffiths, W. D. (Moss Side) Morley, R. Butler, H. W. (Hackney, S.) Guy, W. H. Morgan, Dr. H. B Carmichael, James Haire, John E. (Wycombe) Murray, J. D. Champion, A. J. Hale, Leslie Nally, W. Chetwynd, G. R Hall, Rt. Hon. Glenvil Naylor, T. E. Cluse, W. S Hamilton, Lieut.-Col. R. Neal, H. (Claycross) Cobb, F. A. Hannan, W. (Maryhill) Nichol, Mrs. M. E. (Bradford, N.) Cocks, F. S. Hardman, D. R. Noel-Buxton, Lady Collindridge, F Hardy, E. A Oldfield, W. H. Collins, V. J. Hastings, Dr. Somerville Oliver, G. H Colman, Miss G. M. Henderson, Rt. Hon A. (Kingswinford) Orbach, M. Comyns, Dr. L. Henderson, Joseph (Ardwick) Paget, R. T Cook, T. F. Hewitson, Capt. M Paling, Rt. Hon. Wilfred (Wentworth) Cooper, Wing-Comdr. G. Hobson, C R. Palmer, A. M. F. Corbel, Mrs. F. K. (Camb'well, N.W.) Holman, P Parker, J. Corlett, Dr. J. Holmes, H E. (Hemsworth) Parkin, B. T. Cove, W. G. Horabin, T. L Paton, Mrs. F. (Rushcliffe) Crawley, A. House, G. Paton, J. (Norwich) Cripps, Rt. Hon. Sir S Hoy, J. Pearson, A. Daines, P. Hudson, J. H. (Ealing, W.) Pearl, T. F Dalton, Rt. Hon. H. Hughes, Emrys (S. Ayr) Perrins, W. Davies, Ernest (Enfield) Hughes, H. D. (W'lverh'pton, W.) Popplewell, E. Davies, Haydn (St. Pancras, S.W.) Hynd, H. (Hackney, C.) Porter, E. (Warrington) Davies, R. J. (Westhoughton) Hynd, J. B. (Attercliffe) Porter, G (Leeds) Davies, S. O. (Merthyr) Irvine, A. J. (Liverpool) Proctor, W. T. Deer, G. Irving, W J. (Tottenham, N) Pursey, Cmdr. H. de Freitas, Geoffrey Jay, D. P. T. Randall, H E Delargy, H. J. Jeger, Dr. S. W. (St. Pancras, S.E.) Ranger, J. Diamond, J. Jenkins, R. H. Rankin, J. Dodds, N. N. Johnston, Douglas Reid, T. (Swindon) Donovan, T. Jones, D. T. (Hartlepool) Rhodes, H. Richards, R. Strauss, Rt. Hon. G. R. (Lambeth, N.) Wells, W. T. (Walsall) Ridealgh, Mrs. M. Summerskill, Dr. Edith West, D. G. Roberts, Goronwy (Caernarvonshire) Swingler, S. Wheatley, Rt. Hn. J. (Edinburgh, E.) Royle, C. Sylvester, G. O White, H. (Derbyshire, N.E.) Sargood, R. Symonds, A. L. Whiteley, Rt. Hon. W. Scott-Elliot, W. Taylor, R. J. (Morpeth) Wilcock, Group-Capt. C. A. B. Segal, Dr. S. Taylor, Dr. S. (Barnet) Wilkins, W. A. Shackleton, E. A. A Thomas, D. E. (Aberdare) Willey, F. T. (Sunderland) Sharp, Granville Thomas, Ivor (Keighley) Willey, O. G. (Cleveland) Shawcross, C. N. (Widnes) Thomas, I. O. (Wrekin) Williams, D. J. (Neath) Shurmer, P Thomas, John R. (Dover) Williams, J. L. (Kelvingrove) Silverman, J. (Erdington) Thomas, George (Cardiff) Williams, R. W. (Wigan) Silverman, S. S. (Nelson) Thorneycroft, Harry (Clayton) Williams, Rt. Hon. T. (Don Valley) Simmons, C J. Thurtle, Ernest Williams, W. R. (Heston) Skeffington-Lodge, T. C Tiffany, S. Willis, E. Skinnard, F. W Titterington, M. F. Wills, Mrs. E. A. Smith, C. (Colchester) Tolley, L Woods, G. S. Smith, H. N. (Nottingham, S.) Turner-Samuels, M. Wyatt, W. Solley, L. J. Ungoed-Thomas, L. Yates, V. F. Sorensen, R. W. Vernon, Maj. W. F. Young, Sir R. (Newton) Soskice, Sir Frank Viant, S. P. Younger, Hon. Kenneth Sparks, J. A. Walker, G. H. Stamford, W. Warbey, W. N. TELLERS FOR THE NOES Stewart, Michael (Fulham, E.) Watkins, T. E. Mr. Snow and Mr. George Wallace. Stokes, R. R. Weitzman, D.
Clause, as amended, ordered to stand part of the Bill.
CLAUSE 48.— (Meaning of "investment income.")
I beg to move, in page 34, line 1, after "section," to insert:
"and of the Schedule (Special provisions as to working directors) to this Act."
This Amendment is designed to take account of the criticism that the Clause might bear unfairly upon directors of private companies controlled by their working directors. There are, of course, instances where such directors do take, in the form of dividends on shares, what amounts to payment for their services rendered to the company. The proposal for which this makes provision in the Schedule will allow any working director of a director controlled private company who was in office during the whole of 1947–48 to treat as earned income and not as investment income dividend income from the company whether it comes to him in the form of remuneration or shares.
When we first saw the Clause, as originally drafted, we realised at once the obvious injustice that was being done to a large community of people who draw earned income in the form of dividends instead of being remunerated by salary. Obviously, as the Chancellor has realised by the introduction of this Amendment, and the subsequent new Schedule which we shall discuss later, thousands of directors of private companies whose real position is analogous to that of partners in a non-incorporated business are affected.
We should realise that there is nothing new in this position being recognised. It was recognised and referred to in legislation so long ago as 1922 when, in Section 21 of the Finance Act of that year, legislation was brought in which prevented the accumulation of unreasonable reserves in such companies free of Surtax. The Chancellor has obviously had many representations from many different types of industries and consumers and the Schedule, which is really what this Amendment introduces, does make some concession. It will, to a certain extent, do approximate justice, within the scope of the many serious anomalies which are inherent in this tax itself, to a certain number of these people.
When we come to examine the whole matter I think we must examine the position particularly from two points of view. First of all, the Chancellor has suggested two alternative limits to the extent to which this relief is applied. I think we should consider the second of those reliefs, as to whether the 15 per cent. in the £15,000 limit is, in itself, sufficient. We can ask ourselves what is the reason for that limit being put in, and I hope that whoever replies for the Government will direct themselves to that point. The second question is, does this new Schedule, and the rules laid down in it, meet the case where a business has no capital at all except the activities and the capacities of the directors themselves—that is a brokerage or professional business which has formed itself into a limited liability company.
9.45 p.m.
On the first point, this is not the place to argue whether or not high salaries are desirable. If the Government wish to restrict salaries, they have opportunities for doing so. Moreover, through the present Income Tax and Surtax arrangements which we have passed in this Bill, a very large proportion of high salaries, whether earned by way of dividends or directly in the form of salaries, is taken in the form of taxation. In addition—and this is the point at issue—anyone who takes their remuneration in the form of shares, for some reason unconnected with this tax, will be asked to pay an additional tax in the form of the Special Contribution. The higher that amount owing to the high rate of Surtax, the less they are able to pay it. There is no possible reason for assuming that these companies which in the past have formed themselves into limited liability companies have done so for the purpose of tax evasion. Many of them have been formed for many years. A large number were formed after the 1914–18 war and they did that without any idea of avoiding taxation of this sort.
It is worth while to give three examples of the anomalies which will arise among three different organisations, conducting the same sort of business. They may be insurance brokers, stockbrokers or professional men adjacent to each other in the same town. Five men are in business in partnership together and in a year they make £25,000. They pay no levy at all. Another firm of five men transferred their partnership business in 1946 to a company in exchange for shares. They each take £4,000 a year by way of remuneration, and £1,000 by way of dividends on the shares. They will each pay a Special Contribution of £750. The third firm also of five men transferred their business to a company, but instead of taking the major part of their income by remuneration, they took £250 each and the remaining £4,750 as dividend. They will pay a Special Contribution of £4,500.
There we have three firms all carrying on the same form of business, all making the same profit, with the same number of directors on whom this tax falls completely differently. There can be no justification for that. I should like to know whether the salaries of directors are to be deducted before a profit is struck. In normal accountancy the director's fees are shown in the accounts before the profit is arrived at. Presumably in this case, in order to ascertain the amount of the levy to be charged, the method of accountancy employed in these firms must be changed.
On the second point, it seems to us that the Schedule is more suitable for a manufacturing business than a purely professional business. In a manufacturing business it is usual that a director who owns shares has been allowed those shares by way of a capital gift or has received them when the company was formed in exchange for the previous capital that he had in the business and the £800dwill that he had achieved. Be that as it may, the shares had behind them an actual tangible asset. They had the plant, machinery and stock-in-trade of the business, and, to that extent, it could be argued that there is a capital asset to these shares. Where there is a brokerage business, there is no asset at all, and, if a director leaves the business, in many cases, the business goes as well, and the question of dividing the profit in this way is merely a convenient way of doing it.
Moreover, in many businesses of this sort, people are remunerated by an arrangement in which shares are given to directors and employees instead of a profit commission. These shares have no assets at all, they are not paid for when they are allotted and they have to be handed back when the man leaves the business. In these cases, the actual shares can hardly be said to belong to the people at all, and shares in a private company of this sort are extremely difficult to negotiate. They are not the sort of shares that can be freely bought and sold, as they are not wanted by many people, and, in certain cases, if it is suggested that a large block of shares should be sold, the people concerned will have to part with their control of the business. Will anyone suggest that we should break down a partnership? It is quite unreasonable that this distinction should be drawn.
If there are no other assets which may be worth while, where do the Government think the money is going to be found to pay this tax? We have been told by the Chancellor, although the Solicitor-General seemed to cast doubt upon it, but it is now generally accepted, that the tax has to be paid out of capital. In these particular cases, where is the capital to come from? It is quite obvious, in view of the large amounts taken in Surtax and Income Tax, there will be no income available for the provision of this amount.
I suggest that, if the Government insist on this proposal—and I hope that, on the Schedule, we can discuss it in greater detail—some plan must be devised by which there is a limitation of the amount of income based on the tangible assets available. There are other Amendments on the Order Paper in which my hon. Friends suggest an alternative, but the fact remains that there is no justification at all for drawing a line dividing these people who draw earned income by way of shares of this sort and creating an anomaly. I hope we shall have a detailed explanation from the Government on how they think this will work and what justification they have for this distinction.
This Amendment simply paves the way for the Schedule, and I apprehend from the speech to which we have just listened that the hon. Gentleman expects that the principle in the Schedule should be embodied. A number of detailed questions were asked, but I understand that the hon. Gentleman expects a reply when the Schedule itself is discussed or when the detailed Amendments to it are considered. In these circumstances, I will not attempt—
I understand that it was the Ruling of your predecessor in the Chair, Major Milner, and the general idea that we should have a general discussion on the Amendment which the Government have moved, on this point. It is quite obvious that this Amendment is directly tied up with the Schedule to which we shall come later. I was hoping that the question of principle would be answered by the learned Solicitor-General.
I thought it would be difficult to discuss any points of detail on the question of major principle. The case made by the hon. Member for Oswestry (Mr. O. Poole), was that people who have been carrying on as a partnership and then become a company, but really are in a sense continuing to work as partners, is a justification for the Schedule. It is for that reason that we have put down the present Amendment in order to pave the way to what is a lengthy and detailed Schedule. No doubt hon. Members will want to consider each part of the Schedule, the actual level of the figures that have been fixed and the detailed machinery of the provisions.
I should have thought it would have been difficult now to proceed to review the Schedule in detail. We shall again have to review it in detail when it is discussed. I think on the general principle, the two sides of the Committee are not far apart. It is the case of the partnership which, notwithstanding the fact that a company has been formed, really continues in a sense to be a partnership, so that the dividends paid to the directors should to a certain extent at any rate, be regarded as income and, therefore, not within the investment capital. I submit that we have made a case for this purely introductory Amendment on the understanding that when the Schedule is reached the detailed provisions of it will be subject to further investigation and discussion.
On a point of Order, Major Milner. Do I understand that your predecessor said that we might discuss at this point the general principle, at any rate, of the Amendments in line 27 which deal with the income of members of a company? If so, are we not in Order in pursuing that matter of principle and pressing the Solicitor-General for an answer to that aspect of the principle, which is very important?
I did not have the advantage of hearing the hon. Member's speech on the Amendment or my predecessor's Ruling, but I certainly imagine that would be the case, and that a general discussion might include the later Amendments in the name of the right hon. Member for West Bristol (Mr. Stanley) and others. It will not, of course, be possible to relate the discussion to the Schedule in detail. When we come to the Schedule, there will be opportunities to move Amendments to it.
Surely the situation is a little more complicated than that, Major Milner? What your predecessor had in mind was that in discussing this Amendment we could not discuss it in the blue. It had to be related to what was to follow—namely, the Schedule. The difficulty here is that although, and very properly, one realises what is in the Schedule and discusses the subject against that background, quite obviously the Schedule must stand on its own because, when we reach it, there are numerous Amendments to it and at the moment we do not know, and indeed cannot know, what the final shape of that Schedule will be. It will, therefore, in my submission be a waste of time to deal with it now in detail. We should treat it merely as a sort of skeleton of something that will be there when we reach it and which we will clothe with flesh in the light of the Amendments which are accepted.
I will not follow the Financial Secretary in that rather fleshy imagery. I only want to say that it is quite immaterial to us at which stage we discuss the obviously important points which have to be raised, and if it is for the general convenience of the Committee that we should do so on the Schedule instead of at this point, we are certainly prepared to do that. I hope it will not in any way prejudice the possibility of our raising on the Schedule the point which is raised in the Amendments in our name.
The point will not be prejudiced in any way, but perhaps we could shorten the discussion, and there would be only one discussion and not two. If that is generally agreed, we will have the discussion on the Schedule when we come to it. So far as I am concerned, I will try to facilitate that in any way I can.
Amendment agreed to.
10.0 p.m.
I beg to move, in page 34, to leave out line 3, and to insert:
"from investments or other capital assets."
This is really an exploratory Amendment, over which I need not detain the Committee long. It is to find out what exactly is meant by
"any source other than a source of earned income."
We take the view—and it has been from time to time substantiated by the Front Bench opposite, but not always—that this contribution should not be levied on any income where there is no capital behind it, and we think it would greatly clarify the Bill if those words were omitted and our words were inserted. I would remind the Financial Secretary that on a previous occasion he was asked whether the underwriting incomes from Lloyds would be subject to Contribution or not. On that occasion he said that these incomes would be exempt because the income flows from business activity and not from capital investment. I think that is a very proper reason, and if that is the general principle, then it would be much better to put it in the Bill in the way we suggest in this Amendment. If that is not the general principle, then the Financial Secretary must explain to the Committee on what principles he does exempt the income from a Lloyds name. I hope, therefore, that the Government will accept the Amendment as we have put it down.
With regard to the income of a name at Lloyd's, that is intended to be covered by the exclusion in paragraph ( c ). The position of a Lloyd's underwriter is rather a unique one in a sense. He does his business through an underwriting agent, and although his income, which really represents the differences between premiums and losses is trading income, and, therefore, is earned income in that sense, it is, in point of fact treated as earned income for the purpose of the Income Tax Acts and, therefore, we have made a specific exclusion of that kind of income, of which Lloyd's underwriters income is the best known example.
What we have done in our endeavour to separate what can be said to be investment income is this. We start from the position that it is extremely difficult to define investment income. In the cases of the Excess Profits Tax and Profits Tax, investment income, in certain circumstances, was under the 1937 Act included, and so, the word "investment" occurs. It was specifically said by the present Master of the Rolls, in a case that came before the Court of Appeal, that it is very difficult to define what we mean by investment income. It is a term which is understood but difficult to define. We have, therefore, separated out earned income, and earned income is given a very exhaustive definition in Section 14 (3) of the Income Tax Act, 1918. We separate out every kind of category which can be called earned income. The various paragraphs cover every kind of earned income that one can think of resulting from trade, employment, and so on. The rest we say is investment income, subject to certain further exceptions which appear in the paragraphs of Subsection (2).
The first one deals with the kind of case in which the investments really form the stock-in-trade of a business. One can think of cases in which stocks and shares are really the stock-in-trade of a particular business—dealings in securities, etc. They are excepted by paragraph ( a ). Not only investments in the form of stocks and shares but investments in land are also excluded. Paragraph (b) makes a further exclusion. It excludes land which is used for the purpose of a business. In paragraph (c) there is a third exclusion which relates particularly to Lloyd's underwriters. The rest is treated as investment income. We start with that general description, cut out everything defined in the Income Tax Acts as earned income, make our further exclusions, and what is left is what would be understood in the ordinary commercial and industrial realm as investments. In that way we have sought to draw a distinction between the two.
The Amendment would have consequences which I am quite certain we do not intend and hon. Members opposite do not intend. It would, for example, owing to certain specific provisions of the Income Tax Acts, exclude the income of a clergyman who by virtue of his office has a residence provided for him. That obviously is intended to be earned income and should be excluded from the category of investment income, but for technical drafting reasons if the words in the Amendment were adopted, that kind of income would be included as investment income, which neither side of the Committee intends.
There is one point which I should like to put to the Solicitor-General. I think he recognised that the drafting of this Clause is rather difficult. I think the first objection to this Amendment which he gave was that "income from investments" was difficult to construe, but if that is the objection I find it difficult to understand why these words occur in the hon. Gentleman's own Clause in Subsection (3). In Subsection (3) we have the following words:
The particular point on which I should like his assistance is the difficult case of the business of Lloyd's underwriters, and I should like to know more clearly, if he can explain it, exactly what comes under Subsection (2, c) to which he has referred., and what, on the other hand, comes under Subsection (3). I am not clear as to what comes within Subsection (3), and perhaps the hon. and learned Gentleman could enlighten the Committee on that.
I have a question to which I should very much like an answer from the Solicitor-General. In the case of what are known as consultants, particularly in a field which is, I think, very close to the Chancellor's heart, the Organisation and Methods field, it is possible for a firm of partners to organise themselves in a company structure. Now, the amount of capital those consultants need for carrying on their business is practically negligible; they have a very small office, but they are usually working in the factories they serve. I gathered from the Solicitor-General that those dividends received on those purely nominal shares—because they are operating in a company structure, but they are really the earnings of the partners—will be exempt, and will not be regarded as investment income. Have I got the point right? They will be excluded under Subsection (2, c). First, they are brought in under Subsection (1), but they are let out under Subsection (2, c) I just want to get it quite clear; otherwise there is a very grave injustice to such consultants, who are doing good work up and down the country. I want it to be clear whether they are to pay the Contribution or whether they are not.
I take it the hon. Member has in mind a business consultant, or something of the sort, who has turned his enterprise into a company; that is to say, he carries on his business as a company and draws his remuneration, either in the form of salary paid to him by the company, or in the form of dividends from the shares which he holds in the company. So far as he draws his remuneration in the form of salary from the company, or director's fees, or in whatever form it may be, that is earned income and he is excluded from the category of investment income; but in the case where he draws all or most of his income in the form of dividends from shares which he holds in the company, it would normally come within the new Schedule. That is to say, he would be a working director within the meaning of the new Schedule, the company would, in ordinary circumstances, be a private company, and the dividends which he draws would accordingly be subject to the limitations of the new Schedule.
The hon. and learned Member has misunderstood me. They are then caught under this particular Clause, and the point I want to make is that in that case there is a tax on capital which does not, in point of fact, exist. It is not just that those shares are difficult to transfer. I quite understand that, and it may be very difficult to raise any money on such shares. In this particular type of company, however, it is true to say that there would be literally no capital at all. The men are out; they need only a bag to go round to the various factories, but beyond that the head office capital is very small indeed. Here, it seems to me, is a case of a tax on capital which is supposed to exist but which does not, in fact, exist. I want to make that point clear.
I thought I had explained that. The consultant who operates in the name of a company but draws his remuneration in the form of director's fees or a salary, has that treated as earned income, and it is not, therefore, investment income. In many cases, however, he may draw part of his remuneration in the form of dividends from the shares of the company which he owns. He will be entitled to treat those dividends as salary, and therefore as earned and not investment income, according to the new Schedule, subject to the £2,000 limit, and so on, provided it is a private company and he is a working director.
Would the hon. and learned Gentleman deal with the point under Subsection (3)?
I have done so.
I said Subsection (3), not paragraph ( c ). The hon. and learned Gentleman really has not mentioned it. I asked him to give an example of what would come under that.
10.15 p.m.
That relates to ordinary investments held as investments and which have not been excepted from Subsection (1) by Subsection (2)—in other words, which have not been excepted because they could be regarded as the stock-in-trade of the company.
That is not the real issue. The hon. and learned Gentleman said that, on the whole, a Lloyd's underwriter came under paragraph ( c ) of Subsection (2). Does any interest of Lloyd's underwriters, or anything which concerns them, come under Subsection (3)?
I do not want to prevent an answer being given to the question which has been raised by my hon. and learned Friend. I hope that an answer will be given to my question at the same time. I revert to the question raised by the hon. Member for Bath (Mr. Pitman). I think that the right hon. and learned Gentleman recognised it would be quite unfair that a working director of a company with only a nominal capital who for some reason—without any knowledge or anticipation of the tax—had decided in the past that he would draw the whole of his remuneration in the form of a fixed proportion of the profits; that it would be quite unfair if, because of that, he should be caught under this Act. Is there anything at all to prevent his changing the form of that remuneration so that he receives a large—or at any rate, a fair—proportion of it as salary? I hope I have made my point clearly. [HON. MEMBERS: "No."] Perhaps I may be allowed to try again.
I am inclined to think that the questions now being raised regarding working directors are rather more appropriate to the Schedules.
I would like to make this point clear. So far we have had a fairly clear answer from the hon. and learned Gentleman, but he has not gone as far as the hon. Member for Bath (Mr. Pitman) and I would like him to have gone. The point is really quite clear. If directors in the past have been drawing their remuneration as a proportion of the profits in relation to some notional shares—generally speaking, they are notional shares—will they come under this Clause? Will such remuneration be caught by this Clause as a payment on investment which, as my hon. Friend the Member for Bath has said, does not really exist because there is virtually no capital? If that is so, is there anything to prevent their treating what has come to be—and over a period of years can be seen to be—a more or less fixed salary; of treating that as a fixed salary, even although it is based theoretically on a notional division of shares?
The Schedule will enable that to be treated as earned income. Therefore, it will not be subject to this particular provision.
My hon. and learned Friend, before this discussion on the wider question, asked a specific question of very great importance regarding Subsection (3). While accepting your Ruling, Major Milner, that we are discussing the Clause rather than the Schedule, I hope it will be in Order for the right hon. and learned Gentleman to give a definite answer on that specific point, which is of very great interest.
Where a person carrying on business holds ordinary investments, that is to say, he puts any reserve he has into investments, and they are not included in Subsection (2) (a and b), they are investment income.
I apologise for pressing this in detail, but it is of great importance. Will the hon. and learned Gentleman say whether in general the ruling given under E.P.T. in the past will be applied again in this particular case, because the same situation arose under E.P.T.?
I have no doubt that if the courts had to construe this Clause, they would consider what the Master of the Rolls had to say in the case I mentioned earlier. He said that the word "investment" was used in the ordinary sense in which ordinary business people understood it.
This is the most important Clause in this part of the Bill. Although I agree with what the hon. and learned Gentleman said about interpretation and the ways that earned income and investment income are defined, I am not clear on a good many aspects of it. For instance, would literary royalties be dealt with under this Clause. In what way would they be dealt with?
I will consider the case when it actually arises. One would have to look down the categories which are set out in the Bill to see if such were excluded. A person carrying on the business and profession of a writer who draws royalties from his books would probably come within this Subsection. In other words, it is a return which he gets from the practice of his profession as a writer—but I do not want to be bound by that.
On a point of Order; I should like to ask your guidance, Major Milner, on one point. I wish at some point of the discussion to raise the question of certain private unlimited companies, which do not appear to be covered by the main Clauses or by the Schedule. If I do not raise the point until I come to the Schedule, shall I be in Order in discussing it then, and would it be possible to get Amendments made, if a case were made for them?
I cannot answer that Question without seeing the Amendments on the Paper. We are now having a general discussion within limits on the understanding that we have a rather more detailed discussion on the Schedule and the hon. Member's point might be left over till then. It is possible that a discussion can take place on that point then, and I do not think I can say any more than that.
I am quite prepared to let the question rest until then, but if as a result of what we do tonight we cannot alter that position, I am not prepared to let it remain over until the Schedule.
There are other stages of the Bill and the hon. Gentleman will have an opportunity then, in the event of the opportunity not arising on the occasion of the consideration of the Schedule.
Thank you, Major Milner.
I appreciate that the Solicitor-General has endeavoured to assist the Committee by elucidating the point about royalties. I want to go back to the subject, because the drafting of this Clause is a little difficult. Would the income derived by a widow from the royalties of her author-husband be treated as investment income or not?
I think it would be extremely dangerous to give offhand an opinion on that. I should have thought, however, that the royalties which a widow draws from the books of her deceased husband were investment income, though I do not want to be bound to it.
As a publisher who really enjoys paying authors' royalties, may I ask the Solicitor-General this question: I believe that a casual first payment of under £15 is not returnable as earned income; therefore, am I right in assuming that it will be investment income although not subject to Income Tax?
Amendment negatived.
I beg to move in page 34, line 3, after "than," to insert "agricultural land or."
There are two other Amendments which are consequential on this, in line 29 and line 32, and if you approve, Major Milner, it will be convenient to discuss these together. This Amendment is designed to exclude from the capital levy income from agricultural land and to understand why it should be excluded I would recall the words which the Chancellor used on this capital levy when he introduced the Budget. He said then: the agricultural land industry is in a peculiar position. It is not a matter of receiving interest as a holder of Government securities, it is a position of trust in which the owner of the agricultural land is under the supervision and control of the Ministry of Agriculture under the Agriculture Act. Indeed, there is no industry that is not nationalised that is under such a degree of control as the agricultural land industry. The Agriculture Act imposed a statutory obligation on owners of agricultural land to keep the fixed equipment in good repair, and also to provide fresh capital equipment in order to carry out the policy of the Socialist Government for agriculture. The agricultural land industry has co-operated in this obligation imposed by the Agriculture Act.
10.30 p.m.
Therefore, the effect of taking money away from the income of agricultural land will be to impair the effort that is being made by agricultural land in order to carry out the obligations put on it. Last August, when the food emergency became evident, the Government issued a further appeal to the owners of agricultural land, and by means of the Central Office of Information they urged them to play their part in providing within the limits of available resources new farm buildings, water supplies and drainage. It is quite clear that the money from agricultural land cannot do two things at once in this emergency. It cannot be going to the Chancellor of the Exchequer in the form of his levy, and at the same time be providing new farm buildings, water supplies and drainage. Therefore, I would put it to the Chancellor of the Exhequer that every penny he gets from agricultural land under this Clause will be a penny taken away from the more urgent task of food production. For that reason I demand that agricultural land should be excluded.
It may be said by the Chancellor that I have talked about the repair of fixed equipment, and that he can make a certain contribution towards alleviating this burden. I understand that at a later stage he is going to say that one can deduct the whole of the maintenance cost in the year ending 31st March, 1948. But there is one great difficulty in that position of maintenance, quite apart from the new position, that owing to the shortage of supplies and the long delay that it takes in order to get licences for the repair of agricultural buildings, there are a great many deferred repairs. Indeed, the income for the year of charge is being set aside for these deferred repairs. This in industry would be quite easy to guard against. Under the existing tax provisions industries, other than landowning, are allowed to have a fund to deal with deferred repairs which is deductible in income tax. They will not suffer the gap left in respect of that money being set aside for deferred repairs. Unfortunately that provision does not apply to agriculture. Therefore, that money from agricultural income, at the moment being earmarked for these deferred repairs, will go to the Chancellor instead of securing greater food production on the land.
Let me next deal with the position of hill-farming land. Here the Government have taken even more decided steps, and I much regret that in this Debate dealing with food production and agriculture there is not one of the four agricultural Ministers sitting on the benches tonight or taking the slightest interest in it. Under the Hill Farming Acts for Scotland and England all owners of land have been asked to prepare schemes for the improvement of their hill-farms. The right hon. Gentleman is well aware of that position and also the fact that, owing, not to any unwillingness on the part of the owners, but to certain official departmental dislocations, very few of these schemes have yet been approved. Therefore unless this Amendment is accepted all the money which will have been earmarked under these hill-farming schemes will go to the Chancellor, and the effect of the Hill Farming Acts will be very much diminished.
Let me turn to the other side of the matter. What will be the effect if this land is sold? After all, if you have your money in Government securities the effect of a sale does no very great harm to the economy of the country. But here, when you are embarking upon a programme of agricultural expansion, if agricultural landowners are having to sell part of their land to pay this Contribution, the effect of that will be bad for agriculture. It will mean that the tenants of agricultural land will have to face the uncertainty of their farms being sold over their heads. Either they will have to put up the capital to purchase the land, which at this time would be awkward for them, because they are themselves partners in the agricultural industry and are trying to expand their side of the industry and to provide more tenant fixtures them-selves—
Could not the landowner come to his assistance?
I would expect that from the hon. Member He would try to get the landowner mortgaging his land. If he has to pay interest on that loan, again you will get the position that money which ought to be going into more food production is going to pay mortgage interest. You will have the same effect, that less food will be produced than otherwise would be the case.
It is very clear that this question of income from agricultural land today is in a very special position. The Chancellor of the Exchequer cannot pretend that those who have agricultural land have been spending their assets in a manner which is distinctly inflationary. At present they are acting under orders from the Government, and therefore, in my view, they should be treated in a special manner. It is curious that those who make their money by speculating in land are untouched by this Bill; but those who spend their time looking after agricultural land, providing and managing agricultural land, either by themselves or through agents, are having this heavy levy thrust upon them. It is because the ownership of agricultural land today is a trust and also a business that the owners should be treated as if the income from the land were earned income
May I reinforce the arguments of my hon. Friend? I do not think this country realises, and certainly the Government do not realise, that the way to save this country and to close the gap, is by increased production from the land. If by this levy we take the capital which is available from the land, it will do untold harm. There is no question that those who have experience of agricultural properties realise that a tremendous expenditure of capital is necessary. It has been estimated—I think the hon. Member for Chippenham (Mr. Eccles) estimated—that £1,000,000,000 needs to be spent upon agricultural buildings at present. When we think of that sum of money we realise what this capital levy is going to do.
The hon. Member for Thirsk and Malton (Mr. Turton) expressed surprise that no representatives of the Ministry of Agriculture are present tonight. I think the reason is that they realise the extent of the damage which this is going to do to agriculture. If they were here, they would go into the Lobby with us in order to relieve us of this tax. I do not think that it is sufficiently realised that the position of the agricultural landowner today is very difficult. In the last hundred years the cost of labour has risen a thousand per cent., and the cost of materials has risen, and the landowner has to meet these liabilities. Quite simply, the effect of this levy will be that an owner of land has either to save money out of income in order to pay the levy, or sell his farm, and what I would ask the Chancellor is this. If, in order to find a sum of £2,500 for the levy he sells a farm for £5,000, what is he to do with the other £2,500? Does the Chancellor think that that will be spent to encourage inflation? Will that cause the Chancellor to advise him to put it aside for another "once-for-all" levy?
If the Chancellor cannot meet this Amendment, I suggest that where a landowner is prepared to enter into an undertaking to improve his estate, he should have the levy remitted. To put a farm into condition that makes for full production would help to a very great extent at present when such production is needed. There is a great sum of money waiting to be spent today; great sums would have been expended last year, and these would have been deductable, but they have not been expended because it has been impossible for landowners to get repair work done. I know of farms which have been waiting for years for housing and other building improvements, but it has been impossible to get the licences to do these repairs. If this capital levy is going to take the money which would have been spent on these repairs, then they will not be done now, and I do ask the Chancellor to give very serious consideration to this aspect.
I cannot help feeling that the case on behalf of agricultural landowners has been stated a little too high by the hon. Gentleman. As I understood him, he asked what will happen if a landowner has to produce £2,500 in order to meet his Contribution, but I would point out that that represents an investment income of £10,000. That is an extremely large capital asset. Ordinarily, the sum would be very much less. In the case of a smallholding, the Contribution would be nothing like that amount. Furthermore, I must remind the hon. Gentleman that the highest rate of the tax is 10s. in the £, and that it comes down to 2s.
10.45 p.m.
In considering the incidence of this tax, one has to leave out all persons drawing income from farming operations; that is, income from carrying on a business. Ordinarily, farmers, even if they own the land themselves and pay Schedule "A" tax on the land, will not be within the scope of this tax at all because all income which they draw, including the income notionally theirs from the ownership of the land, is to be treated as earned income; so they will not be touched. The only persons who will be touched are persons who can be said to use land as an investment in their capacity as landowners—that is to say, agricultural landowners. They will be treated as drawing an investment income from the use of land.
It is right, however, to consider the measure of relief afforded to them. In the event of the Committee agreeing to one of the new Clauses on the Order Paper, they are to be allowed, in respect of maintenance and other similar expenses, to accept the 1947–48 expenses for the purpose of the preparation of their tax returns. That is a substantial concession. They need not be bound to the previous five years' average. They can take the actual expenses of 1947–48 if that is above the average for the previous five years. Again, there is this concession to be considered. Assuming that the Amendment to Clause 50, page 35, line 10 is approved, they will be enabled to treat as a deduction for the purpose of ascertaining their income, the relief which they are afforded under Section 33 of the Income Tax Act, 1945. That refers to the annual deduction. They can treat that as a deduction against their agricultural income, and that income only.
They will already have a substantial measure of relief if these changes are agreed to. With that relief, what real complaint have they got? They are persons who draw income from an investment. In their case, the investment which they have chosen to embark their money upon is agricultural land. I submit that they have no claim to be considered as other than persons who are drawing investment income from the use of their land, in the same way as we treat a person who draws investment income from the letting of a house or factory or any other investment chosen for the purpose of earning a return upon money. I ask the Committee to say that no case has been made out for this Amendment so far as landowners are concerned, and that, in the case of farmers, they are already excluded from the scope of the tax.
I was disappointed, not to say surprised, at the reply of the hon. and learned Solicitor-General. He took some part in the proceedings of the Agriculture Bill last year. Certainly, many months have gone by since that discussion, but I do not believe that his memory is so short that he can have forgotten completely the obligations imposed upon landowners by the terms of that Act. I also thought that his reference to a landowner who had to pay on the levy the sum of £2,500, was perhaps a little unfortunate. He treated that sum rather lightly. Perhaps I might remind him that £2,500 is almost exactly the cost of building a pair of agricultural cottages—
The hon. Member for Leominster (Mr. Baldwin) mentioned that. I merely pointed out that if he had to pay £2,500 he would be a person with an investment income of £10,000.
He may be drawing a notional investment income, but £2,500 is the cost of building a pair of agricultural cottages. I wonder whether the Government are really serious in their anxiety to save dollars and to increase home grown food production. Last year, with the usual fanfare of trumpets, the Government announced the expansion of the home grown food production programme. I think it was the Lord President of the Council himself who announced that the target at which he aimed by 1951 or 1952, was an increase in the neighbourhood of £100 million worth of food production in this country.
As my hon. Friend who moved the Amendment said, both landowners and farmers have been urged to play their part in this expansion—and indeed they have done so. This is all in keeping, as the right hon. Gentleman will remember, with the obligations imposed on all parties by the Agriculture Act, 1947. The Government for their part undertook to provide guaranteed prices, an assured market and—an inconvenient phrase for the Government at the moment—an adequate return on capital invested in the industry. The landowner, for his part, undertook to abide by the rules of good estate management thereby entering into an obligation to provide the required capital not only to make good the repairs which during the war years could not be carried out but also for necessary improvements, against the sanction of dispossession if he failed to do so.
Thus the landowner's capital has certainly been mortgaged to the future to an almost unlimited extent, and this is where the great difficulty in respect of the levy comes. This is the point which the Solicitor-General failed to deal with because the incidence of the levy is such that it can only be met, for the most part, out of capital. In other words, it can only be met out of precisely the source from which repairs and improvements alone can be financed. Even in a Socialist administration the same capital cannot go on in precisely two different directions at the same time.
I have an example here which was brought to my notice a week ago concerning a repair and improvement programme on an agricultural holding which received not only the approval but the actual encouragement of the Ministry of Agriculture. It involved the expenditure of £20,000—about £11,000 from landlord's capital and £9,000 from tenant's capital. Some of this capital has already been sunk in certain repairs. It is not very easy to find so large a sum of money in these days, and in this particular case it had to come from investment capital belonging both to the landowner and to the tenant.
Now comes the levy, assessed on investments. Which of the Departments of the Government are this particular landowner and farm tenant to obey? Are they to continue to carry out the programme and sink the £20,000 in this project which will result in greatly increased production, or are they to stop half way and give a proportion of the £20,000 to the Chancellor of the Exchequer under the special levy? Perhaps the Solicitor-General will give us his views. What will be the position of any landowner whose liability under the special levy makes it impossible to complete the repair programme on which he has already embarked? He may well be sued it he cancels the contract before completion.
There is also this further point—that the drain on agricultural capital caused by the levy inevitably means a reduction in the income, from which alone the ordinary day-to-day running repairs can be carried out. Hon. Members opposite often cherish the illusion that enormous rents are being obtained from agricultural land. They might be interested to know that a survey conducted recently over estates of almost all sizes covering 1,250,000 acres, showed that in 1941 the average rental per acre was 27s., whereas the rental per acre on precisely the same estates in 1872 was 34s. It may be true that since 1941 there has been a slight rise in rents, but the rise which may have taken place is nothing in comparison with the enormous rise in building and repair costs.
The Chancellor of the Exchequer seems to be under the impression that the landowner can manage an estate properly by splitting it up into watertight compartments and regarding the finance of any portion which he may farm himself as completely separate from the general financial arrangement he makes for the rest of his estate. That can be the only explanation of the Amendment which the Chancellor has put down later, the effect of which is to prevent the landowner deducting any loss sustained on his own farm against his Schedule A assessment on the rest of the estate. Does the Chancellor really think that if a landowner makes a profit on his own farm he never uses that profit to carry out repairs to an adjacent farm he may have let to a tenant? Unless the Chancellor is deliberately trying to prevent landowners from fulfilling their obligations under the 1947 Act, he must make concessions to agriculture under this Special Contribution.
I find it difficult to believe that he will remain impervious to the hard and no doubt unpleasant fact that the Special Contribution in respect of agriculture makes nonsense of the expansion programme of home food production. Is he really concerned—and we shall know by his reply—with reducing the dollar deficit by increasing the country's food supplies, or does he regard this matter as of secondary importance to securing a purely party point by pleasing some of his more extreme supporters who know nothing and care less about our oldest and most important industry.
I assume that the Government wish to do two things; to make a success of the 1947 Act, and to act fairly as between individuals, even though they may be comparatively wealthy individuals. Unless the Government manage to achieve some kind of justice as between those who own a certain amount of property they are unlikely to achieve justice for those who own no property at all, whom they claim to represent. It seems that the proposals contained in this Clause will defeat the Government's intentions on both scores.
The Solicitor-General stated that the Government intend only to affect money invested in agriculture. He does not appear to have clearly in mind the fact that there are two distinct ways of investing in agriculture. The first way is to purchase a farm and to grant a tenancy, thereby giving security of tenure and presumably fulfilling the conditions of the 1947 Act, which is based upon our system of tenancy. The other way is to buy a farm, put in a bailiff and to carry on a vague and sometimes remote supervision, and not to give any security of tenure. The Government, by this Clause, are going to penalise the investor who gives security of tenure and favour the investor who merely puts in a bailiff and gives no security of tenure at all. Therefore, I suggest that the Government are not carrying out the intentions of the 1947 Act and are acting unfairly as between individuals. For these reasons I suggest that they accept the Amendment.
rose —
11.0 p.m.
I hope the Committee will now come to a decision. We are making very slow progress, and we have had a good discussion on this point.
I do not want to cut out my hon. Friends who are anxious to speak, but I was going to say we have not had nearly enough discussion on this matter, because it is very im- portant. The speeches which we have already heard have established a strong case, and we hope that at least the Chancellor of the Exchequer will reply, or someone who is at long last present from the Ministry of Agriculture.
The speeches which have been delivered have ranged over a very wide field and—
But not Scotland.
I have not intervened in the Debate in the hope that my nonintervention would shorten the speeches. That has not happened. The range of the speeches has been wide and sometimes not altogether relevant. The Committee should now be able to make progress and come to a decision.
If it were the case that some of the speeches were irrelevant you should have stopped them, Major Milner. I assumed that because of the comparative width of the Debate you had appreciated its importance even if the Government do not seem to have done so.
I did not intervene in the interests of the Committee. I feel now that it is in the interests of the Committee that we should make progress.
I am going to be brief in what I say and I will not range over matters which are irrelevant. At an earlier stage in the Debate I asked the Chancellor of the Exchequer to say how much of the £105 million which he expects to get from this levy will be paid by the agricultural industry. I received no answer to that, and the reason why I received no answer was the Government did not wish to make any more public than was necessary the fact that the agriculture industry was going to bear part of this levy. The only reply that I received was that owner-occupiers would not be liable. Before we leave this Amendment, I hope the Chancellor will say how much he expects to obtain from the owners of agricultural land.
I am afraid that he is doing a great disservice to the Minister of Agriculture, quite apart from the industry generally, in continuing to press for this charge. He is also being opposed by many branches of the Farmers' Union who have expressed their fears on this topic. I know it is widely believed by hon. Gentlemen opposite that income from land just rolls in, but that is a complete fallacy. From my experience as a landowner before the war, which would be endorsed by my hon. Friend the Member for Leominster (Mr. Baldwin), the main source of capital for repairs and improvements arises from agricultural rents. If the Chancellor proposes to take part of this source in his special levy there can only be one result and that is the improvement which the Minister of Agriculture wants to forward will not, in fact, be achieved.
Although hon. Members opposite may not realise it, if agricultural land and buildings are to be maintained in proper state it is necessary to have some organisation to do so. Sometimes it is done by contractors' work. Of course, the work can be done by direct labour but that is more complicated. Anyone who has experience of looking after estate staffs, which in a great many cases are better equipped than local builders will realise that to describe that source of income as investment income is entirely false. If a landowner has an organisation of that kind which does work for the tenants the rent is his reward although it ranks as investment income. On the other hand— [Interruption]. I hope the Chancellor can hear what I am saying, because if he cannot I will have to repeat my arguments, so I cannot be as brief as I said I would be. When I was interrupted I was saying that the country builder at the other end of the village who does the same work and is rewarded by way of profit has that profit treated as earned income. That, I am sure the Chancellor will agree, is a complete anomaly.
Other anomalies have been mentioned, but I think that from the agricultural point of view this anomaly is as big as any. It has been mentioned before today, in regard to a name at Lloyds, that the income derived from that is treated as earned income; but the income from owning, managing and developing agricultural land is to be treated as unearned income. I should have thought that the two were comparable. You might also have the anomaly of a landowner living at one end of a village, doing a great deal of work but achieving a relatively small income, and having that income ranked as unearned income, while at the other end of the village the newly appointed Chancellor of the Duchy of Lancaster might be living, receiving an increased salary compared with his predecessor, having no specific duties allotted to him, and having that salary ranked as earned income.
I hope that at least we shall have a reply from the Chancellor of the Exchequer. I see various motions on the Front Bench, and the unexpected arrival of the Patronage Secretary, and I thought that perhaps there might be something in the wind.
I do not want to stop any Debate. We have plenty of time between now and breakfast, and no doubt we shall enjoy very much the continuance of the sitting. As the right hon. Gentleman has asked me to reply I will defer to him. I cannot draw from the arguments that I have heard any reason why the owner of agricultural land should be put in any specially privileged position. The arguments are advanced on the basis, first, that owners of agricultural land have nothing else except their receipts from land—which is a very exceptional case, if it exists at all; and if they do have anything, very few of them have so much that it would qualify them to pay anything under this levy. That would represent a very large sum invested in agricultural land, and practically none would pay a substantial sum under this Bill.
The hon. Gentleman asked if we could give a figure of how much of this would be drawn from agricultural land. The answer is that we cannot, because it is all mixed together. If it were all landowners and all investors one could divide it, but as it is all mixed that is impossible. I think the amount that would come from land because there are no other investments would be very small indeed. I can understand the case perfectly well for taking farming out, and owners of farms who are working the farms, but when it comes to a question of simply owning land and taking the rent—there may be expenses, repairs and maintenance—but that investment is just the same type as that of other people who own other sorts of securities and use part of the receipts, if they do not spend them all, for these purposes. There really is no essential difference between investment incomes of these sorts, and it would be grossly unfair to owners of other sorts of property if special preference were given in this case, and we really cannot give way on this Amendment.
In that case, I should like to advise my hon. Friends to take this matter to a Division, because I think the right hon. and learned Gentleman's reply was very unsatisfactory. I think he missed the point which my hon. Friends were, I thought, successfully making, and that was, that agricultural land, and the ownership of agricultural land, and the income from agricultural land are all in a very special position owing to the statute known as the Agriculture Act. So far as I know, it is the only form of capital investment to which there is a Government string, so to speak, attached. If the rules of good estate management under the Act are not carried out, then the owner of that land is at risk. Therefore, he has to remember all the time the money he has to reinvest in his land in order to keep—if I may use the phrase—on the right side of the Agriculture Act.
Therefore, the Government find themselves in this dilemma. They have made their choice, and it is, in my view, the wrong choice. They have said that this country has to go all out for higher food production, and the landowner, just as the farmer and the farmworker, has his part to play in the partnership created under the Agriculture Act, 1947. To that purpose he has to devote certain of his capital. The right hon. and learned Gentleman and the Treasury come along with this Bill and say, "Never mind about that. We are going to take a particular proportion of it under the Special Contribution." Very well.
The answer is, that the country will have less food production— [Interruption.] Certainly, pro tanto. Money can be used only once. If the Chancellor is to take it for this, very well—or, rather, very bad: as bad as bad can be—it will not be available for the other purpose; and when there is a reduction in food production, or, at any rate, if hon. Members opposite think that that is putting the matter too high, when there is not the increase in food production for which the Minister of Agriculture has called—and I once again point out that he has not been present for any of this Debate—the blame must not be put upon the agricultural industry, but where it will belong—on the Chancellor.
Question put, "That those words be there inserted."
The Committee divided: Ayes, 94; Noes, 237.
Division No. 174.] AYES. 11.14 p.m. Agnew, Cmdr. P G. Fraser, H. C. P. (Stone) Nield, B. (Chester) Amory, D. Heathcoat Fraser, Sir I. (Lansdale) Noble, Comdr. A. H P Assheton, Rt. Hon. R. Fyfe, Rt. Hon. Sir D. P. M. Odey, G. W. Astor, Hon. M. Gage, C. Orr-Ewing, I. L Baldwin, A. E. George, Maj. Rt. Hn. G. Lloyd (P'ke) Pitman, I. J. Birch, Nigel Gomme-Duncan, Col. A Ponsonby, Col. C. E Boles, Lt.-Col. D. C (Wells) Grimston, R. V. Poole, O. B. S. (Oswestry) Bossom, A. C. Hannon, Sir P. (Moseley) Renton, D. Bower, N Harris, F. W. (Croydon, N.) Roberts, P. G. (Ecclesall) Boyd-Carpenter, J. A. Harvey, Air-Cmdre. A. V. Roberts, W. (Cumberland, N) Brumley-Davenport, Lt.-Col. W. Haughton, S. G. Robinson, Roland Buchan-Hepburn, P. G. T. Hogg, Hon. Q. Ropner, Col. L Butler, Rt. Hon. R. A. (S'ffr'n W'ld'n) Holmes, Sir J. Stanley (Harwich) Ross, Sir R. D. (Londonderry) Byers, Frank Howard, Hon. A. Spearman, A. C. M. Carson, E. Hurd, A. Stanley, Rt. Hon. O Challen, C. Joynson-Hicks, Hon. L W Strauss, H. G. (English Universities) Channon, H. Keeling, E. H. Studholme, H. G. Clarke, Col. R. S. Lambert, Hon. G. Sutcliffe, H. Clifton-Brown, Lt.-Col. G. Legge-Bourke, Maj. E. A. H Taylor, C. S. (Eastbourne) Corbett, Lieut.-Col. U. (Ludlow) Lloyd, Selwyn (Wirral) Thomas, J. P. L. (Hereford) Crookshank, Capt. Rt. Hon. H. F. C Low, A. R. W. Thornton-Kemsley, C. N. Crowder, Capt. John E. Lucas-Tooth, Sir H. Thorp, Brigadier R. A. F De la Bère, R. Macdonald. Sir P. (I. of Wight) Touche, G C. Digby, S. W. Mackeson, Brig. H. R. Turton, R. H. Drayson, G. B. MacLeod, J. Vane, W. M. F. Drewe, C. Macpherson, N. (Dumfries) Walker-Smith, D. Dugdale, Maj. Sir T. (Richmond) Manningham-Buller, R. E. Wheatley, Colonel M. J (Dorset, E.) Eccles, D. M. Marsden, Capt. A. Williams, C. (Torquay) Eden, Rt. Hon. A. Mellor, Sir J. Williams, Gerald (Tonbridge) Elliot, Rt. Hon. Walter Molson, A. H. E York, C Fletcher, W. (Bury) Morrison, Maj. J. G. (Salisbury) TELLERS FOR THE AYES Foster, J. G. (Northwich) Mott-Radclyffe, C. E Major Conant and Major Ramsay.
NOES. Acland, Sir Richara Cove, W. G Griffiths, W. D (Moss Side) Adams, Richard (Balham) Cripps, Rt. Hon. Sir S Guy, W H. Adams, W. T. (Hammersmith, South) Crossman, R. H. S. Hale, Leslie Allen, A. C. (Bosworth) Daines, P. Hall, Rt. Hon. Glenvil Allen, Scholefield (Crewe) Dalton, Rt. Hon. H. Hamilton, Lieut.-Col R Alpass, J. H. Davies, Ernest (Enfield) Hannan, W. (Maryhill) Attewell, H. C. Davies, Harold (Leek) Hastings, Dr. Somerville Austin, H. Lewis Davies, Haydn (St. Pancras, S.W.) Henderson, Rt. Hon. A. (Kingswintord) Awbery, S. S. Davies, S. O. (Merthyr) Henderson, Joseph (Ardwick) Ayles, W H. Deer, G. Hobson, C. R. Ayrton Gould, Mrs. B de Freitas, Geoffrey Holman, P Balfour, A. Delargy, H. J. Holmes, H. E. (Hemsworth) Barton, C. Diamond, J. Horabin, T. L Bechervaise, A. E Dodds, N. N. House, G. Belcher, J. W Donovan, T Hoy, J. Berry, H. Driberg, T. E. N. Hudson, J. H. (Ealing, W.) Beswick, F. Dugdale, J. (W. Bromwich) Hughes, H. D. (W'lverh'pton, W.) Bing, G. H. C Dumpleton, C. W. Hynd, H. (Hackney, C.) Binns, J. Durbin, E. F. M Hynd, J. B. (Attercliffe) Blenkinsop, A. Dye, S. Irvine, A. J. (Liverpool) Bottomley, A. G. Ede, Rt. Hon. J. C. Irving, W J. (Tottenham, N.) Bowden, Fig Offr. H W. Edwards, John (Blackburn) Jay, D. P. T. Bowen, R. Evans, Albert (Islington, W.) Jeger, G. (Winchester) Bowles, F. G. (Nuneaton) Evans, E. (Lowestoft) Jeger, Dr. S W. (St. Pancras, S.E.) Braddock, Mrs. E. M. (L'pl, Exch'ge) Evans, S. N. (Wednesbury) Jenkins, R. H. Braddock, T. (Mitcham) Fairhurst, F. Johnston, Douglas Bramall, E. A. Farthing, W. J. Jones, D. T. (Hartlepool) Brook, D (Halifax) Fernyhough, E. Jones, J. H. (Bolton) Brown, T. J. (Ince) Field, Capt. W. J. Jones, P. Asterley (Hitchin) Bruce, Maj. D. W. T. Fletcher, E G M. (Islington, E.) Keenan, W. Burden, T. W Follick, M. Kenyon, C. Butler, H. W. (Hackney, S.) Foot, M. M. King, E. M. Champion, A. J. Fraser, T. (Hamilton) Kinghorn, Sqn.-Ldr E Chetwynd, G. R. Freeman, J (Watford) Lee, F. (Hulme) Cobb, F A Gallacher, W. Levy, B. W. Cocks, F. S Ganley, Mrs. C. S. Lewis, J. (Bolton) Coldrick, W George, Lady M. Lloyd (Anglesey) Lindgren, G. S Collindridge, F. Gibbins, J. Lipton, Lt.-Col. M Collins, V. J. Gibson, C. W. Longden, F. Comyns, Dr. L. Gordon-Walker, P. C. Lyne, A. W. Cooper, Wing-Comdr. G. Granville, E. (Eye) McAdam, W Corbet, Mrs. F. K. (Camb'well, N.W.) Greenwood, A. W. J. (Heywood) McAllister, G Corlett, Dr. J. Griffiths, D. (Rather Valley) McGhee, H. G. Mack, J. D. Pritt, D. N. Taylor, Dr. S. (Barnet) McLeavy, F. Proctor, W. T Thomas, D. E. (Aberdare) Mallalieu, E. L. (Brigg) Randall, H. E Thomas, I. O. (Wrekin) Mallalieu, J. P. W. (Huddersfield) Ranger, J. Thomas, George (Cardiff) Manning, C. (Camberwell, N.) Reeves, J. Tiffany, S. Manning, Mrs. L. (Epping) Reid, T. (Swindon) Tolley, L. Marquand, H. A. Rhodes, H. Tomlinson, Rt. Hon. G Mikardo, Ian Richards, R. Turner-Samuels, M. Millington, Wing-Comdr. E. R. Ridealgh, Mrs. M Ungoed-Thomas, L. Mitchison, G. R. Robens, A. Wadsworth, G. Monslow, W Roberts, Emrys (Merioneth) Wallace, G. D. (Chislehurst) Moody, A. S. Roberts, Goronwy (Caernarvonshire) Wallace, H. W. (Walthamstow, E.) Morgan, Dr. H. B. Royle, C. Warbey, W N. Morley, R. Sargood, R. Watkins, T. E. Moyle, A. Scott-Elliot, W. Weitzman, D. Murray, J. D. Segal, Dr. S. Wells, W T. (Walsall) Nally, W. Shackleton, E. A. A West, D. G. Neal, H. (Claycross) Sharp, Granville Wheatley, Rt. Hn. J. (Edinburgh, E.) Nichol, Mrs. M. E. (Bradford, N.) Shawcross, C. N. (Widnes) White, H. (Derbyshire, N.E.) Nicholls, H. R. (Stratford) Shurmer, P. Whiteley, Rt. Hon. W. Noel-Baker, Capt. F. E. (Brentford) Silverman, J. (Erdington) Wilcock, Group-Capt. C. A. B. Oldfield, W. H. Silverman, S. S. (Nelson) Wilkins, W. A. Oliver, G. H. Skeffington, A. M. Willey, F. T. (Sunderland) Orbach, M. Skeffington-Lodge, T. C. Willey, O. G. (Cleveland) Paget, R. T. Skinnard, F. W. Williams, D. J. (Neath) Paling, Rt. Hon. Wilfred (Wentworth) Smith, C. (Colchester) Williams, J. L. (Kelvingrove) Palmer, A. M. F. Smith, H. N. (Nottingham, S.) Williams, R. W. (Wigan) Pargiter, G. A. Snow, J. W. Williams, W. R. (Heston) Parker, J. Sorensen, R. W Willis, E. Parkin, B. T. Soskice, Sir Frank Wills, Mrs. E. A. Paton, J. (Norwich) Sparks, J. A. Woods, G. S. Pearson, A. Stewart, Michael (Fulham, E.) Wyatt, W. Peart, T F. Stokes, R. R. Yates, V. F. Perrins, W. Swingler, S. Younger, Hon. Kenneth Platts-Mills, J. F. F. Sylvester, G. O. Porter, E. (Warrington) Symonds, A. L. TELLERS FOR THE NOES: Porter, G. (Leeds) Taylor, R. J. (Morpeth) Mr. Simmons and Mr. Popplewell.
I beg to move, in page 34, line 14, after "from," insert "land or."
This is a very short and innocent Amendment of an exploratory nature. It involves the meaning of the word "property," which follows. I shall ask the Chancellor one question, and that is whether he can tell us, as I have not seen the word "property" in the interpretation Clause, whether that word is used in its narrow sense or in its wide sense. By that I mean whether it includes land, as well as land with buildings upon it. I can imagine many cases where land may be occupied by someone engaged in business, for storage or for future extensions, or even for recreation grounds for the staff. Other hon. Members can probably think of other reasons. I would like the Chancellor to accept the Amendment, if possible, so that any future doubt can be avoided.
I think I can assure the hon. Member that the word "property" certainly is used in a sense wide enough to include land, and that is what was intended.
In view of that assurance, I beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
I beg to move, in page 34, line 32, at the end, to add:
"(4) Where in pursuance of subsection (4) of section thirty-one of the Finance Act, 1927, the whole of the undistributed profits of a company up to the date of liquidation is deemed to be income for the purposes of surtax, only such percentage thereof as shall be equivalent to the average percentage of profit distributed (or, if greater, such percentage as may be deemed, by direction of the Special Commissioners, to have been distributed) by the said company for the three financial years prior to the liquidation, shall be treated as investment income."
This Amendment deals with the case of a company which has gone into liquidation during the period. We want to make sure that where there are large accumulated undistributed profits and they are distributed all at once on liquidation, they will not be taken as the income of one year. I am not sure about the law on that, as I am not a lawyer. The narrower point is that a company can make profits between the beginning of the year and the date it goes into liquidation. Can we be sure that its profits, if they are of an exceptional nature and constitute an exceptional income for the year, will not attract tax?
Section 31 (4) of the 1927 Act, to which the hon. Member's Amendment refers, is one which, as he says, deals with the liquidation of companies and the distribution of profits. It was inserted in order to prevent the evasion of Supertax by such devices, but under it there is no question of charging accumulated profits from an earlier period. The only question is to deal with the profits of the final period, which can be made subject to a direction in order to see that they do not evade Surtax and Income Tax. I do not think there is any need for this Amendment at all. It would not cover substantially any of the cases, and there were very few in the period in question.
It is not correct to say in every case under Section 31 (4) of the 1927 Act that the incomes of the final year are distributed, because a company may go into liquidation for the purpose of reconstruction and all the profits and capital may be taken over by the new company. Nevertheless, under this Section, the Commissioners of Inland Revenue or the Special Commissioners have laid it down that that income which has not been and never will be distributed shall be deemed to be the income of the period. In these circumstances, it will be found that a person has been deemed to have investment income which in fact has never come to him, but which goes on and is used in the business of the new company. I suggest that in cases where Section 31 (4) is applied on a reconstruction, there is a point that should be looked into in order to avoid an injustice.
I am grateful to the hon. and learned Member for East Leicester (Mr. Donovan). I could not have had a better ally. Having heard his speech, perhaps the right hon. and learned Gentleman will look at the matter again and when we come to the next stage, as I am sure the hon. and learned Member is right and I am wrong, put down a suitable Amendment.
Amendment negatived.
Clause, as amended, ordered to stand part of the Bill.
CLAUSE 49.— (Ascertainment of aggregate investment income.)
I beg to move, in page 34, line 33, to leave out "Section" and to insert "Part of this Act."
This is a drafting Amendment. It is necessary to say "Part of this Act" because there are certain other Sections to which reference should be made in the introductory words of Clause 49.
Amendment agreed to.
11.30 p.m.
I beg to move, in page 34, line 37, to leave out "a terminable," and to insert "an."
This Amendment is moved really for the purpose of getting some elucidation. There appears to be some doubt as to the exact meaning of the word "terminable." Some people think it may draw a difference between annuities for life and others which are for a fixed period. Probably the right view is that the difference is between annuities of all kinds and those so-called annuities which are, really, ordinary Government stocks.
The case is that terminable annuities are not limited to annuities for a particular term, but includes those which are annuities for life, and the term is used to indicate those which are in contradistinction, say, to Consols, which are permanent securities.
I beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
I beg to move, in page 35, line 3, after "ascertaining," to insert "the."
This Amendment might perhaps conveniently be taken with the other Amendment in line 4—at the end insert "of that individual or such other person." Both are put down in order to obtain an explanation. The Committee will see from Subsection (3) that payments made to someone who is retiring shall be disregarded in ascertaining aggregate investment income, but there is no statement in the Clause to make it clear whether this is the aggregate investment income of the recipient or of the person making the payment, and we think it is desirable that that matter should be resolved. It is for that reason that we have put down the Amendments so that the Subsection would read:
We are obliged to the hon. and learned Gentleman for this sug- gestion. We think that this will be an improvement, and we accept the Amendment and the one that follows.
Amendment agreed to.
Further Amendment made: In line 4, at end, insert:
"of that individual or such other persons."— [Mr. Manningham-Buller.]
I beg to move, in page 35, line 6, at the end, to insert:
"or total income."
Subsection (4) lays down that any assessment under Schedule B shall be disregarded in ascertaining aggregate investment income. We say in the Amendment that it should be disregarded also for the purposes of total income. If this Schedule B factor is of importance, it is only where somebody is just below the £2,000 limit, and, by a Schedule B assessment, is brought over it. The Committee will recall that these Schedule B assessments do not bring any pecuniary advantage. Small farmers, for example, will not be involved if they have a Schedule B assessment of under £100. Therefore, in order to round off this Clause, I ask the Chancellor to accept the Amendment.
This is a small matter, but it is a departure from the general principle, adopted in this levy, of keeping to the Income Tax and Surtax assessments for the purpose of ascertaining the total income. This would not be a deduction which would be made in these assessments. It would be adding a difficulty and complication if cases had to be examined for the purpose of seeing whether there was such a special Schedule B addition which had to be deducted. It would not affect the amount of the levy payable, because it would be disregarded in ascertaining the investment income. In the ascertainment of the total income, we think that it should be left in so as not to create a complication in the administration of the tax.
Amendment negatived.
Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."
Subsection (2) describes the annuities which are exempted from attracting the Special Contribution. I cannot understand why there is the limiting phrase:
"A terminable annuity payable by the National Debt Commissioners or by any other persons in the carrying on of life assurance business …"
No doubt it is true that a large bulk of annuities are purchased from life assurance offices. On the other hand, there are many annuities which are not purchased in that way. For example, a man may retire from his business and, instead of selling it for a lump sum, he may take a number of annual payments from the person to whom he has sold it. Those payments will be classed as investment income, owing to the terms of this Subsection. Another obvious example is that of a man who sells a patent for a number of annual sums, or even for a sum of money payable during the rest of his life. That, too, will be classed as investment income. There are many other such examples. Unless an Amendment is introduced by the Chancellor when we come to the Report stage, we shall have to try to remedy this obvious injustice as between the man who sells something for a lump sum and the man who has chosen to take a number of annual payments. Both come to exactly the same thing in the end.
I would like to ask how far annuities, other than those specially referred to in Subsection (2), are intended to be covered by the provisions of this part of the Act. In the ordinary case, an annuity may be given under a will. I apprehend that that would be covered under the later Clauses dealing with trusts. There are, however, other cases which may present difficulty. I know of one case where a testator gave his property, which consisted largely of his business, to his sons on condition that they paid substantial annuities to his daughter. There is no subsisting trust there. There is simply an annuity payable by his sons to the daughter. No value consideration was passed at all.
In cases of that sort I would like to know whether the contribution will fall on the sons or on the daughter. I think the position is that it falls on the sons, although in fact they are not getting the benefits from these annuities. It is a little difficult to understand, and I would like to have a statement from the Chancellor of the Exchequer as to his intention with regard to these annuities. Generally, I think we should wish to reconsider the position and, if necessary, put down an Amendment at a later stage.
May I question the Chancellor in regard to other examples? I am told that certain persons are in receipt of annuities from a number of superannuation funds. Are they covered by this? I think they are specifically covered. Also there are the persons in receipt of annuities payable out of the public revenues of foreign States, Dominions or Colonies. These certainly do not appear to be covered. I also understand there is some provision in regard to persons in receipt of annuities from institutions in India, payable, I believe, through an agent in this country. They also appear to be covered by this Subsection. I ask the Chancellor to think about these matters and possibly to bring in at a later stage a rather wider Clause to cover these instances.
May I ask a question about a firm paying an annuity out of its own funds rather than out of any approved fund of any kind—that is to say, there are pensions paid which are not, so far as I understand, coming within the approved fund.
I am not certain whether the hon. Member for Bath (Mr. Pitman) means an ordinary pension; that is, of course, an annual payment and not an annuity in this case. The reason this looks to me likely is because life assurance business as defined in the Income Tax Acts does not mean only life insurance business but is extended by Section 237 of the Income Tax Act, 1918, to include annuity business, and that meaning is imported to the Contribution by reason of Clause 63 (2), and includes friendly societies, trade unions, pension funds and so on, so that they are included in the term "life insurance."
With regard to the other question about the sons and the daughter, I am not at all certain what the legal interpretation of that case is and I would like to consider it, but it seems to me it is nothing but a gift if there is no compulsion on the sons and no contract and no trust; and, of course, it would be treated as a gift and nothing else.
Where trustees who are paying an annuity have power to purchase an annuity from an assurance company, but have not yet actually purchased it, would that annuity suffer the incidence of the Contribution?
Coming from the trustees, it would be dealt with by the trustee concerned. It would be a payment from trustees holding the capital sum and, therefore, would be recovered by the person who received it if he had to pay this special levy because that would really be nothing but an annual receipt from the trustees. An annuity and an annual receipt are not necessarily the same thing.
Will the right hon. and learned Gentleman answer the point about a man selling a business for a number of annual payments?
11.45 p.m.
The man who sells his business for a number of annual payments does not necessarily receive an annuity. He may spread the price over 10 years, but that is not necessarily an annuity. There are many cases where the purchase price is spread over a period of years, but that does not constitute an annuity.
Nor investment income?
No.
The Chancellor's last remark raises a very big issue. The object of this Clause is to exclude from the effect of the levy those regular annual payments received by persons who have given consideration for them. They are defined in Subsection (2), and the Chancellor has assisted the Committee by explaining that the provision is rather wider than it appears according to the wording. As I understand it, that definition is still pretty limited, and it is very difficult to understand why a person should be relieved from the incidence of the levy if he happens to be in receipt of an annual payment from an insurance company to whom he has paid a single premium, and yet he would have to be assessed for levy purposes on the annual receipt payable over a period of 10 years, which he is receiving in exchange for the sale of a business.
They would be deferred capital payments paid over a period of 10 years. It would not be investment income but capital.
I appreciate what the Chancellor has said, but it does not appear to be excluded by the definition of investment income which we have just discussed. An annuity may be for a much longer period than 10 years, and it is very difficult to define which part of it is capital and which part is income. If the Chancellor is able to assure us that these payments are of a capital nature, that will meet a great deal of the criticism we have to make.
If it is a case of purchasing something and paying the purchase price over a period of years, that is obviously capital, but if a person gets a lump sum for patent rights which is spread over a number of years, that is income.
Question put, and agreed to.
Clause, as amended, ordered to stand part of the Bill.
CLAUSE 50.—( Deductions in ascertaining total income and aggregate investment income. )
I beg to move, in page 35, line 7, to leave out Subsection (1).
It still seems to us that this Subsection conflicts in wording with Subsection (3) of the previous Clause, even as now drafted, because this Subsection again does not say whether the deduction is to be made from the payment made by the payer, or the payment received by the recipient. The intention must be, in view of the Government's acceptance in Subsection 3 of payment by the payer, that no deduction should be made from that. If that be the intention and this Subsection remains, I suggest that those words ought to be added for clarification.
There is one further point I wish to raise. As I understand it, this Subsection will affect all individuals and firms who have covenanted or promised to pay pensions to their former employees. The amounts of these pensions may well be below the limits dealt with in this part of the Bill, but is it true that the amount of these pensions will be treated as part of the recipient's aggregate investment income, and so put him in a higher bracket for the payment of this levy? Is that not a real deterrent to individuals entering into such covenants to provide for employees, some of whom may have spent long terms with the firm? Is it necessary to include in the operation of this levy payments of that character which affect in that way the person making the payments?
I do not think it can very well be said to be a deterrent. We are talking about the income for 1947–48 and nothing can be done to alter that position, so that it cannot be said to be a deterrent. Subsection (1) is necessary as a corollary to Clause 49 (3). Subsection (3) deals with the position from the point of view of the recipient of the payment. The corollary to that is that what is not the income of the recipient must be part of the income of the payer. What Subsection (1) does is describe the position from the point of view of the payer, and Subsection (3) deals with the point of view of the recipient. They work in together and one makes the other necessary.
Amendment negatived.
I beg to move, in page 35, line 7, to leave out "total income or."
The object of this Amendment is to correct a slip in the drafting. This Clause lays it down that, so far as the payee is concerned, pensions are part of his income, but so far as the payer is concerned, they are part of his investment income. In order to bring that about, we have to leave out these words "total income or."
When I first read this Subsection, it seemed that there was an obvious mistake, because it was manifestly unjust to assess the total income of the payer without making any allowance for those periodical payments which he has to make. So I put down my Amendment to page 35, line 8, to leave out "no" and insert "a." I agree that the Amendment moved by the Solicitor-General, in fact, does affect the aggregate income, so it would be irrevelant for me to move my Amendment, in view of what the Solicitor-General has said.
Amendment agreed to.
I beg to move, in page 35, line 10, at the end, to insert:
Hon. Members will probably know in fair detail what those allowances are. First, there is the allowance of 10 per cent. in respect of expenditure on agricultural and forestry lands, expenditure incurred on buildings on those lands, and under the terms of the 1945 Act that allowance is available against agricultural and forestry income. The second type is the maintenance allowance which is dealt with in Section 32 of that Act. Then there is the allowance made available to lessors of industrial buildings on the cost of new capital construction, a 10 per cent. initial allowance and two per cent. annually. That is made available again against a specific form of income, namely, income from industrial buildings, under the Act, and this Amendment says that that type of allowance can be set off against that type of income. Then there is the ordinary wear and tear allowance for machinery, which was dealt with in the 1945 Act, and the allowance in respect of patent rights.
This Amendment, in Subsection (3), says in effect that all these different categories of allowances may be taken and set off against what I might describe, in general terms, as the corresponding form of investment income, to the extent that that income is sufficient to write off those allowances. So the effect of the Amendment is to make available by way of deduction against the various categories of investment income applicable to a particular type of allowance the allowances granted primarily by the Income Tax Act, 1945.
12 m.
I beg to move, as an Amendment to the proposed Amendment, in paragraph (3) to leave out from the second "Act," to the end.
I am dealing in this Amendment with the narrow point that under the 1945 Act provision is made by Section 32 that where the owner of property ploughed back into the property income other than investment income, he should be given the benefit of the full allowance under the Income Tax Act, 1945. As I understood the Solicitor-General, who was extremely clear on the point, the Government's Amendment is designed to nullify the effect of Section 32 of the Income Tax Act, 1945. On a previous occasion I heard the Chancellor of the Exchequer lay down quite clearly that in this matter of ascertaining aggregate investment income he would be guided entirely by the system of Income Tax collection and Surtax collection and the ascertainment of liability under the Income Tax Acts. I am now asking him to do the same thing.
This is not a narrow point, but a very big one. In the last two years there has been a large amount of expenditure under the direction of war agricultural executive committees. They have said to the owners of land, "If you do this you will get the benefit of the Income Tax Act, and you will be able to set it off against other income, and, therefore, you will not be at such great loss." I can remember in my constituency a whole area of marsh on a moor on which money was spent under the persuasion of the war agricultural executive committee. One particular owner of that land certainly had income from the land. To justify the expenditure he was told, "It is all right. You will get a fair allowance on that expenditure, and be able to set it off against other income." The owner having had the extra expenditure, the Chancellor comes along with this Amendment, and says, "We do not care a bit about that. You will have to bear the full effect of the Special Contribution, and you will be allowed to deduct only the income from that particular source." The Solicitor-General has put forward a highly obnoxious suggestion. It is a good thing at the present time to get money ploughed back into industry and into agricultural land. If we are to try to stop inflation, this is the very method that we should encourage by our legislation.
I hope that the Solicitor-General will consider the argument put forward by my hon. Friend the Member for Thirsk and Malton (Mr. Turton) very carefully. What is happening is that the Chancellor is giving with one hand and taking away with the other. This point brings us back to the matter we were discussing a short while ago on Clause 48, and to the question, "Do the Government really want to see capital put into agriculture or not"? This Clause as drafted at present will discourage any landowner from ploughing back into the land outside money, which it is often necessary to do to keep buildings in good repair or to carry out necessary improvements. And here again let me repeat that we cannot split up finance on an agricultural estate into water-tight compartments. Does the right hon. and learned Gentleman mean that where a landowner farms say two farms on his estate, but the remaining farms are let, if he makes a loss on his two farms he is not allowed to offset that loss against the Schedule A Assessment on the rest of his estate. Would that be right?
indicated assent.
If an owner sustains a farming loss he can offset that loss against other sources of income under existing Finance Acts. If that concession is taken away it will bear hardly on food production and cut right across the Government's policy of keeping the land in good condition and encouraging the spending of capital on improvements.
It was the deliberate intention of the Income Tax Act, 1945, so to arrange the law that money from outside sources could be drawn into the agricultural industry, and that intention will be nullified by the inclusion of the words of this Amendment which we wish to delete. Thus the owners who have followed the intention of the 1945 Act will be penalised for doing what the law encourages them to do. My second point is to ask the Chancellor, who made a good deal of fuss on previous Amendments about keeping strictly to the Income Tax law, to follow his own advice.
I agree with all the agricultural arguments which have been put forward because this is a serious matter for agriculture. The Government's attitude is completely incomprehensible. For the last two years we have had every exhortation with regard to food production made to landowners, farmers and farm labourers. They have been exhorted to that one end for a purpose which we know full well, yet in the Finance Bill the Government adopt the attitude that in the case of the farmer, they can "sock him on the jaw," by doing everything to discourage the introduction of British capital into the land through making it a penalty to improve farms and maintain them in a proper and fit condition.
The other aspect of the matter is indicated by the line of argument which has already been adopted by every Member of the Treasury Bench who has so far spoken tonight with regard to the way in which this capital levy is to be administered. We cannot get away from the fad that here the Government are saying, "We must depart from principles of the Income Tax law." The Government are simply blowing hot and cold. When it suits them, and they wish to refuse an Amendment, they say it is not in conformity with Income Tax practice or the way in which Income Tax is assessed, and on the next Amendment they say the opposite thing. That is what is happening now.
I listened to the hon. and learned Gentleman the Solicitor-General when he was moving his Amendment, but he gave no reason why it is desirable for such provisions to be inserted. He merely stated that the Government wished it so. He has advanced no reason for it but there are other good reasons against it, namely, the reasons given by the hon. and learned Gentleman that, for administrative convenience as well as for simplicity, and to keep the matter on the same lines, it is essential that the form of assessment for Income Tax and Surtax should govern the procedure with regard to the capital levy if possible. This is a case where that is possible, and this is a case where the Government have deliberately moved an Amendment to avoid following the Income Tax and Surtax procedure. I hope that, after hearing that argument and that line of reasoning, we shall not accept this Amendment.
If the right hon. and learned Gentleman had said he was departing from the normal Income Tax procedure so that those who had not responded to the Government's agricultural policy should bear a heavier weight of levy I could have understood it. But we have heard him say that those who have made the greater response, and are now contributing most to agricultural improvements, which everyone knows need to be made, shall be penalised. For that reason I hope we shall go into the Lobby in support of my hon. Friend's Amendment. But beyond that, there is an administrative stupidity behind this proposal. How can the Solicitor-General defend the proposal if, at the same time as he is penalising these people in the matter of Income Tax, certain grants for drainage and other important work are being paid out of public money to these people for carrying out that work? It seems that after midnight we find ourselves in the same country as Alice in Wonderland. Surely the right hon. and learned Gentleman will agree that a landowner who has carried out his duties to the best of his capacity, and effected the maximum improvements, should not pay a great deal more than someone who during the past few years has realised such capital as he can, invested it in diamonds, and buried them in the back garden. That is, in fact, the situation. I hope that the Amendment to the Solicitor-General's Amendment will be accepted.
I think there is a little misconception regarding exactly what can be done with regard to these allowances. The terms of the Income Tax Act primarily apportion the allowance against an equivalent form of income, if I may so describe it—the income which, by the terms of the Act, is said to be proper income for that allowance. If there is an excess, if the allowance still leaves one something to play with, one can attribute that to some other source of income. The position, under the terms of this Bill is not quite the same. One can only attribute the allowance to the extent that one has income of the proper type.
Will the hon. and learned Gentleman explain the advantage of that?
I was endeavouring to answer the question which had been asked. When I come to the hon. Member's point I will deal with it. As between specific items of the same income, one can cross-attribute the allowance. What I mean is that supposing a landowner has incurred expense upon an agricultural building in Cornwall, and he also draws rent from another agricultural property in Lincolnshire, if he has insufficient income from the Cornwall property to exhaust the whole amount of the allowance, he can treat the excess of the amount of that allowance by writing it off against the agricultural rent which he draws from his property in Lincolnshire, as it were, within the sphere of the same category of agricultural income.
One can write off the allowance which one is granted under the terms of the Income Tax Act, 1945, against any item of agricultural income which one possesses. I think that was a point on which the hon. Gentleman felt strongly, and I am in a position to reassure him about that. With regard to the question whether one should be allowed on the merits to consider the spill-over of an allowance as available against other categories of income, there really is not any case on the merits so far as this type of tax is concerned. It has been said several times in this Debate that this is a tax on investment income, income represented by some capital asset which stands behind it. There is no case for writing off the excess of allowance against other categories of income than the capital asset which attracted the allowance.
We are dealing with a particular category of capital assets and there are under the terms of the 1945 Act particular categories of allowances. Clearly, on a common sense point of view, when one considers what one should do with that allowance, one should attribute it to those capital assets and not to other sources of income in respect of which one may be liable for Income Tax. For those reasons I hope that Members will agree that the Amendment to the Government Amendment, which really would remove that limitation altogether and assimilate the position to a tax which had no relation at all to the investment income, cannot be justified. I hope that the Committee will reject the Amendment proposed by the hon. Member for Thirsk and Malton (Mr. Turton).
12.15 a.m.
The hon. and learned Gentleman has made it clear that my hon. Friend the Member for Thirsk and Malton (Mr. Turton) was absolutely right in the views he expressed about the last part of the Government Amendment. It really is a complete departure from the agricultural policy which has been adopted so far as finance is concerned. No justification has been put forward for such a departure or, indeed, for a departure from what the Chancellor of the Exchequer said a short time ago about the necessity of adhering to the present Income Tax and Surtax practice. The stipulation that one will only be able to set off an allowance in respect of farm property against farm rents received from other parts of the country or the same estate means that those who, relying on the Act of 1945, have followed the policy of investing money in improvement of agricultural buildings and increasing food production are to be hit without any justification. It is a complete retraction and departure from existing policy. The hon. and learned Gentleman has put forward no argument to justify that departure. In those circumstances I hope that my hon. Friend the Member for Thirsk and Malton will divide the Committee on this point to show how much we are opposed to this departure, which will damage the agricultural industry and those who have invested their money in agriculture and done their best to encourage it.
I want to know where I stand with the Government on this question. For some time I have been, accusing the Government of being honest in their agricultural policy. I have not accused them of being honest in everything else. But I frankly believed that they did wish to put money into agriculture to develop its value to the country. That is the line I have taken in my constituency and in other places, and I have encouraged people to do that. We have now heard from the hon. and learned Gentleman and the fact comes out only too clearly in this Government Amendment—unless my hon. Friend's Amendment is accepted—that the Government's object is not to get people to pour money into agriculture; under this special tax which we are now to have on capital, they seem to be almost going out of their way to put burdens on those who go into agriculture.
I fully understand the point put by the Solicitor-General just now as regards balancing rents of one holding against maintenance in other parts of the country, but, in many cases, with the special efforts being made at the present time, that does not really help. There is a great deal of land being developed and land is being carried on the rent of other land. I find myself in a peculiarly difficult position because I know what the position really is. Many hon. Members have taken the view that under this Government Amendment we are definitely limiting the amount of money which can go into rent. It has been commented upon by one of my hon. Friends earlier tonight that neither the Minister of Agriculture nor his Parliamentary Secretary is with us, but I am not surprised that we have not seen anyone connected with agriculture here tonight. If they were here, they would be in an invidious position because they would not be led to think that the Government was trying to develop this great British industry. I am in a difficult position because I shall have to tell my constituents that the Government, once again, have been inefficient and have let them down.
Question put, "That the words proposed to be left out stand part of the proposed Amendment."
The Committee divided: Ayes, 192; Noes, 81.
Division No. 175. AYES. [12.23 a.m. Acland, Sir Richard Gibson, C. W. Porter, E. (Warrington) Adams, Richard (Balham) Granville, E. (Eye) Pritt, D. N. Allen, Scholefield (Crewe) Greenwood, A. W. J. (Heywood) Proctor, W. T Attewell, H. C. Griffiths, D. (Rother Valley) Randall, H. E Barton, C Guy, W H. Ranger, J Bechervaise, A. E. Haire, John E. (Wycombe) Reeves, J Berry, H. Hale, Leslie Reid, T. (Swindon) Beswick, F. Hamilton, Lieut.-Col. R. Rhodes, H. Bing, G. H. C. Henderson, Joseph (Ardwick) Ridealgh, Mrs. M. Binns, J. Hobson, C. R. Robens, A. Blenkinsop, A. Holman, P. Roberts, Emrys (Merioneth) Bottomley, A. G. Holmes, H. E (Hemsworth) Roberts, Goronwy (Caernarvonshire) Bowden, Fig. Offr. H. W. House, G. Royle, C. Bowles, F G. (Nuneaton) Hudson, J. H. (Ealing, W.) Sargood, R. Braddock, T. (Mitcham) Hughes, H. D. (W'lverh'pton, W.) Segal, Dr. S. Bramall, E. A. Hynd, H. (Hackney, C.) Shackleton, E. A. A Brook, D. (Halifax) Hynd, J. B. (Attercliffe) Sharp, Granville Brown, T. J. (Ince) Irving, W. J. (Tottenham, N.) Shawcross, C. N. (Widnes) Bruce, Maj. D. W. T. Jay, D. P. T. Shurmer, P Burden, T. W Jeger, G. (Winchester) Silverman, J. (Erdington) Butler, H. W. (Hackney, S.) Jeger, Dr. S. W. (St. Pancras, S.E.) Silverman, S. S. (Nelson) Champion, A. J Jenkins, R. H. Simmons, C J. Chetwynd, G. R Johnston, Douglas Skeffington, A. M. Cocks, F. S. Jones, D. T. (Hartlepool) Skinnard, F. W. Coldrick, W. Jones, J. H. (Bolton) Smith, C. (Colchester) Collindridge, F. Jones, P. Asterley (Hitchin) Snow, J. W. Collins, V. J. Keenan, W. Sorensen, R. W Cooper, Wing-Comdr. G. Kenyon, C. Soskice, Sir Frank Corbet, Mrs. F. K. (Camb'well, N.W.) King, E. M. Sparks, J. A. Corlett, Dr. J. Kinghorn, Sqn.-Ldr. E Stewart, Michael (Fulham, E.) Cove, W. G. Lee, F (Hulme) Swingler, S. Crawley, A. Levy, B. W. Sylvester, G. O. Cripps, Rt. Hon. Sir S. Lindgren, G. S. Symonds, A. L Crossman, R. H. S. Lipton, Lt.-Col. M. Taylor, R. J. (Morpeth) Daines, P. Longden, F. Taylor, Dr. S. (Barnet) Dalton, Rt. Hon. H. McAdam, W. Thomas, D. E. (Aberdare) Davies, Ernest (Enfield) McAllister, G. Thomas, George (Cardiff) Davies, Harold (Leek) McGhee, H. G. Tiffany, S. Davies, Haydn (St. Pancras, S.W.) Mack, J. D. Tolley, L. Davies, S. O. (Merthyr) Mallalieu, E. L. (Brigg) Ungoed-Thomas, L. Deer, G. Mallalieu, J. P. W. (Huddersfield) Wadsworth, G. de Freitas, Geoffrey Manning, C. (Camberwell, N.) Wallace, G. D. (Chislehurst) Delargy, H. J. Manning, Mrs. L. (Epping) Wallace, H. W. (Walthamstow, E.) Diamond, J. Marquand, H. A. Warbey, W. N. Dodds, N. N. Millington, Wing-Comdr. E. R. Watkins, T. E. Donovan, T. Mitchison, G. R Weitzman, D. Driberg, T. E. N. Monslow, W. Wells, W. T. (Walsall) Dugdale, J. (W. Bromwich) Morgan, Dr H. B. White, H. (Derbyshire, N.E.) Dumpleton, C. W. Morley, R. Whiteley, Rt. Hon. W. Durbin, E. F. M. Moyle, A. Wigg, George Dye, S. Murray, J. D. Wilcock, Group-Capt. C. A. B. Ede, Rt. Hon. J. C. Neal, H. (Claycross) Wilkins, W. A. Edwards, John (Blackburn) Nichol, Mrs. M. E. (Bradford, N.) Willey, F. T. (Sunderland) Evans, Albert (Islington, W.) Nicholls, H R. (Stratford) Willey, O. G. (Cleveland) Evans, E. (Lowestoft) Noel-Baker, Capt. F. E. (Brentford) Williams, D. J. (Heath) Evans, S. N. (Wednesbury) Oliver, G. H. Williams, J. L. (Kelvingrove) Fairhurst, F. Orbach, M. Williams, R. W. (Wigan) Farthing, W. J. Paget, R. T. Williams, W. R. (Heston) Fernyhough, E. Palmer, A. M. F. Wills, Mrs. E. A Field, Capt. W. J. Pargiter, G. A. Woods, G. S. Fletcher, E. G. M. (Islington, E.) Parker, J. Wyatt, W. Foot, M. M. Parkin, B. T. Yates, V. F. Fraser, T. (Hamilton) Paton, J. (Norwich) Freeman, J. (Watford) Perrins, W. TELLERS FOR THE AYES: Ganley, Mrs. C. S. Popplewell, E. Mr. Pearson and Mr. Hannan
NOES. Amory, D. Heathcoat Channon, H. Fraser, H. C. P. (Stone) Assheton, Rt. Hon, R. Clarke, Col. R. S. Fraser, Sir I. (Lonsdale) Astor, Hon. M. Clifton-Brown, Lt.-Col. G Fyfe, Rt. Hon. Sir D. P. M. Baldwin, A. E Corbett, Lieut.-Col. U. (Ludlow) Gates, Maj. E. E Birch, Nigel Crookshank, Capt. Rt. Hon. H. F. C George, Maj. Rt. Hn. G. Lloyd (P'ke) Boles, Lt.-Col. D. C. (Wells) De la Here, R. Gomme-Duncan, Col. A. Bossom, A. C. Digby, S. W. Grimston, R. V. Bowen, R. Drayson, G. B Harris, F. W. (Croydon, N.) Bower, N. Drewe, C. Harvey, Air-Cmdre. A. V. Braithwaite, Lt.-Comdr. J. G Eccles, D. M Haughton, S. G. Bromley-Davenport, Lt.-Col. W Eden, Rt. Hon. A. Howard, Hon. A. Buchan-Hepburn, P. G. T. Fletcher, W. (Bury) Joynson-Hicks, Hon. L. W Carson, E. Foster, J. G. (Northwich) Keeling, E. H. Lambert, Hon. G. Mott-Radclyffe, C. E. Studholme, H. G. Law, Rt Hon. R. K. Nield, B. (Chester) Taylor, C. S. (Eastbourne) Legge-Bourke, Maj. E. A. H Noble, Comdr. A. H. P. Thomas, J. P. L. (Hereford) Lennox-Boyd, A. T. Odey, G. W. Thorneycroft, G. E. P. (Monmouth) Lloyd, Selwyn (Wirral) Pitman, I. J. Touche, G. C. Low, A. R. W. Poole, O. B. S. (Oswestry) Turton, R. H. Lucas, Major Sir J. Ramsay, Maj. S Vane, W. M. F. Lucas-Tooth, Sir H. Renton, D. Wheatley, Colonel M. J (Dorset, E.) Mackeson, Brig. H. R. Roberts, P. G. (Ecclesall) Williams, C. (Torquay) Macpherson, N. (Dumfries) Roberts, W. (Cumberland, N.) Williams, Gerald (Tonbridge) Manningham-Buller, R. E. Ropner, Col. L. Willoughby de Eresby, Lord Marsden, Capt. A. Ross, Sir R. D. (Londonderry) York, C. Mellor, Sir J. Spearman, A. C. M. TELLERS FOR THE NOES Malson, A. H. E. Stanley, Rt. Hon. O. Commander Agnew and Morrison, Maj. J. G. (Salisbury) Strauss, H. G. (English Universities) Major Conant.
Question again proposed, "That those words be there inserted."
12.30 a.m.
I would like the Chancellor of the Exchequer to look for a few minutes on the farming industry, on which he has been rather hard, in regard to the whole position. I am not going to make a long appeal to him, but I am going to ask him to remember the special efforts which the country has made and which his Government have appealed to us to make for moral support in the development of the land. There is one point which has not yet been mentioned in this respect and that is the heavy losses—far greater than is generally known—which farmers felt last winter, especially in the hill country in Scotland and the North of England. They were losses far greater than occurred for many generations, yet the Government are choosing that year in which many people had to put investment income into agriculture in order to carry on, to put a capital levy on their investment income.
I ask the Chancellor of the Exchequer to go into this matter once again with the Minister of Agriculture, who has not been here tonight, before the Report stage to see whether he cannot do something to make it easier for those who put investment income back into agriculture.
In some cases, with which I can easily supply him, farmers have used investment income for replacements of stock. Is it fair in such circumstances to come to those people and say, "You are to be on an entirely different basis for income and are to be cut off from certain advantages." I urge him to consult with the Minister of Agriculture, when, I am sure, he will see that the results of last winter have created a particularly difficult position in the agricultural industry and one which needs going into closely.
I can assure the hon. Member that we are very conscious of the good work that the agricultural industry has done. He will be comforted to know that those who have lost stock are not touched by this particular levy at all. This levy does not attach to people who are working the industry of agriculture. The only person it attaches to is the landowner, not the farmer, and, therefore, the question of stock losses has nothing to do with it.
I was aware of that point, which was not the point I raised. The illustration I gave was of £500 worth of rent from one farm being used to replace stock which has been lost on another farm. Presumably the rent will be assessed and the farmer will not get any relief. If a farmer receives rent and ploughs some of that rent back by replacing stock, then surely he will be chargeable?
I wish to ask one question. Am I right in reading the Amendment as limiting the provisions of the new Clause standing in the name of the Chancellor of the Exchequer? So far as I can see, that is the purpose of the Amendment.
I should like to comment on the remark the Chancellor made in regard to landowners. He seemed to suggest that landowners were not working the agricultural industry. I suggest to him—and I think he will agree—that the part played by the agricultural landowner is not only extremely arduous and worrying, but is really constructive in the industry. That has been freely admitted by the Minister of Agriculture in our discussions on agricultural Measures, and I am rather sorry that the Chancellor made that remark, even though it may have been inadvertent. I still find it difficult to see why losses against one operation of investment income should not be set off against the rest of an individual's investment income, although I can see why it should not be set off against his earned income.
I wish to ask one simple question, the answer to which is not apparent to me. Will the Chancellor let us know the difference in effect between Clause 50 (2) and Clause 47? Under Clause 47, it is provided that the total income
"shall be ascertained for the purposes of this Part of this Act as they are ascertained for the purposes of sur-tax."
Subsection (2) appears to come within the provisions whereby the total income is ascertained for the purpose of Surtax. If there is no differentiation it would appear that Subsection (2) is redundant, and if there is a differentiation it should be explained to the Committee.
The explanation is to be found in the proviso to Subsection (2), which has the effect of preventing trading losses being set against other categories of income, notably investment income. Under the provisions of
the Income Tax Acts which relate to carrying forward of losses for six years, they can be set against any categories of income. The effect of this Amendment is to cut down the application of Clause 47 by saying that notwithstanding the provisions of the Income Tax Act losses cannot be used for other categories of investment income.
In reply to the hon. and learned Member for Wirral (Mr. Selwyn Lloyd), who asked a question about maintenance and repairs, this Amendment enables one to substitute the actual cost for maintenance during 1947–48 for the previous five years' average. It is still subject to the treatment of the Amendment which I have just moved, that under the terms of Section 32 of the Act of 1945 it is to be attributed against the appropriate form of investment income, namely, agricultural income, but it can be, as I pointed out earlier, attributed to any other building which produces agricultural income.
Question put, "That those words be there inserted."
The Committee divided: Ayes, 188; Noes, 78.
Division No. 176.] AYES. [12.43 a.m. Acland, Sir Richard Deer, G. Irving, W. J. (Tottenham, N.) Adams, Richard (Balham) de Freitas, Geoffrey Jay, D. P. T. Allen, Scholefield (Crewe) Delargy, H. J. Jeger, G. (Winchester) Attewell, H. C. Diamond, J. Jeger, Dr. S. W. (St. Pancras, S.E.) Barton, C. Dodds, N. N. Jenkins, R. H. Bechervaise, A. E. Driberg, T. E. N. Johnston, Douglas Berry, H. Dugdale, J. (W. Bromwich) Jones, D. T. (Hartlepool) Beswick, F. Dumpleton, C. W. Jones, J. H. (Bolton) Bing, G. H. C. Durbin, E. F. M. Jones, P. Asterley (Hitching) Binns, J. Dye, S. Keenan, W. Blenkinsop, A. Ede, Rt. Hon. J. C. Kenyon, C. Bottomley, A. G. Edwards, John (Blackburn) King, E. M. Bowden, Fig. Offr. H. W. Evans, Albert (Islington, W.) Lee, F. (Hulme) Bowles, F G. (Nuneaton) Evans, E. (Lowestoft) Levy, B. W. Braddock, T. (Mitcham) Evans, S. N. (Wednesbury) Lindgren, G. S. Bramall, E. A. Fairhurst, F. Lipton, Lt.-Col. M. Brook, D. (Halifax) Farthing, W. J. Longden, F. Brown, T. J. (Ice) Fernyhough, E. McAdam, W. Bruce, Maj. D. W. T. Field, Capt. W. J. McAllister, G. Burden, T. W. Fletcher, E. G. M. (Islington, E.) McGhee, H. G. Butler, H. W. (Hackney, S.) Foot, M. M. Mack, J. D. Champion, A. J Fraser, T. (Hamilton) Mallalieu, E. L. (Brig) Chetwynd, G. R Freeman, J. (Watford) Mallalieu, J. P. W. (Huddersfield) Cocks, F. S Ganley, Mrs. C. S. Manning, C. (Camberwell, N.) Coldrick, W. Gibson, C. W. Manning, Mrs. L. (Epping) Collindridge, F. Granville, E. (Eye) Marquand, H. A. Collins, V. J. Greenwood, A. W. J. (Heywood) Millington, Wing-Comdr. E. R Cooper, Wing-Comdr. G. Griffiths, D (Rother Valley) Mitchison, G. R. Corbet, Mrs. F. K. (Camb'well, N.W.) Guy, W. H. Monslow, W. Corlett, Dr. J. Haire, John E. (Wycombe) Morgan, Dr. H. B Cove, W. G. Hale, Leslie Morley, R. Crawley, A. Henderson, Joseph (Ardwick) Moyle, A. Cripps, Rt. Hon. Sir S. Hobson, C. R. Murray, J. D. Crossman, R. H. S. Holman, P. Neal, H. (Claycross) Daines, P. Holmes, H. E. (Hemsworth) Nichol, Mrs. M. E. (Bradford, N.) Dalton, Rt. Hon. H. House, G. Nicholls, H. R. (Stratford) Davies, Ernest (Enfield) Hudson, J. H. (Ealing, W.) Noel-Baker, Capt. F. E. (Brentford) Davies, Harold (Leek) Hughes, H. D. (W'lverh'pton, W.) Oliver, G. H. Davies, Haydn (St. Pancras, S.W.) Hynd, H. (Hackney, C.) Orbach, M. Davies, S. O. (Merthyr) Hynd, J. B. (Attercliffe) Paget, R. T. Palmer, A. M. F Shurmer, P. Wallace, H. W. (Walthamstow, E.) Pargiter, G. A. Silverman, J. (Erdington) Warbey, W. N. Parker, J. Silverman, S. S. (Nelson) Watkins, T. E. Parkin, B. T. Simmons, C. J Weitzman, D. Paton, J. (Norwich) Skeffington, A. M. Wells, W. T. (Walsall) Perrins, W. Skinnard, F W. White, H. (Derbyshire, N.E.) Popplewell, E. Smith, C. (Colchester) Whiteley, Rt. Hon. W. Porter, E. (Warrington) Snow, J. W. Wigg, George Pritt, D. N. Sorensen, R. W. Wilcock, Group-Capt. C. A. B Proctor, W. T. Soskice, Sir Frank Wilkins, W. A. Randall, H. E. Sparks, J. A. Willey, F. T. (Sunderland) Ranger, J. Stewart, Michael (Fulham, E.) Willey, O. G. (Cleveland) Reeves, J. Swingler, S. Williams, D. J. (Neath) Reid, T. (Swindon) Sylvester, G. O. Williams, J. L. (Kelvingrove) Rhodes, H. Symonds, A. L. Williams, R. W. (Wigan) Ridealgh, Mrs. M. Taylor, R. J. (Morpeth) Williams, W. R. (Heston) Robens, A. Taylor, Dr. S. (Barnet) Wills, Mrs. E. A Roberts, Goronwy (Caernarvonshire) Thomas, D. E. (Aberdare) Woods, G. S Royle, C. Thomas, George (Cardiff) Wyatt, W. Sargood, R. Tiffany, S. Yates, V. F. Segal, Dr. S. Tolley, L. Shackleton, E. A. A Ungoed-Thomas, L. TELLERS FOR THE AYES Sharp, Granville Wadsworth, G. Mr. Pearson and Mr. Hannan Shawcross, C. N. (Widnes) Wallace, G. D. (Chislehurst)
NOES. Agnew, Cmdr. P. G Foster, J. G. (Northwich) Mott-Radclyffe, C. E. Amory, D. Heathcoat Fraser, H. C. P. (Stone) Nield, B. (Chester) Assheton, Rt. Hon. R. Fraser, Sir I. (Lonsdale) Noble, Comdr. A. H. P Astor, Hon. M. Fyfe, Rt. Hon. Sir D. P. M. Odey, G. W. Baldwin, A. E Gates, Maj. E. E Pitman, I. J. Birch, Nigel Gomme-Duncan, Col. A. Poole, O. B. S. (Oswestry) Boles, Lt-Col. D. C. (Wells) Grimston, R. V. Ramsay, Maj. S Bossom, A. C. Harris, F. W. (Croydon, N.) Renton, D. Bowen, R. Harvey, Air-Cmdre. A. V. Roberts, P. G. (Ecclesall) Bower, N. Haughton, S. G. Roberts, W. (Cumberland, N.) Braithwaite, Lt.-Comdr. J. G. Howard, Hon. A. Ropner, Col. L. Bromley-Davenport, Lt.-Col. W. Joynson-Hicks, Hon. L. W Spearman, A. C. M. Buchan-Hepburn, P. G. T. Keeling, E. H. Stanley, Rt. Hon. O. Carson, E. Lambert, Hon. G. Strauss, H. G. (English Universities) Channon, H. Law, Rt. Hon. R. K. Taylor, C. S. (Eastbourne) Clarke, Col. R. S. Legge-Bourke, Maj. E. A. H. Thomas, J. P. L. (Hereford) Clifton-Brown, LL-Col. G. Lennox-Boyd, A. T. Thorneycroft, G. E. P. (Monmouth) Conant, Maj. R. J. E. Lloyd, Selwyn (Wirral) Touche, G. C. Corbett, Lieut.-Col. U. (Ludlow) Low, A. R. W. Turton, R. H. Crookshank, Capt. Rt. Hon. H. F. C Lucas, Major Sir J. Vane, W. M. F. De la Bère, R. Lucas-Tooth, Sir H. Wheatley, Colonel M. J. (Dorset, E) Digby, S. W. Macpherson, N. (Dumfries) Williams, C. (Torquay) Drayson, G. B. Manningham-Buller, R. E. Willoughby de Eresby, Lord Drewe, C. Marsden, Capt. A. York, C. Eccles, D. M. Mellor, Sir J. TELLERS FOR THE NOES Eden, Rt. Hon. A. Molson, A. H. E. Mr. Studholme and Brigadier Fletcher, W. (Bury) Morrison, Maj. J G. (Salisbury) Mackeson.
Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."
There are two matters I want to ask about. The first is this. There is this phrase in the Clause: "or other annual payments." I want to know what is the meaning of that. Presumably, it means payments of a similar nature to those which are specified in Subsection (2), and would include annual charges such as, in Scotland, feu duties and stipends, of which the English equivalent would be ground rents and tithes. I want to ask whether "other annual payments" would include fixed annual charges of that kind, and whether there would be a reduction for them before an individual is assessed for Special Contribution.
The second point is this. Will the following deductions be allowed from income which is derived from ownership of agricultural land before that income becomes liable to the Special Contribution: all maintenance expenditure as defined in Schedule A, No. V, Rule 8, of the Income Tax Acts; excess maintenance expenditure under Section 32 of the Income Tax Act, 1945; expenditure under Section 33 of the Income Tax Act, 1945; excess rates claims; mineral management expenses claims; mineral rights levy; and a thing called mineral welfare levy which, I think, is still payable in the case of shale and other minerals which so far have not been nationalised; and, finally, interest on Estate Duty?
I have given the Solicitor-General notice of these questions. They are rather technical, but they want clearing up. I should be obliged if I could be told the position.
The hon. Gentleman handed me a piece of paper as we were going out of the Chamber not so many moments ago, but although the notice is short, I shall do my best to answer. I have already dealt with allowances under Section 33 and maintenance claims under Section 32 of the Income Tax Act, 1945. They are, as I said earlier, covered by the Amendment we disposed of not so long ago. With regard to excess rates claims and the interest on Estate Duty, I am sorry that I and those advising me, whom I have consulted since having the paper handed to me, are not quite able to identify them with certainty. However, I think the answer that I ought to give is that the ordinary Surtax principles would apply, subject to the expressed modification in the Acts. The words "other annual payments" are well-known and found in the Income Tax Acts and interpreted in various cases, referring to rent, interest and the other matters which the hon. Gentleman raised. Frankly, I prefer not to commit myself as to the precise nature of payments which I have not yet been able to consider.
Question put, and agreed to.
Clause, as amended, ordered to stand part of the Bill.
CLAUSE 51.—( Certain payments and income from occupation of property to be income of payer or person entitled to property. )
I beg to move, in page 35, line 25, at the end, to insert: say that political parties have always been excluded from that definition. The present position of charities is that for Income Tax purposes, if a man can afford 10s. 6d. and enters into a covenant for seven years the charity receives £1 because the Income Tax on the pound comes to the charity from the Revenue Authorities. In the case of Surtax, if a covenant was entered into before 10th April, 1946, the same thing happens, so that in that case, where a Surtax-payer's rate is 13s. 4d. in the £ and he can afford 10s. 6d. by entering into a covenant, he can ensure that the charity gets 31s. 6d.
The late Chancellor of the Exchequer, now the Chancellor of the Duchy of Lancaster, took away that privilege as far as Surtax was concerned, and kept the Surtax for the Treasury, perhaps on the principle of charity beginning at home—a doctrine which I understand he has never found particularly repugnant. The effect of that on charities was very serious and now we come to the position under this Special Contribution. Donors, in deciding how much they could afford to give, took into account the Surtax and Income Tax charges which their income had to bear. They could not take into account this Special Contribution, and to that extent it is unfair to them.
I have made so many appeals to the Government tonight to be reasonable over cases of hardship that I confess I have not much hope at this stage of benefitting the position of donors to charities, but I earnestly ask whether the Chancellor can do something for the charities and devise a formula whereby they, at all events in respect of covenants entered into before 10th April, 1946, may receive something of the Special Contribution? We have heard again and again that Surtax principles are to be applied, and in regard to these covenants it would be reasonable that charities should get the benefit of the Special Contribution on the sums given to them.
1.0 a.m.
I admit at once that the form of words in my Amendment does not achieve that object. But if the Chancellor of the Exchequer will say that he will consider this matter, I will at once withdraw my Amendment. But this is a matter to which he should be disposed to give sympathetic consideration, for the reason that the Special Contribution is going to take £105,000,000 out of the pockets of people who are for the most part, the subscribers of substantial sums to charity.
The right hon. Gentleman is going to make it difficult for these people to maintain their charitable contributions. He is going to dip into the free money which people have available for that sort of purpose, as he himself has indicated, if he is correct about the dis-inflationary effect of his Special Contribution. In those circumstances, and in view of the difficulties which charities are having in carrying on at present, I ask the Chancellor of the Exchequer to think over this matter to see whether he and his advisers cannot devise some form of words which would give some substantial assistance to very deserving causes.
The effect of Clause 51 does not extend to the charity itself. All it provides is that the payment which is made by a donor to a charity, inter alia, such payments being included in the general language used in Subsection (1) of the Clause, shall be treated, for the purpose of the Contribution only, as income of the donor. In other words, that does not affect the charity at all. No appeal to my right hon. Friend to do something for charities has any relevance to this particular Clause. All this Clause does is to affect the income of the donor. Not only that, but it affects the income of the donor as it was in the past—that is, for the year 1947–48.
The hon. and learned Member who moved the Amendment said that the Chancellor of the Exchequer was making it difficult for persons who might be minded to give money to charities. But this will have no operation for the future at all. It simply says that for a particular year which has now gone by and ended in April, 1948, the payments which a donor made to a charity shall be considered as part of his income. The effect will be that he will be liable in respect of the contribution to the charity for the proper rate on the amount he paid to the charity—two shillings in the pound, or whatever the proper amount was.
We have drawn Clause 51 in the form in which it appears because what we are seeking to do is to find where the capital asset is which is represented by any particular payment. It is investment income which we are taxing. When one is dealing with a sum of money which is paid by a donor to a charity the capital from which that payment flows is not in the possession of the donee; it is in the possession of the donor. The payment by the donor to the charity represents the fruit of another added part of capital which is his, which remains in his possession. Therefore, the payments which are dealt with in Clause 51 represent part of the donor's income because it is in the possession of the donor that the capital asset resides from which the payment is produced.
For those reasons we have drafted the Clause as it is, and we feel that, having drafted it upon that basic principle, there is no reason for differentiating between payments to charities and other voluntary payments. I ask the Committee to reject the Amendment, and if I may, I would respectfully emphasise the fact that this Clause has nothing to do with the charity itself. It does not affect the position of the charity, but solely of the person who in the past has made a donation to the charity.
Could the hon. and learned Gentleman indicate if there is any provision in Clause 51 for showing whether a person entering into a covenant pays the money out of investment income or out of earned income?
The Clause simply provides that for the purpose of ascertaining the total income of the donor, one takes the payment made to charity as part of the income. This is the total income, not the investment income. The purpose is to find out if the total income is over the £2,000 which would bring the donor within the contribution range. The source of income does not enter on this Clause, which deals with the total income.
When I moved the Amendment I indicated that it might not exactly carry out the purpose desired. I entirely admit what the right hon. and learned Gentleman said, but he did not address himself, if I may say so with respect, to the argument which I put and the request I made. The right hon. and learned Gentleman the Chancellor of the Exchequer is here and I ask him if he will promise to consider this question, whether out of the rate of the Special Contribution he will receive upon these charitable covenants—an hon. Member says "No," but the Solicitor-General has just said that on a charitable covenant he will receive the appropriate rate—he will make relief under some formula, as he does in the case of Surtax and Income Tax?
The hon. and learned Member is a little confused about this. This provision is for the purpose of ascertaining the total income to see if the person is liable at all for Special Contribution. There is no question of any part of this Special Contribution being attached, as it were, to a contribution paid to charity in years that have passed. They received the full contribution and any benefits under Surtax or Income Tax law which accrued in connection with it. This cannot diminish it in any way. I do not think it really applies.
I beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Motion made, and Question proposed, "That the Clause stand part of the Bill."
I followed as closely as I could the explanation given by the hon. and learned Gentleman in dealing with the last Amendment to see whether I could ascertain the principle and the justification of this Clause. I confess I found it extremely difficult to see any justification. The initial difficulty regarding this levy was pointed out in the general discussion we had at the very beginning of the Debate—namely, the impossibility of justly basing a capital levy on a computation of income. But once we passed from that general consideration, I think the aim of the Committee was to find some principle to apply to this Special Contribution.
There is only one principle which has been suggested and it has appeared in speeches by at least three out of the four Ministers who have taken part in the general discussion. It is that the levy must be based on Surtax assessment. That point was made again and again by Ministers and is the nearest thing to a principle which has emerged. Under this Clause, that principle is not impliedly, but expressly abandoned. It is expressly stated that what is a legitimate deduction for the purposes of Surtax shall not be a deduction for the purposes of computing liability for this levy. So it follows that the first point, which must be obvious to every hon. Member, is that there is a complete departure from the only principle so far proclaimed.
It is also a complete departure, it seems to me, from common sense. Why should we suddenly declare an income not to be the income of the person of whom it obviously is the income, but of the person of whom it is obviously not the income? Why should we suddenly depart not only from the law of Surtax but from every rule of common sense? The Solicitor-General, explaining this Clause, and answering the last Amendment, said a few words which made one think of some of the subsequent Clauses, to which I will not refer, dealing with trusts and so forth, but the peculiarity of the special treatment in Clause 51 is this. Although the person made liable for the levy—the person whose income the periodical payments are deemed to be—has no control over the money which he pays away and derives no benefits from the capital assets necessary to produce these periodical payments; although he has none of these things, he has to pay the levy based on the payments being his income. His means are diminished, but there is nothing to diminish his liability to continue to make these periodical payments. There is here a great contrast to the position under the trust Clauses.
To see the grotesque unfairness resulting from the Government's habit of blowing hot and cold on the basis of assessment for Surtax, let us look at the result of the application of this levy to man and wife. A short time ago, the Government were explaining that man and wife must be joined for the purpose of this levy because of the general law of Income Tax and Surtax. But what does this Clause do? For the first time in the history of this country—and probably of any country, for that matter—it is said that a man and his divorced wife shall be one for the purpose of taxation. In fact, a man and all his divorced wives shall be one person.
I hope that we shall have some explanation of this Clause. It departs from the expressed principle of the Government as stated in this Debate by no fewer than three Ministers; it is contrary to common sense because it states that an income is the income of a person of whom it is obviously not the income; and it causes obvious hardship by diminishing capital without allowing any corresponding means of affecting the periodical payments. Lastly, it has the absurdity that I have pointed out—and I could multiply the absurdities, but I will not, because I have said enough. I ask the Government to say what is the justification for this Clause. When we have heard that justification, I and my hon. and right hon. Friends can see what further questions to address to the Government on this Clause.
1.15 a.m.
In the course of the discussion on the Amendment, the Chancellor said that the Clause refers only to total incomes; in other words, the Clause applies only for the purpose of ascertaining whether the individual concerned has an income of over or under £2,000 a year. That is what I understood. I also understood that for the purpose of ascertaining the aggregate investment income, the Clause has no application whatever—
indicated dissent.
That, I think, is what the right hon. and learned Gentleman indicated. At all events, the wording is extremely obscure. I am certain that there has been a great deal of misconception about the effect of this Clause and the two preceding Clauses owing to the use of the word "income" and the words "total income" in such a way as to make it most difficult to see what was the intention of the draftsman. As I read it, the Clause is limited to ascertaining that limit, and the deductions which are forbidden by Subsection (1) would be permitted under the provisions of Subsection (2) of the preceding Clause. I think that Subsection provides that all normal deductions can be made for the purposes of ascertaining aggregate investment income, with the exception of the pensions referred to in Subsection (3) of Clause 49.
One ignores alimony, affiliation orders, and similar matters in ascertaining whether the individual is to be charged at all; but having ignored them for that purpose, when one comes to consider the amount that he is to be charged, then any deductions which fall to be made from his income in respect of such orders are taken from his aggregate investment income in order to see the precise amount which he pays. I hope that that is the effect. If that is not the effect, it appears to me that there will be cases where an individual will be called upon to pay more than 100 per cent. of his total income. Where an individual has covenanted to pay away the whole of his investment income in respect of the maintenance of his wife and children from whom he is parted, it would seem unfair to say that he must bear the charge of this contribution when it comes to be levied. I do not believe that that is the intention of the Government. We should have some clear explanation from the Chancellor of what is intended when this Clause is read in combination with the previous Clause.
I do not think it is very difficult to appreciate what the Clause is intended to do. Under the Income Tax and Surtax provisions, certain periodical payments which are made by the Income Tax and Surtax payer can be deducted before arriving at his Income Tax or Surtax. It does not mean that it is not part of his income, because it is, but it is deducted. It is deducted because the person who receives these payments is the person who would pay the Income Tax and Surtax. The question is whether, under this special levy, where although a person is assessed by virtue of the Surtax provisions he is in fact taxed with relation to the capital which is behind that income, it is right that the person to whom money is paid and who has no capital behind him should pay, or that the person who has capital behind him should pay?
This Clause provides that the person with the capital behind him has to pay and not the person without the capital behind him. Therefore, in arriving at his total income, one takes into account those sums which are paid away and when one comes to arrive at his taxable income—that is, his earned income—one does not deduct these sums from that. One cannot, of course, say whether they come out of his own income or something else. There is no definite relationship between any part of his capital or his earnings and something he pays away. If there is an order on him for alimony, he may pay it out of earned or unearned income or from anywhere, but in arriving at what is his investment income, one does not deduct this sum and, therefore, one does not deduct it either from the total income or from the investment income. The main factor is that we are departing from the Surtax system and scheme here for the very definite reason that otherwise we should be making a person pay who has not got the capital. It was thought better to attach the payment to the person who has the capital, as this was, in essence, a tax on the capital through Income Tax.
I am bound to say that the explanation which the Chancellor has now given is something totally different from the explanation which I understood him to have given when the last Amendment was withdrawn. I insist that this seems wrong. These things are not too easy to understand. I understood that Clause 51 was so framed as to enable one to judge whether a man came generally within the provisions of this capital levy or not, and the Chancellor seemed to me to meet the point in that way. He said that the only thing he was concerned about was to see whether, taking all things into account—a man would come into the Scheme or not, or whether the ordinary Surtax and other tax arrangements would apply, so that there would be no argument. I may be wrong, but that was what I understood.
Now the Chancellor is saying that this is not a case of a tax on charity at all. But it is certainly a tax on the charitable, because those people who had entered into covenants to pay this amount and therefore have no control over this income in the future—or for that matter the capital which would be appropriated to it—are not only to be brought generally into the scheme, but must actually pay tax on the money.
In those circumstances I should have thought the case put by my hon. and learned Friend the Member for the Combined English Universities (Mr. H. Strauss) was an extremely sound one. This Clause seems to run exactly contrary to all the principles which so far have been adopted by the Government and to go directly contrary to the general principles of deduction for Surtax and other purposes, and, indeed, to go much further than the Chancellor seemed disposed to admit when we withdrew the last Amendment. That being so, and in default of any further and better explanation, this Clause ought to be pressed to a Division.
This Clause shows clearly where we get when we proceed with a total lack of principle, as the Chancellor has done. We were told by the Chancellor that this was not a capital levy; but this Clause gives the game away, because the Chancellor has said very clearly that what he is after is capital. What the Chancellor is doing is to assess someone as having income which he has not in fact got, and he is doing that because he knows he will be able to squeeze some capital out of this gentleman, whereas someone else may not have the capital to pay. It does clearly knock the bottom out of the argument about Surtax and the argument about fairness, because this is grossly unfair. I very much hope that we shall carry this matter to a Division.
In his revised argument, the Chancellor is saying that this is a question of who should bear the capital levy; whether it should be the person with the capital, or the person to whom the money is paid, who, he presumes, has not the capital. That assumption does not necessarily follow. The real fallacy in that is that neither of them should pay the levy.
Let us go back to our famous man with an investment income of £2,000 who works for a salary of £800. It is quite possible that that man may have a couple of indigent maiden aunts and, quite rightly, in accordance with his social and family obligations, desires to make some contribution towards them under covenant. We say that that fact should of itself make it perfectly clear that that man should not pay this levy. He is a marginal case anyway, and that clearly brings him outside the scope of the intentions of the nation and of this Committee. If the Chancellor adheres to his point, such a covenant at a marginal point is going to be the most extravagant charity there ever was. Not only will this man pay £827 l0s. tax on the £800 earned income, but he will have a further reduction of income due to the fact that he is paying £800 to his maiden aunts. The net effect is that he is £1,627 10s. out of pocket. As a result of working for a supposed £800 and giving that £800 to his aunts.
I understood the Chancellor to say that the reason he wants these alimony payments to be treated as part of the investment income of the man who makes them is that he thinks the capital is more likely to be there than in the hands of the divorced wife. He must know that there are many people who make payments to divorced wives out of their earned income and have no capital. Is that alimony classed as investment income?
1.30 a.m.
If a man has an investment income, he cannot deduct alimony from it before paying the Special Contribution, nor can he deduct it from his total income in arriving at whether he comes within the qualification or not. It does not do anything to the income. It does not mean that alimony is investment income. A man has to have investment income first, but the question arises whether he can deduct something specially for this purpose. What this Clause says is that he cannot deduct the alimony.
The right hon. and learned Gentleman is to be congratulated that upon this occasion, when assisting the Committee, he has not produced another anomaly. Hitherto every time the right hon. and learned Gentleman has spoken from the Treasury Bench, he has laid open some other anomaly. I want to challenge the right hon. and learned Gentleman in regard to the anomaly which he laid bare in his previous speech. Let us assume a man earns £5,000 a year. He has no investment income, but he has sufficient securities to produce an income of just over £500 a year. He makes a trust of that capital and the terms of that trust are that the trustees pay the income to his daughter for her maintenance until 21 and thereafter hand it over to her. He has completely divorced himself from that capital, and although it produces an annuity of £500 for the daughter, to whom the capital also goes later, it is counted as part of the father's income for tax purposes. How does the Chancellor say that the levy is to be paid in those circumstances?
I seriously suggest that for technical reasons the Chancellor may have to reconsider the phrasing of Subsection (1, a ), because when the court orders maintenance to be paid it orders that that maintenance shall be secured by the husband depositing certain securities in the joint names of the husband's and wife's solicitors. A charging order is made by the court upon those securities. The Chancellor wants to get at the person with the capital, and in order to remove any doubt he should make it perfectly clear whether it is the husband's or wife's capital when a charging order has been made. As the Clause stands at the moment, it is quite possible by merely saying "in pursuance of an order" and that means any order "of any court for the payment of maintenance," to leave the matter in doubt, and that doubt should be removed.
This is an important Clause, and the right hon. and learned Gentleman has made abundantly clear the Government's views on this matter and the reasons for which they have taken those views. This is the only case throughout this part of the Bill, I think, where they depart from the Surtax principle. On other Amendments that we have moved, we have had it thrown at us that we must adhere to the Surtax principle. It is clear why they have departed from it in this case. It is because the Treasury think it will pay them better. They think, and probably rightly, that on the whole the larger income is likely to be with the payer rather than the payee, and that by making this part of the income of the payer more people will come within the scope of the levy and the rate they pay will be higher. This Clause is in keeping with the whole character of this levy, and for that reason we shall most certainly vote against it.
Question put, "That the Clause stand part of the Bill."
The Committee divided: Ayes, 182; Noes, 74.
Division No. 177. AYES. [1.36 a.m. Acland, Sir Richard Blenkinsop, A. Burden, T. W. Adams, Richard (Balham) Bottomley, A. G. Butler, H. W. (Hackney, S.) Allen, Scholefield (Crewe) Bowden, Flag. Offr. H. W. Champion, A. J. Attewell, H. C. Bowles, F. G. (Nuneaton) Chetwynd, G. R. Bechervaise, A. E Braddock, T. (Mitcham) Cocks, F. S. Berry, H. Bramall, E. A. Coldrick, W. Beswick, F. Brook, D. (Halifax) Collins, V. J. Bing, G. H. C Brown, T. J. (Ince) Cooper, Wing-Comdr. G. Binns, J. Bruce, Major D. W. T. Corbet, Mrs. F. K. (Camb'well, N.W.) Corlett, Dr J Johnston, Douglas Robens, A Cove, W G Jones, D. T. (Hartlepool) Roberts, Goronwy (Caernarvonshire) Crawley, A. Jones, J. H. (Bolton) Royle, C. Cripps, Rt. Hon. Sir S. Jones, P. Asterley (Hitching) Sargood, R Crossman, R. H. S. Keenan, W. Segal, Dr. S. Daines, P. Kenyon, C. Shackleton, E. A. A Dalton, Rt. Hon. H. King, E. M. Sharp, Granville Davies, Ernest (Enfield) Lee, F. (Hulme) Shawcross, C. N. (Widnes) Davies, Harold (Leek) Lever, N. H. Shurmer, P. Davies, Haydn (St. Pancras, S.W.) Levy, B. W. Silverman, J. (Erdington) Davies, S. O. (Merthyr) Lindgren, G. S. Silverman, S. S. (Nelson) Deer, G. Lipton, Lt.-Col. M. Simmons, C. J. Delargy, H. J. Longden, F. Skeffington, A. M. Diamond, J. McAdam, W Skinnard, F. W. Dodds, N. N. McAllister, G. Smith, C. (Colchester) Driberg, T. E. N. McGhee, H. G. Snow, J. W. Dugdale, J. (W. Bromwich) Mack, J. D. Sorensen, R. W. Dumpleton, C. W. Mackay, R. W. G. (Hull, N.W.) Soskice, Sir Frank Durbin, E. F. M. Mallalieu, E. L. (Brigg) Sparks, J. A. Dye, S. Mallalieu, J. P. W. (Huddersfield) Stewart, Michael (Fulham, E.) Ede, Rt. Hon. J. C. Manning, C. (Camberwell, N.) Stokes, R. R. Edwards, John (Blackburn) Manning, Mrs. L. (Epping) Swingler, S. Evans, Albert (Islington, W.) Marguand, H. A. Symonds, A. L. Evans, E. (Lowestoft) Millington, Wing-Comdr. E. R. Taylor, R. J. (Morpeth) Evans, S. N. (Wednesbury) Mitchison, G R Taylor, Dr. S. (Barnet) Fairhurst, F. Monslow, W. Thomas, D. E. (Aberdare) Farthing, W. J. Morgan, Dr. H. B. Thomas, George (Cardiff) Fernyhough, E. Morley, R. Tiffany, S. Field, Capt. W. J. Moyle, A. Tolley, L. Fletcher, E. G. M. (Islington, E.) Murray, J. D Ungoed-Thomas, L. Foot, M. M. Neal, H. (Claycross) Wadsworth, G. Fraser, T. (Hamilton) Nichol, Mrs. M. E. (Bradford, N.) Wallace, G. D. (Chislehurst) Freeman, J. (Watford) Nicholls, H. R. (Stratford) Wallace, H. W. (Walthamstow, E.) Ganley, Mrs. C. S. Noel-Baker, Capt. F. E. (Brentford) Warbey, W. N. Gibson, C. W. Oliver, G. H. Watkins, T. E. Weitzman, D. Granville, E. (Eye) Orbach, M. Wells, W. T. (Walsall) Greenwood, A. W. J. (Heywood) Paget, R. T. White, H. (Derbyshire, N.E.) Griffiths, D. (Rother Valley) Palmer, A. M. F Whiteley, Rt. Hon. W. Guy, W. H. Pargiter, G. A. Wigg, George Haire, John E. (Wycombe) Parker, J. Wilcock, Group-Gaps C. A. B. Hale, Leslie Parkin, B. T. Wilkins, W. A. Hannan, W. (Maryhill) Paton, J. (Norwich) Willey, F. T. (Sunderland) Hobson, C. R. Pearson, A. Willey, O. G. (Cleveland) Holman, P. Perrins, W. Williams, D. J. (Neath) Holmes, H E. (Hemsworth) Porter, E. (Warrington) Williams, J. L. (Kelvingrove) House, G. Pritt, D. N. Williams, R. W. (Wigan) Hudson, J. H. (Ealing, W.) Proctor, W. T. Williams, W. R. (Heston) Hughes, H. D. (W'lverh'pton, W.) Randall, H. E Wills, Mrs. E. A. Hynd, J. B. (Attercliffe) Ranger, J Woods, G. S. Irving, W. J. (Tottenham, N.) Reeves, J. Yates, V. F Jay, D. P. T. Reid, T. (Swindon) Jeger, Dr. S. W. (St. Pancras, S.E.) Rhodes, H. TELLERS FOR THE AYES: Jenkins, R. H. Ridealgh, Mrs. M Mr. Joseph Henderson and Mr. Popplewell.
NOES. Agnew, Cmdr. P. G Fester, J. G. (Northwich) Nield, B. (Chester) Amory, D. Heathcoat Fraser, H. C. P. (Stone) Noble, Comdr. A H P Assheton, Rt. Hon. R. Fraser, Sir I. (Lonsdale) Odey, G. W. Astor, Hon. M. Fyfe, Rt. Hon. Sir D. P. M Pitman, I. J. Baldwin, A. E Gates, Maj. E. E Poole, O. B. S. (Oswestry) Birch, Nigel Gomme-Duncan, Col. A Ramsay, Maj. S Boles, Lt.-Col. D. C. (Wells) Grimston, R. V. Renton, D. Bossom, A. C. Harris, F. W. (Croydon, N.) Roberts, W. (Cumberland, N.) Bowen, R. Harvey, Air-Cmdre. A. V Ropner, Col. L. Bower, N. Haughton, S. G. Spearman, A. C. M. Braithwaite, Lt.-Comdr. J. G Howard, Hon. A. Stanley, Rt. Hon. O. Bromley-Davenport, Lt.-Col. W Joynson Hicks, Hon. L W Strauss, H. G. (English Universities) Buchan-Hepburn, P. G. T Lambert, Hon. G. Taylor, C. S. (Eastbourne) Carson, E. Law, Rt. Hon. R. K. Thomas, J. P. L. (Hereford) Channon, H. Legge-Bourke, Maj. E A H Thorneycroft, G. E. P. (Monmouth) Clarke, Col. R. S. Lennox-Boyd, A. T. Touche, G. C. Clifton-Brown, Lt.-Col G. Lloyd, Selwyn (Wirral) Turton, R. H. Corbett, Lieut.-Col. U. (Ludlow) Low, A. R. W. Vane, W. M. F. Crookshank, Capt. At Hon. H. F. C Lucas, Major Sir J. Wheatley, Colonel M. J. (Dorset, E.) De la Bère, R. Lucas-Tooth, Sir H. Williams, C. (Torquay) Digby, S. W. Mackeson, Brig. H. R. Willoughby de Eresby, Lord Drayson, G. B Macpherson, N. (Dumfries) York, C. Drewe, C. Manningham-Buller, R. E. Eccles, D. M. Mellor, Sir J. TELLERS FOR THE NOES: Eden, Rt. Hon. A. Molson, A. H. E. Mr. Studholme and Major Conant. Fletcher, W. (Bury) Morrison, Maj. J. G (Salisbury)
CLAUSE 52.—( Provisions where income under trust payable out of capital, etc. )
1.45 a.m.
I beg to move, in page 36, line 10, at the end, to insert:
I do not say that I have succeeded in the one particular attempt I have made in this Amendment, because the Amendment is bound to create further anomalies of a different character. Nevertheless it is designed to try to overcome one particular form of anomaly. I refer to the case in which the capital of the trust has been sold or charged in the future. Let me give a particular example, a straightforward ordinary case where money has been left upon trust for the income to be paid to a widow during her life, and thereafter to be divided between the children of the man who left the money. The widow is receiving the money, and we will assume that her income from that or other sources brings her within the scope of the capital levy. The capital of the trust is ultimately to be divided between say three children, one of them a son who wants to set up his own business and has no capital with which to do it, but he has an absolute reversion, so long as he lives beyond his mother, to a third share in the capital. He either charges or he sells his reversionary right to that capital.
The Special Contribution is levied upon the mother. She gives notice to the trustees, and they have to find the capital to meet the levy. In so doing the people who suffer are the reversioners, the three children who are ultimately going to inherit that capital. But if in the case I have suggested one of those three chil- dren has already parted with his share in the capital, either by charge or sale, there is nothing more for him to lose, whatever the levy may be, because he has no further interest. He has sold his interest to a third party. That person has bought bona fide and for value the reversionary interest of that son, and he is not going to get it because the trustees have to raise capital on the trust fund in order to meet the levy, and the amount of that capital is consequently dissipated. It will not, therefore, be there for the person who has bought it. That person derives no income from the trust and has no interest in the trust at all but an interest in that particular share of the capital.
Therefore, the effect of this levy is not only to mulct the individual who does not receive the income from the capital. Thus we become completely divorced from the theory which the hon. and learned Gentleman has impressed on the Committee that this is a tax on capital which is assessed on the income derived from that capital—perhaps I have been slightly misquoting him, but in general that is his point—because the tax has not been levied on capital entirely, irrespective of whether the person derives his income from it or not. Therefore, in view of those circumstances, and to try and overcome that particular anomaly, I am moving this Amendment.
There is a further point. It is to forestall an argument which the Government may advance against this Amendment, that is, that this levy is analogous to the case of Death Duty. It is not, and I hope that there will be no attempt to bemuse the Committee, or that there will be no success in bemusing the Committee, by suggesting that there is any parallel whatever. Where a trust is set up, and people have rights under that trust, and they buy or sell their rights, they know exactly what the incidence of Death Duty will be, and they are able to take it into account. But this is an entirely new factor superimposed upon a bargain already made, and which it is impossible for the people who entered into that bargain to take into account. I suggest, therefore, that it is an immoral procedure altogether. It is an immoral procedure in that it breaks into a bona fide bargain already made. Therefore, I beg to move that these words be included to have the effect of linking up again the capital and interest, and releasing that income from being included in the assessment when the capital is divorced from the interest on the income.
If I understood correctly the example which the hon. Member was giving, and which in his view brought to light an anomaly, it was a case in which there is a widow with a life interest who was liable to the Contribution, and, upon whose death the asset was to go to three children, one of whom had mortgaged or sold his share. The argument, as I understood it, was to the effect that the purchaser or mortgagee of that child's share will be harshly dealt with because the Contribution would be recovered against that child's share. I should think that there is nothing in that argument. After all, if one buys, or lends money, on a reversion, one is buying a class of property which is on one's hands speculatively. One does not know whether it will fall into possession. One only knows within certain limits what the value will be if it falls into possession. The hon. Member said that the case of death duties was entirely different, and that it could not be regarded as analogous because the purchaser of the share would know what the Death Duty was. But Death Duty varies from time to time.
There are a number of other factors which may affect the child's share which some other person acquires. It may increase or decrease in value. It may take a long time to fall into possession, or it may fall into possession immediately. It is a speculative form of purchase, and when one buys in those circumstances one buys knowing that one is taking certain risks. In those circumstances, I do not think the purchaser who acquires a portion of a reversion, by sale or by lending money on it, has ground for complaint. The tax is a tax through income upon capital. The right of recovery will mean that it ultimately has to be borne on part of that child's share. If someone has entered into a speculative purchase in relation to that share he has no ground for complaint if at a later date he finds that particular share is subjected to any encumbrance or a charge in order to meet a Contribution which he did not anticipate. It was part of the risk which he took.
No.
It was part of the risk, and in those cases he would not give the full value of the reversion which he acquired. What he gave would probably be substantially less in order to compensate him for the risk which he knew he was taking when he bought part of a reversion of that sort. Therefore, I do not think that such a purchaser should be in any privileged position, which is what this Amendment seeks to bring about. I think he would have no ground of complaint if he bought a reversionary interest and it turned out that, owing to the operation of the law, a charge is placed on it. I ask the Committee to reject this Amendment.
I was wondering exactly what the Solicitor-General would say in answer to this point. I rather imagined he would reply on the lines that this was just one of those cases in which, as we had already overtaxed ordinary income, we fell back on the capital of the trust in the way he explained. So far as the Amendment is concerned, I need say nothing more than that the hon. and learned Gentleman's rejection is very interesting. It is obvious from the arguments that this is only a practice run for a general levy on capital on a much larger scale. In this case the Chancellor of the Exchequer is just trying to see how he can use it on charitable trusts.
Here we have another example of the extreme unfairness which comes from the basic assumption that the Surtax on investment income is the correct basis for making a capital levy. We have here another wrong assumption, that because there is income there is necessarily capital behind it. I ask the Solicitor-General to think in terms of this widow being 99 years old. Her life interest in that capital is really a very small sum. It is true, with her expectation of life, she may reasonably get a small sum for the rest of her life out of the trustees. Let us look at the capital fund of that trust, which would be divided between the widow and the reversionary interests. It is clear that 99 per cent. of the capital is owned by the rever- sonar interests and only one per cent. by the widow. This is a case in which there is income, but no real capital. You are not taxing the person with the big income, but in some such cases a multitude of small people who have a small income each when it is divided amongst them. It is their capital which is being taxed, not the rich widow's. That is the answer to the assumption which the hon. and learned Gentleman made. I hope that he will look at it from that point of view and not from the point of view he took, that there is necessarily capital because there is income.
When the Solicitor-General replied, he referred to the question of buying reversions as if were a highly speculative transaction. He said that those who bought reversions indulged a speculation and that this was one of the risks they had to run. In point of fact, this type of business is transacted entirely on the same lines as life insurance, only in reverse. The purchases are on an actuarial basis, carefully worked out, and there is nothing speculative about them at all. It is worked out on a well-known formula and is conducted by a large number of extremely reputable firms who deal in this type of transaction, and it seems quite unreasonable that this levy should be described as a sort of justifiable hazard.
Amendment negatived.
2.0 a.m.
I beg to move, in page 36, line 17, at the end, to add: one of the children is in that position. He, or she, pays no tax. The second child is a son and he is earning, let us say, £3,000 and consequently has to pay the levy on £750. The third is a daughter, who is married. Her husband is a wealthy man, earning a large income, and their combined incomes on which they have to pay the levy is as much as £7,000 or £8,000.
The point which I am trying to make is that the proportion of the levy which, in each of these two cases has to be paid—or rather, the rate of the levy which is assessed—on the income of the trust, is completely different. It is not as though the two children who pay have to pay at the same rate. They do not because of the difference in the incomes at which the levy is assessed. Therefore, they will require from the trust a completely different sum in order to meet the levy in each case. I seek by this Amendment to ensure that the trustees do not have to find from the capital of the trust more cash to meet the levy than is applicable to the income of the particular beneficiary concerned. We have seen that, if the income is to be divided equally, the third child who pays no levy at all will suffer. The second child will suffer in a lesser degree, because he must pay some levy, but—due to the heavy incidence of the levy on the third child—they will all suffer in an unfair and unequal degree. I move this Amendment in an effort to overcome that anomaly.
A case I want to put to the Government can properly be raised on this Amendment. I know of a case in which two sons are entitled to the income from a trust. One is an articled clerk who is not earning any money at present. His brother is an estate agent who is earning between £800 and £900 a year. Under the provisions of this Bill, the trustees will become liable to find what is required in respect of the brother whose earned income makes him subject to this levy. What will be the position as between those two beneficiaries under that trust? If the Amendment is accepted, it will have the effect that it will not result in the further injustice of the son who is not himself subject to this Special Contribution being made subject to it indirectly, because the trustees are obliged to raise money in respect of the brother who, owing to his earned income, comes within this provision.
A case which may appeal to the hon. and learned Gentleman is one where some one has a life interest in a trust which is subject to this levy and then, at the end of his life the trust goes, not to relations but to some institution, hospital or something of that sort. I do not include bad things such as the Socialist Party or even the Liberal Party; but that might happen. We might find that the Chancellor would be taking away capital which—
That question does not arise on this Amendment, which is concerned with the income of an individual.
An individual has the income. He is taxed on that income. It may be that this argument should be advanced on the Question, "That the Clause stand part of the Bill." However, I thought after the short illustrations which we had been given, that it would be useful if I gave another example. It would enable the Chancellor to see what might happen in a case where the money ultimately would go to a charitable institution—
I am sorry, but that question does not arise on this Amendment.
I will raise the point later.
I think that the Bill already provides for what the hon. Member for Chichester (Mr. Joynson-Hicks) has in mind. He did not want the capital to be raised to an extent more than necessary to discharge the liability of the child he mentioned who was liable to the Contribution.
If he will look at Clause 56 (2) he will see that the Estate Duty rule is applied to determine the incidence of tax as between different interests concerned in a trust property. That of course does make applicable to the decision of that problem a long line of decisions arising out of the Finance Act, 1894. The Finance Act, 1894, says that in cases of that sort the incidence of Estate Duty shall be upon a fair and equitable basis between the various interests, and that requirement has been interpreted in a series of decisions in the Chancery Division and in a series of rules laid down by the learned judges of that Division with a view to giving practical effect to the directions of the 1894 Act.
I think that if the hon. Member would refer to the case of Betts Brown's Trustees v. Whately Smith in Vol. 1941 of Sessions Cases he will find this rule which has been evolved and which is applicable to that kind of situation—that in the event of Duty being payable by a particular interest, that person's interest is considered separately and the necessary capital is realised for the purpose of paying that particular charge which is incumbent upon that particular interest. That general ruling being applied in consequence of the provisions of Clause 56 (2), the object which the hon. Member has in mind would already be achieved as the Bill stands. These general principles which have been evolved in the Chancery Division have been applied to determine this particular problem.
May I ask the Solicitor-General whether in the case I have put to him, that would mean similarly that where the brother had become subject to the contribution that the whole of the capital required would be raised by the trustees and that the corpus of the trust would be divided in order that the whole of the burden would fall on that brother's part? Is that the answer?
I am grateful to the Solicitor-General for his explanation. I would like to know if capital will also be apportioned so that the incidence of the contribution on the capital will be attributed solely to the child's share.
That is the case.
In that case, I beg to ask leave to withdraw my Amendment.
Amendment, by leave, withdrawn.
Motion made, and Question proposed, "That the Clause stand part of the Bill."
I am interested in the case where an individual has a life interest in a trust and his income is such that he will be liable to this levy, and then when he dies the whole of that capital goes to some institution such as the Bristol Orphanage or some great charitable concern. It seems to me that as the capital of the trust has to find the money they are legally bound to meet this levy. In this type of case in which under the trust the fund ultimately goes to a charity there will be the curious position of the Chancellor of the Exchequer placing the Special Contribution on a charity such as the Bristol Orphanage. From the explanation we have had I can see no alternative. It is rather curious that the Chancellor, whose goodness is so well known, should be imposing a tax on institutions like the Bristol Orphanage.
2.15 a.m.
There is a common form of trust whereby the parent makes a settlement on his child on marriage. The parent convenants at some remote date to pay a capital sum, and in the meantime pays an annuity to the trustees. In that case the parent cannot deduct the amount of the annuity under the Clause with which we have just dealt, and he will be liable to pay the levy in respect of the capital out of which he provides the annuity. So far as I can see, this Clause will convert the annuity into a sum which will attract the Contribution a second time. The daughter will receive the income from the trustees, and under this Clause there will again be the liability to pay a Contribution. It means that there will be a double contribution in respect of one sum of money.
I should have thought that it was not investment income. In any event, even if it were invested income, the position would be met by Clause 52 (2, a ). The words to which I refer are:
"to be treated as the income of any other person."
The payment made by the parent would, by virtue of Clause 51 (1, b ), be treated as income of the parent. The result would be that the income, by reason of the words I have quoted, would not be income of the trust.
Following that line of argument, will the Solicitor-General now explain the importance of Subsection (3), which says that nothing in this Clause
"shall affect the ascertainment of the amount of the individual's total income"?
If the provisions of Subsection (2, a ) operate in the way the Solicitor-General has suggested, it must have an effect on the investment income of the individual, and the investment income of the individual affects the total income.
Question put, and agreed to.
Clause ordered to stand part of the Bill.
CLAUSE 53.—( Payment in advance, and interest on unpaid contribution. )
I beg to move, in page 36, line 32, to leave out "whether already assessed or not."
Subsection (3) of this Clause lays down that interest will begin to be payable if the contributor is in arrears and it states:
This Subsection as it stands will be most unfair in its effects. First, it must be borne in mind that interest which will be charged on 1st January at the rate of 2 per cent. on the contribution is not allowable for tax purposes and, therefore, is an increase in the Contribution. Let us suppose—and it is the sort of thing which does happen—that there is a delay owing to the pressure of work in the Inland Revenue Department in getting out the assessments, and further let us suppose that, as a result, some of these assessments have never been received by the people who will have to pay; is it right that they should be compelled through no fault of their own to pay a further 2 per cent. per annum on this assessment?
In point of fact, there are a great many complications involved in getting out these assessments, and as a result the people who are called upon to pay these assessments will be subject to great pressure on the part of the Inland Revenue to effect settlements by the day when this interest will become due. In view of that, I trust that the Chancellor will see his way to allow a longer period during which a settlement of the assessment can be arranged before this interest charge is imposed.
I do not think there is any inequity here. There are, of course, precedents with regard to the question of Estate Duty, for instance, where interest runs from the date of death and very often the actual ascertainment of the sum is not arrived at for a long time afterwards. In this case it is quite competent for a person to pay up on his own assessment what he thinks will be the charge; it will be adjusted afterwards as many people have done to the extent of £2½ million, as was explained by my hon. and learned Friend earlier in these proceedings. In that case they get the benefit of the 2 per cent. interest up to 1st January, and thereafter they get the benefit to the date of assessment of not paying the 2 per cent. which otherwise they would have done. These people who thus pay up get the benefit right through to the period of assessment.
If we were to say that people who were not assessed till after 1st January would not have to pay interest until the date of the assessment, they would really get an advantage over the person who has paid up well in advance. That would not be desirable, because the purposes of this, both positive and negative, are to encourage people to pay earlier—a discount for earlier payment, and an extra charge for late payment. We therefore feel, for that reason, and because of the precedent I have mentioned, that this must stand.
My pleasure at being able for the first time for some considerable period to understand what is going on is rather damped by the fact that the first thing I can understand is an extremely unsatisfactory reply from the Chancellor. He has not at all met the case put forward, of a man in this special and very complicated case being liable to pay interest before the machinery has worked which gives him the assessment of what he has to pay. There might—I only say might—be something in the Chancellor's argument if during all these Clauses he had stuck to the Surtax procedure. He might then have argued that a man could easily calculate from the Surtax assessment what his assessment would be under this; but as, merely for the advantage of the Treasury, wherever it has suited him he has departed from the Surtax procedure, he has made it impossible for the man to use that as a criterion. We regard this as a completely unjustifiable imposition on the taxpayer, and shall certainly oppose it.
Since the right hon. and learned Gentleman based part of his argument on precedent, may I point out that there is a recent precedent in the Finance Act, 1947, where it is provided that interest should run from the time of the assessment and not before. We are not even beginning to know whether the Government are going to follow the Surtax and Income Tax legislation. On each occasion they do just whatever happens to suit them best. There is no logic and no fairness in it. In spite of the fact that it is even more difficult to foresee the assessment in this case than it was in the case of Income Tax and Surtax, the Chancellor departs from the precedent. I can think of no more offensive thing to say than that in this he has fallen even below the standard of his predecessor.
Reference has been made earlier to underwriting profits at Lloyds; but those profits vary considerably from year to year, and the actual income for part of the year 1948 will not be known to the individuals until 1951. Therefore, it is quite impossible for them to know whether their earned income is more than £2,000 a year or not, and there is no way that could be devised—I urge the Chancellor to believe this—by which they could possibly know whether income for the period under review is assessable or not until 1951. Yet the man has to make an assessment based on no figures that can possibly be available by the end of this year, and then pay two per cent. on that. On what? There is no possible basis on which the assessment can be made. There are other similar cases, and I only speak of that one because it is one of which I have knowledge. I ask the Chancellor to consider whether there are not certain circumstances which make this provision entirely impracticable. I am sure he does not really mean what he has said in this matter.
2.30 a.m.
Will the Chancellor explain to me how Subsection (3) of this Clause is reconciled with Clause 46 (6)? In that Subsection it is laid down that:
"Contribution shall be payable on or before the first day of January, nineteen hundred and forty-nine, so however that contribution included in an assessment which in accordance with regulations under this Part of this Act is signed and allowed on or after that day shall be deemed to be due and payable on the day next following the day on which the assessment is signed and allowed."
That seems to be a contradiction.
I do not think there is any contradiction there. The question is the date upon which the tax is due and the date upon which a particular contributor to the tax has had ascertained the sum which he must pay. As from the date upon which the sum is ascertained, he has to pay it. The tax is due from everybody from 1st January, but there may be delay because of delay in the assessment, but it can be paid before, and, as many people are paying it, many months before.
Are we to understand from what the Chancellor has just said that it is possible to pay on a sum of money the total of which has not been ascertained?
Will the right hon. and learned Gentleman give some indication that he will consider the point I have put to him? It is a serious one. It is the fact that there is no basis upon which they can assess what their income is. As this is a matter of detail and not a
party point, will the right hon. and learned Gentleman give me some indication whether he will consider the matter?
If there are cases in which people in 1947–8 cannot ascertain the basis of their Income Tax or Surtax which is payable in the following year or the same year, we shall consider their cases.
May I thank the right hon. and learned Gentleman very much?
There is a point of interest to trustees. Will it fall on the corpus of the trust fund or will it be payable out of income?
It will be payable by the taxpayer who has to pay the sum to the authorities.
That is the trustees.
In the case where trustees have to pay, it will be trustees. In the other case it will be the beneficiary.
When the trustees make the payment, do they make it out of capital or income?
Trustees will, of course, pay out of capital. They will not deprive the beneficiary of his year's income to pay this.
Question put, "That the words proposed to be left out stand part of the Clause."
The Committee divided: Ayes, 176; Noes, 66.
Division No. 178. AYES. [2.34 a.m. Acland, Sir Richard Cooper, Wing-Comdr. G. Evans, E. (Lowestoft) Adams, Richard (Balham) Corbet, Mrs. F. K. (Camb'well, N W) Evans, S. N. (Wednesbury) Allen, Scholefield (Crewe) Corlett, Dr. J Fairhurst, F. Attewell, H. C. Cove, W G. Farthing, W. J. Bechervaise, A. E Crawley, A. Fernyhough, E. Berry, H. Cripps, Rt. Hon. Sir S Field, Capt. W. J. Beswick, F. Crossman, R. H. S. Fletcher, E. G. M. (Islington, E.) Bing, G. H. C. Daines, P. Foot, M. M. Binns, J. Dalton, Rt. Hon. H. Fraser, T. (Hamilton) Blenkinsop, A. Davies, Ernest (Enfield) Freeman, J. (Watford) Bottomley, A. G. Davies, Harold (Leek) Ganley, Mrs. C. S. Bowden, Fig. Offer. H. W. Davies, Haydn (St. Pancras, S.W) Gibson, C. W. Bowles, F. G. (Nuneaton) Davies, S. O. (Merthyr) Greenwood, A. W. J. (Heywood) Braddock, T. (Mitcham) Deer, G. Griffiths, D. (Bother Valley) Bramall, E. A. Delargy, H. J. Guy, W. H. Brook, D. (Halifax) Diamond, J. Hale, Leslie Brown, T. J. (Ince) Driberg, T. E. N. Hannan, W. (Maryhill) Bruce, Maj. D. W. T. Dugdale, J. (W. Bromwich) Henderson, Joseph (Ardwick) Burden, T W. Dumpleton, C. W. Hobson, C. R. Butler, H. W. (Hackney, S.) Durbin, E. F. M Holman, P. Champion, A. J Dye, S. Holmes, H. E. (Hemsworth) Chetwynd, G. R Ede, Rt. Hon. J. C House, G, Cocks, F. S. Edwards, John (Blackburn) Hudson, J. H. (Ealing, W.) Collins, V. J. Evans, Albert (Islington, W.) Hughes, H. D. (W'lverh'pton, W.) Hynd, H. (Hackney, C.) Neal, H. (Claycross) Smith, C. (Colchester) Hynd, J. B. (Attercliffe) Nichol, Mrs. M. E. (Bradford, N.) Snow, J. W Irving, W. J. (Tottenham, N.) Nicholls, H. R. (Stratford) Sorensen, R. W. Jay, D. P. T. Noel-Baker, Capt. F. E. (Brentford) Soskice, Sir Frank Jeger, Dr. S. W. (St. Pancras, S.E.) Oliver, G. H. Sparks, J. A. Jenkins, R. H. Orbach, M. Stewart, Michael (Fulham, E.) Johnston, Douglas Paget, R. T. Stokes, R. R. Jones, D. T. (Hartlepool) Palmer, A. M. F Swingler, S. Jones, P. Asterley (Hitchin) Pargiter, G. A. Symonds, A. L. Keenan, W. Parker, J. Taylor, R. J. (Morpeth) Kenyon, C. Parkin, B. T. Thomas, D. E. (Aberdare) King, E. M. Paton, J. (Norwich) Thomas, George (Cardiff) Lee, F. (Fulme) Pearson, A. Tiffany, S. Lever, N. H. Perrins, W. Tolley, L. Levy, B. W. Porter, E. (Warrington) Ungoed-Thomas, L. Lindgren, G. S. Pritt, D. N. Wallace, H. W. (Walthamstow, E.) Lipton, Lt.-Col. M. Proctor, W. T. Warily, W. N. Longden, F. Randall, H. E. Watkins, T. E. McAdam, W. Ranger, J. Wells, W. T. (Walsall) McAllister, G. Reeves, J. White, H. (Derbyshire, N.E.) McGhee, H. G. Reid, T. (Swindon) Whiteley, Rt. Hon. W. Mack, J. D. Ridealgh, Mrs. M. Wigg, George Mackay, R. W. G. (Hull, N.W.) Robens, A. Wilcock, Group-Capt. C. A. B. Mallalieu, E. L. (Brigg) Roberts, Goronwy (Caernarvonshire) Wilkins, W. A. Mallalieu, J. P. W. (Huddersfield) Royle, C. Willey, F. T. (Sunderland) Manning, C. (Camberwell, N.) Sargood, R. Willey, O. G. (Cleveland) Manning, Mrs. L. (Epping) Segal, Dr. S. Williams, D. J. (Neath) Marquand, H. A. Shackleton, E. A. A. Williams, J. L. (Kelvingrove) Mikardo, Ian Sharp, Granville Williams, R. W. (Wigan) Millington, Wing-Comdr, E. R. Shawcross, C. N. (Widnes) Williams, W. R. (Heston) Mitchison, G. R. Shurmer, P. Wills, Mrs. E. A. Monslow, W. Silverman, J. (Erdington) Woods, G. S. Morgan, Dr. H. B. Silverman, S. S. (Nelson) Yates, V. F Morley, R. Simmons, C. J. Moyle, A. Skeffington, A. M. TELLERS FOR THE AYES: Murray, J. D. Skinnard, F. W. Mr. Popplewell and Mr. G. Wallace.
NOES. Agnew, Cmdr. P. G. Granville, E. (Eye) Pitman, I. J. Amory, D. Heathcoat Grimston, R. V. Poole, O. B. S. (Oswestry) Assheton, Rt. Hon. R. Harris, F. W. (Croydon, N.) Renton, D. Astor, Hon. M. Harvey, Air-Cmdre. A. V. Roberts, W. (Cumberland, N.) Baldwin, A. E. Haughton, S. G. Ropner, Col. L. Birch, Nigel Howard, Hon. A. Spearman, A. C. M. Boles, Lt.-Col. D. C. (Wells) Joynson-Hicks, Hon. L. W Stanley, Rt. Hon. O. Bossom, A. C. Lambert, Hon. G. Strauss, H. G. (English Universities) Bowen, R Law, Rt. Hon. R. K Studholme, H. G. Bower, N. Legge-Bourke, Maj. E. A. H Taylor, C. S. (Eastbourne) Braithwaite, Lt.-Comdr. J. G. Lennox-Boyd, A. T. Thomas, J. P. L. (Hereford) Bromley-Davenport, Lt.-Col. W. Lloyd, Selwyn (Wirral) Thorneycroft, G. E. P. (Monmouth) Buchan-Hepburn, P. G. T. Low, A. R. W. Touche, G. C. Carson, E. Lucas-Tooth, Sir H. Tinton, R. H. Channon, H. Mackeson, Brig. H. R. Vane, W. N. F. Clarke, Col, R. S. Macpherson, N. (Dumfries) Wadsworth, G. Crookshank, Capt. Rt. Hon. H. F. C. Manningham-Buller, R. E. Wheatley, Colonel M. J. (Dorset, E.) Digby, S. W. Mellor, Sir J. Williams, C. (Torquay) Drayson, G. B Molson, A. H. E. Willoughby de Eresby, Lord Drewe, C. Morrison, Maj. J. G. (Salisbury) York, C. Eccles, D. M. Nield, B. (Chester) Fraser, H. C. P. (Stone) Odey, G. W. TELLERS FOR THE NOES Gomme-Duncan, Col. A. Major Conant and Major Ramsay
Motion made, and Question proposed, "That the Clause stand part of the Bill."
There is one question that I want to ask the Chancellor of the Exchequer on this Clause. Under Subsection (4) the interest is to be paid without deduction of Income Tax. I want to ask whether the interest to be paid to the man who pre-pays his tax is to be liable to Income Tax. Will that be assessable under Schedule D? If a man pays his Special Contribution earlier, is he going to be taxed next year on that amount? That seems to me to be a perfectly clear and reasonable question.
It will be a discount, and not a receipt.
It will not be assessable?
No, it will be a discount.
I want to call the attention of the right hon. and learned Gentleman to what appears to be a conflict between Clause 46 (6), and Clause 53 (3). It seems to me to be perfectly clear, on re-reading them carefully, that these two are in complete contradiction. In Clause 53, we are taking 1st January, 1949, as the day on which the amount is due and payable. I ask the Chancellor to look at the last two lines of Subsection (6) of Clause 46, which state,
"shall be deemed to be due and payable on the day next following the day on which the assessment is signed and allowed."
I think the Chancellor must have made a mistake when he gave the answer which he gave to the right hon. Member for the City of London (Mr. Assheton)
Question put, and agreed to.
Clause ordered to stand part of the Bill.
CLAUSE 54.—( Assessment and collection of contribution. )
I beg to move, in page 36, line 41, to leave out from the first "shall," to the end of the line.
This Amendment is merely exploratory. There does not seem to be any need for the insertion of the words which my Amendment seeks to exclude. What is the purpose of the inclusion of these words, and what will be their effect?
2.45 a.m.
The words proposed to be left out are "a debt due to the Crown." These words are used in many Acts in order to define the quality of a debt. For a debt due to the Crown, the Crown Proceedings Act would apply. This is the usual form in which it is dealt with in Income Tax Acts and in other Acts.
This should be understood by a layman as well as a lawyer. I am a layman, as is fairly obvious, and I do not know the effect of the Crown Proceedings Act. What is the effect of this, and what would be the effect if these words were left out?
Under Section 13 of the Crown Proceedings Act the old forms of civil process by and against the Crown are abolished and proceedings are to be taken in the ordinary way just like civil proceedings by other people. That is roughly an accurate description of what the Act does. It abolishes old forms which were applicable where the Crown was involved and substitutes the ordinary forms available to everybody.
Is that quite accurate? I have some recollection of dealing with this on a previous occasion and from memory I think a debt due to the Crown would involve proceedings not open to other people. Does it no longer involve the possibility of imprisonment for debt? Could I know when that change occurred?
What it does is to make Section 4 of the Debtors Act, 1869, now applicable to the Crown. Previously it was not, and by using a writ of capias a debtor to the Crown could be imprisoned. Now he is to be treated in the same way as everybody else.
Amendment negatived.
I beg to move, in page 37, line 32, after "collection," to insert "and the repayment."
This Amendment paves the way to further Amendments which are to be made to Clauses 55 and 61 dealing with the recovery of income which is attributable to income arising under foreign trusts. It is a drafting Amendment paving the way to Amendments hon. Members will have seen on the Order Paper and will no doubt want to consider in detail later. Broadly speaking, they eliminate foreign trusts from the trusts against whom recovery can be had of contributions.
Amendment agreed to.
I beg to move, in page 37, line 39, at the end, to add:
"(7) Any notice under this Part of this Act may be served by post."
This addition may seem rather peculiar. The reason it has to be put in is that, though Subsection (6) enables the Commissioners of Inland Revenue to apply and adapt by regulations the provisions of the Income Tax Acts relating to returns, including power to send notice by post, there are certain notices under this Act which are not analogous to those under the Income Tax Acts. Certain special notices may be served on a wife whose husband has not paid, requiring her to pay her share, and it is necessary to make this Amendment in order to enable these notices to be served by post as well.
Amendment agreed to.
Clause, as amended, ordered to stand part of the Bill.
CLAUSE 55.—( Recovery of contribution from trustees. )
I beg to move, in page 37, line 40, at the beginning, to insert:
"Subject to the provisions of this Part of this Act."
This is also practically a drafting Amendment. Later provisions of the Act are being introduced by way of Amendment, and this paves the way by making reference to them. Hon. Members will bear in mind that there are a number of provisions dealing with recovery. Recovery from trusts has been altered in certain respects, and those are the provisions referred to.
Amendment agreed to.
I beg to move, in page 37, line 42, to leave out from "if" to the end of the line.
What I said with regard to the last Amendment applies to this. What this Amendment does is to leave out the words at the end of the third line,
Amendment agreed to.
I beg to move, in page 37, line 46, at the end, to insert:
"ascertained without any such deduction being made as is allowable under subsection (4) of section fifty of this Act."
This is an Amendment to correct an error in drafting. Hon. Members will see that the Clause as it reads at present is that
"the contributor may recover under subsection (3) of this section such amount as bears to the contribution the same proportion as that investment income bears to his aggregate investment income."
Certain deductions, as hon. Members know, are permissible from the aggregate investment income. If one does not provide that the aggregate investment income is to be taken without these deductions, one brings about a result that, in certain cases, a contributor may recover from a trust from which he receives income more than the amount he has actually paid. If one deducts from his aggregate income, for example, interest he pays to a bank, the proportion will be reduced, with the result that the amount he is entitled to recover from a trust will be too high. What the Amendment does is to provide that, for this particular purpose of computing his aggregate investment income, it shall be done without making any of the permissible deductions.
The Solicitor-General referred to Subsection (4). I am unable to find that in the Bill, and I would be glad if he would explain the matter.
Two further Subsections have been inserted in Clause 50 so that the present Subsection (2) will appear as Subsection (4).
I am much obliged.
Of all the many anomalies which have been brought before the Committee, I believe that this is the slightest and the most insignificant of the lot. It is worthy of note that the Solicitor-General should go to all this trouble to remove this minute anomaly and pay no attention whatever to those to which we have called attention.
Amendment agreed to.
I beg to move, in page 38, line 12, at the end, to insert:
"Provided always that if the unpaid part is less than the amount specified in the last foregoing subsection the amount recoverable under the next following subsection as a debt due to the Crown shall be reduced by the amount of the difference and the contributor shall be entitled to recover the amount of the difference under the next following subsection."
I hope the Chancellor will accept this Amendment as consequential. This deals with the recovery provisions against trusts. The general nature of the provisions are that the contributor is entitled to give notice to the Special Commissioners whether he wishes the Contribution to be recovered direct, in whole or in part, from his trustees. That presupposes that the contributor will himself already have paid some part of the Contribution. It is conceivable that such circumstances will arise. The effect of this Amendment is intended to be that, in those circumstances, the right of recovery shall be for the whole amount. When the Treasury has recovered the whole amount, then the contributor himself will have the right of recovery in respect of the part which he has already paid.
This is a perfectly good point, for which we are obliged to the hon. Member. If he would be good enough to withdraw the Amendment, we shall see that the point is corrected on the Report stage. We are not quite certain of the wording.
In view of the second, I will not say victory, but at any rate, softening on the part of the Chancellor, I beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
3.0 a.m.
I beg to move, in page 38, line 12, at the end, to insert:
"(3) Where investment income of the contributor arose from capital in respect of which a trust was subsequently created during the year 1947–48, the provisions of Subsections (1) and (2) of this Section shall apply as though the trust had been created prior to the year 1947–48."
The effect of this Amendment is quite simple. Trusts have to be created at some time or another. It may well be that the psychological moment when the trust was created was during the course of the datum year. In those circumstances the contributor will have received a half year's income from the securities and he will be assessed for levy, assuming always that the rest of his income is sufficient to bring him into the levy at all. He will no longer have the capital out of which to pay the levy because it will have been put in the trust. The intention of the Amendment is straightforward and simple: it is simply intended to prevent any lacuna arising in the right of recovery of contributions from such capital.
I ask the Committee not to accept the Amendment. What the contributor does with his capital is his own business. If during the course of a year he chooses to divest himself of capital and to settle it upon trustees to pay an investment income, that is his own concern. There is no reason why he should be enabled, as it were, to "backdate" that trust in any way. It is no more relevant to this than it would be if he had given capital away or lost it or disposed of it in some other way. It has nothing to do with the case for saying that it should be treated as having been substituted before the year and throughout the year 1947–48.
Perhaps I did not explain this satisfactorily. This is a case where from the datum year 1947–48, when an individual had no idea of the capital levy, he took the whole of the capital, producing, say, £1,000 a year invested income, and after receiving the first half year's dividend put it into trust for the benefit of some other people altogether. Now he is assessed for levy and instead of the income which he received during that year he is liable for the levy in respect of the £500 he received in respect of the investment for the first half of 1947–48. He had no capital left out of which to pay it at all because the capital had been put into trust. Surely it is reasonable that he should have recourse to that trust which formed the capital from which his income was derived?
I think that confusion arises from the instance which the hon. Member for Chichester (Mr. Joynson-Hicks) has taken. It is rather like the man who asked what animal stands on two legs, waves its wings and barks like a dog. Having replied that it was a swan, he was asked why he said it barked like a dog. "Oh, that was put in to make it more difficult," he said. I think that the trustee part was put in to make it more difficult, because the same principle would apply whatever happens. If he had the investment income at the time he must be assessed, and we cannot make an exception because he happened to have put it in trust.
The Chancellor of the Exchequer has been saying that in order to collect this levy he is looking to the place where the capital is from which the income was derived in the datum year. In this case, long before the Chancellor's sinister intentions had become known, the person who my hon. Friend the Member for Chichester (Mr. Joynson-Hicks) has in mind took a perfectly proper and legitimate step, and divested himself of the power to pay the levy. It is in order to regularise that position that this Amendment has been moved Surely there is no justification in saying that the position is the same as that of the person who has lost his capital or given it away. This is a case where a trust has been created, and because it happened in the datum year the contributor becomes assessed for a liability, but owing to the perfectly proper action he has taken it is impossible for him to pay.
In the datum year he had the income and the capital; otherwise it could not arise, and it could not come into his investment income. If he has some income and gives it away or settles it on trust—and there is no sanctity about it being settled on trust—it makes no difference.
The Chancellor is really arguing the case for us. He is saying that this principle applies to other cases as well as to trusts. To be in Order we have to talk to this Amendment. The Chancellor, I submit, ought to put it right so far as trusts are concerned, and it will be at another stage of this Bill that we shall have to put right what he admits is something which equally needs to be put right. He has admitted that there is a difference between capital and income which used to arise from that source, and here again is the wrongful assumption that because there is income there is also capital. This is clearly a case where there is income but no longer capital available, and to raise a capital levy on capital which is no longer there is absurd. Here is another anomalous situation.
Amendment negatived.
I beg to move, in page 38, line 34, at the end, to insert:
Doubts have been expressed as to the meaning of the phrase, "The trust has come to an end" and it was thought desirable in those circumstances to make it perfectly clear at what point of time in particular a trust comes to an end, either wholly or in part. The definition provides that it is deemed to come to an end when any person has become entitled to the capital and the trust property, and in consequence these have become vested in that person or an assignee. The Amendment goes on to say that it shall apply where part of the property is so vested. This amplifies and makes clear what is contained in Clause 55.
Amendment agreed to.
I beg to move, in page 38, line 34, at the end to insert:
"Provided further that nothing in this Act shall render any trustee liable or accountable for any part of the contribution in excess of the assets for the time being vested in him or under his control and subject to the trust."
The purpose of this Amendment is very clear. It is to limit the liability on the trustee in regard to the trust assets under his control, and to protect him from what might be the very serious consequences if his liability becomes personal, as it is under the Bill as now drafted. I am not sure whether one of the Chancellor's Amendments covers this or not. I hardly think it does, but we feel it is absolutely necessary that there should be clearly and firmly defined in the Bill that trusts and trustees, for the reasons given by my hon. Friend the Member for Chichester (Mr. Joynson-Hicks) in his earlier speech, should not personally be liable for this contribution.
This is obviously a perfectly legitimate objective. I do not think, as a matter of fact, that in this case there is any great risk, since the Contribution is something like one and a half per cent. of the capital, and it would be an odd circumstance if in order to pay that amount a trustee became personally liable. But he is entitled to some suitable provision, and if this is left to the Report stage we will see that some suitable provision is made for relieving the trustees from personal liability where the assets under their control are insufficient to indemnify them and it is not due to their negligence or fault.
In view of what the Chancellor has said, I beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
3.15 a.m.
I beg to move, in page 38, line 35, to leave out Subsections (4) and (5), and to insert:
It was thought that it was rather burdensome that the trustees of Trust A should be put in the position of effecting the recovery. In these circumstances, what the Amendment does is to provide that the right shall lie direct against Trust B for the appropriate proportion of the contribution they have contributed. That is to say, the contributor having paid his tax, instead of going against Trust A and Trust A seeking to recoup themselves from Trust B, the contributor or the Revenue authorities, as the case may be, can go against Trust A direct for the proportion they have to pay to him, or Trust B direct for the proportion they have to pay, thereby relieving the trustees of Trust A of the burden of recouping themselves by proceeding against Trust B.
If I understand it aright, this Amendment is going to make no difference about the final result of the liability. It only cuts out the recourse of one trust against the other. But what happens in the case where Trust B, the more remote trust, is a foreign trust?
In a subsequent Amendment foreign trusts are completely excluded from the scope of the recovery, so there would not be any recourse against Trust B.
Are they also excluded from undertaking recovery?
Not only are foreign trusts excluded, but the proportion of the contributor's investment income which ultimately can be traced through to the foreign trust, even if one has to trace it through a chain of trusts, is excluded from the category of income which has to bear the contribution. In the event of a payment having been made by the contributor in respect of income which can be so ultimately identified as originating from a foreign trust, provision is made by subsequent Amendments for repayment to the trustees who paid that proportion by the Inland Revenue authorities.
Amendment agreed to.
I beg to move, in page 39, line 5, at the end, to insert:
"(6) The contributor shall not be entitled to exercise a right of recovery conferred by this Section in respect of the contribution assessed by any assessment unless, not later than six months after the date when the contribution so assessed was paid, he has given to the persons against whom under Subsection (3) of this Section the right of recovery is exercisable notice in writing of his intention to exercise any such right as may be available to him; and trustees who have received a notice under this Subsection shall not be entitled under Subsection (4) of this Section to require that the right of recovery to which the notice relates shall be exercisable as mentioned in that Subsection unless not later than one month from the receipt of the notice they have given notice in writing of its receipt to the trustees of the second trust mentioned in that Subsection or, in the case of a settlement within the meaning of the Settled Land Act, 1925, or in Northern Ireland the Settled Land Acts, 1882 to 1890, to the tenant for life."
It was thought desirable that there should be some term put upon the right of a contributor to effect recovery from a trust from which he draws income. Therefore, it is provided by this Amendment that his right of recovery shall not subsist unless he gives notice within six months. It is also provided that the trustees of Trust A—if I may use the expression—themselves will not be able to exercise the right of recovery against the trustees of Trust B unless they give notice to the trustees of Trust B within one month. It is, I submit, fair and reasonable that trustees should not be left with an indefinite liability hanging over them, and if anybody seeks to make a recovery from them that person should have a specified limit of time in which to exercise that right, and should within that time give notice of his intention so to do.
This period of time runs from the date when the contribution is paid, but if there should be a long delay in the assessment, will that delay be adequately provided for? In a complicated case it may be much more than six months before a final figure is arrived at.
I do not think any difficulty can arise on that score. I think that has been taken into account. Payment is the datum line from which the time runs, and in that circumstance I should think a contributor would have no difficulty in giving his notice within that time, and, equally, that the trustees of each trust should, if they have received notice, be able to give the necessary notice to their next link in the chain.
Amendment agreed to.
Further Amendment made: In page 39, line 6, leave out Subsection (6).
I beg to move, in page 39, line 12, at the end, to insert:
"(7) Notwithstanding anything in the fore going provisions of this Section, the following provisions shall have effect as respects foreign trusts:—
This is the Subsection about which I spoke a few moments ago. The proposed new Subsection is rather long, but it is what I indicated before. It excludes foreign trusts, and it provides for a right of repayment should the contributor or a trust in the chain make a payment of income which can be identified as ultimately originating from a foreign trust. The payment then is to be repaid by the Inland Revenue to the person who paid it, the contributor or the subsequent trustees in the chain.
I am glad this matter has been tackled. It has been a somewhat difficult problem. This is not an easy Subsection to follow. It is rather a pity we have reached it at an hour when human vitality is almost at its lowest, as exemplified by the hon. and learned Member for North Hammersmith (Mr. Pritt), who is dreaming happily of Signor Nenni. I want to ask one question about this Subsection. I see that there is a definition later on of what constitutes a foreign trust, but could the Solicitor-General tell us what the position is when one trustee is resident abroad and one is resident in this country?
There is a great deal of case law governing a trust. Broadly speaking, the law which governs the interpretation and administration of a trust depends on the intention of the settlor and certain other circumstances. There are certain artificial rules which provide what law is to govern and the test would be whether it is the law of England or the law of the other country. The answer is to be sought by looking at the terms of the trust.
What happens if there is a British trust but the trustees are foreigners wholly resident abroad, having all the trust capital resident abroad with them? Is it absolutely clear that once a trust is a British trust it cannot become a foreign trust by anything the trustees can do?
Once a trust is a British trust it remains a British trust. If the trustees are abroad under Order of the rules of the Supreme Court they can be made parties to administrative proceedings in this country, and if some were here and some abroad, particular trustees refusing to co-operate in carrying out their duties could have the appropriate proceedings brought against them under the Act of 1925 to replace them.
Amendment agreed to.
Further Amendment made: In page 39, line 15, at end, add:
(8) In this Section the expression "foreign trust" means a trust of which the administration is governed by the law of any place outside the United Kingdom.—[ The Solicitor-General. ]
3.30 a.m.
Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."
Just now the Chancellor of the Exchequer, when we were discussing the question of indemnity for trustees, alleged that in his opinion the demand from a trust could not exceed 1½per cent. on the capital. That seems to be clear evidence that the Chancellor of the Exchequer does not understand his own Bill in the slightest. It is no use asking the Chancellor of the Exchequer questions. He never seems to answer questions which I put to him. He has not done so tonight. Not a single question has he answered, and I do not think that I am in the habit of asking stupid or irrelevant questions. If he were here, I would certainly ask him where on earth he gets his 1½ per cent. from. He seems to me to be constantly under the delusion that where there is income there is capital. That is not the case.
Where there is a trust, under this Clause it would be perfectly possible—as the Solicitor-General himself said, when he made the distinction between the royalties paid to an author who is alive, which would be earned income, and the royalties paid to the widow of an author, which would be investment income—that there could be no capital whatever in such a trust; yet if that widow has a considerable income from other sources, even supposing she earns her living as an author herself, as could easily have happened with the Webbs, then she is to be taxed, and she is to pass that tax on to the trustees. Those trustees could be subjected to a very considerable payment of capital tax, but in point of fact they have no capital in the trust at all. This is another example not only of the Chancellor's failure to understand his own Bill, but of the complete fallacy that where there is income there necessarily is capital. It just is not true.
Before leaving this Clause, which I think has been improved by the Amendments made to it, there are one or two points to which I would like to refer. I am grateful to the hon. Member for Bath (Mr. Pitman) for dealing with the case of the author's widow. I believe that the right hon. and learned Gentleman is treating that lady very harshly in this Bill. I certainly do not think that he has a proper regard for her. She is a very worthy person, and she really is being extremely hardly dealt with. There are many trusts which have no capital. There are trusts of income and trusts which have no assets that can he recovered against. I do not think that has been taken into account by the draftsmen in this Bill.
There is one question I would like to ask the Solicitor-General. It is in regard to the beneficiary of a trust who dies during the course of the datum year. The trust comes to an end. Who is to bear the levy in such a case? Have any of his assets to bear the levy? Have any of his assets to bear the levy in respect of income he received during the datum year from the trust, or does the residual legatee bear the whole of the levy? After all, it is quite possible that the asset has been split up between the legatees, and there may be nothing left for the Chancellor of the Exchequer.
I want to make a correction in respect of what the hon. and learned Gentleman said when we were discussing interest on reversion. The hon. and learned Gentleman said that a purchaser had to take the risk of a change in the incidence of Death Duties. That is not so. Section 17 of the Finance Act (No. 2), 1940, protects him against that risk, and therefore the question becomes less speculative than it was. I hope the hon. and learned Gentleman will reconsider this, because it has a most unfair effect on the purchaser of the value of a reversion. A further question I wish to raise is that of an irrevocable appointment. If a person makes an irrevocable appointment of part of a trust, he continues to receive the income as tenant for life. Is that also covered by the Act, because if so, I believe that a very serious defect of law is to take place on the liability of trustees towards the beneficiaries of irrevocable appointments.
In a case of this kind we would establish the different interests in a trust and then proceed to apply the principles elaborated in the Chancery Division. In the ordinary way, where there is a tenant for life and a reversioner, the tenant for life suffers a loss of interest and the reversioner suffers a loss of capital, the interest being appropriate to the amount of capital. That is the ordinary rule. One can refine on that almost indefinitely. We considered that the best way to deal with this was to bring together the whole body of case law in order that we should have a ready-made apparatus to determine the incidence between the various interests in trusts in the very many cases of trusts in different forms which were bound to arise for consideration. I am not sure it would assist the Committee to make the hazard, without studying a particular trust, of saying how contributions would fall on it. We think this is the most reasonable way of resolving it. With regard to the widow of a deceased author, I should have thought royalties were investment income, though it would not be investment income where an author was still living and writing and carrying on his profession of author. As to the 1½ per cent., we get it on the basis of a 3 per cent. return, taken at 10s. in the £—the highest rate of the Contribution—which works out at 1½ per cent.
That does suppose there is some capital. What happens if there is no capital?
Would the hon. and learned Gentleman be good enough to answer the point just put by the hon. Member for Chichester (Mr. Joynson-Hicks) with regard to the relief to purchasers of reversionary interest? The hon. Member called attention to the fact that Section 17 of the Finance Act (No. 2), 1940, does in general relieve a purchaser of a reversionary interest from an increase in the rate of Estate Duty subsequent to that transaction. So far as I can understand it, here no such relief is given in respect of the amount by which a fund may be reduced by the Special Contribution.
I have already said this is one of the hazards a purchaser takes. He takes other hazards. It is not likely that the trust property will disappear, but it is subject to fluctuations. When you buy a reversion, you are buying something which you know to a certain extent is speculative. I was not suggesting that it was an undesirable type of purchase. I was simply saying that one deliberately allows for the fact that there is some kind of risk when one buys this.
The Solicitor-General has not taken the point which I tried to make.
There is no provision in this Act which would give similar relief to the purchaser such as he envisages, but there is at the same time no case for making such a provision.
The Solicitor-General has just referred to the hazards connected with Death Duties, but my hon. Friend the Member for Chichester has just pointed out that, under Section 17 of the Finance Act, 1940, that argument is not valid. There is provision for relief in respect of that very risk. Has the Solicitor-General looked at Section 17 of the 1940 Act? Here it is; I give it to him in case he cares to look at it. Cannot something be done on the Report stage to give legitimate relief in certain cases?
I was impressed by what the hon. Member for Chichester (Mr. Joynson-Hicks) had to say about the possibility of two large amounts of capital having to be found in one year—one on account of Estate Duty, and one on account of the Special Contribution. It is a principle that we try to avoid double taxation of the citizen in any shape, and we should try not to make him subject to two identical taxes in the same year; but also we should be very careful not to make him pay a double capital contribution, more especially if his estate, using that word in its broader sense, is an agricultural estate. It should be remembered that, if the Government expect estate owners to fulfil their obligations under the Agriculture Act—and I apologise for referring to that—they should try to avoid the kind of circumstances to which the hon. Gentleman has just referred. I regret that the Solicitor-General did not see fit to make a special reply to that very important point.
The Solicitor-General has now explained that the real purpose of this Clause is to apply all the case law relating to trusts which has been piled up by the Court of Chancery since the introduction of Death Duties in 1894, and he seemed to think that that was a satisfactory explanation of this Clause; but I would point out to the Committee that he has told us quite plainly how completely anomalous the whole of this structure is. In order to try to arrive at a fair settlement of these problems, the Court of Chancery is trying to consider the incidence of this tax calculated on the capital value on these estates; but under this extraordinary proposal, all these decisions based on capital calculations are now being poured on under assessments based on Income Tax and Surtax.
3.45 a.m.
There is nothing more completely anomalous that one can imagine. It is only natural that there should be these anomalies when a whole system of law which was based upon one principle is now called into action in order to deal with an entirely different matter. Before we part with this long and complicated Clause, it is as well to remind the Chancellor that earlier in this Bill he was saying how deflationary this Special Contribution would be, and what a large proportion of it would be raised from revenue. So far as that which comes within this Clause is concerned, it will be levied upon capital and, therefore, it will not be deflationary.
Question put, and agreed to.
Clause, as amended, ordered to stand part of the Bill.
CLAUSE 56.—( Application of trust property, etc., in payment of contribution. )
I beg to move, in page 39, line 19, after "apply," to insert "or direct the application of."
Technically a tenant for life under the Settled Land Act is not himself in a position to apply capital. All he can do is to direct the trustees to apply capital. Accordingly we seek to insert the proposed words.
Amendment agreed to.
I beg to move, in page 39, line 29, at the end, to insert:
"being an interest not subject to any interest in the property in fact existing under the trust."
Subsection (2) of this Clause contains the machinery for bringing into operation the rules of law governing the incidence as between separate estates in trust property, of any payment to be made in respect of Contribution. A notional cesser of life interest is deemed to have taken place. The effect of that is to bring it about that the various interests are ranged up at one point of time so that one can apportion the incidence of payment amongst them. For very complicated technical reasons, which I could explain but which I feel probably would not assist the Committee very much, it was found that the purpose is not completely achieved. It is necessary to make two slight alterations which we now seek to insert by this Amendment and the one which follows, in line 35.
Amendment agreed to.
Further Amendment made: In line 35, at end, insert:
"(3) Where the income derived from property referred to in the last foregoing Subsection was a share only of income from the property, whether or not subject to other interests, that Subsection shall apply as if the income derived as aforesaid had been derived from a corresponding share of the property."—[ The Solicitor-General. ]
Clause, as amended, ordered to stand part of the Bill.
CLAUSE 57.—( Provisions as to husband and wife. )
I beg to move, in page 40, line 13, after the third "the," to insert "aggregate."
This Clause deals with the position as between husband and wife. It provides that, in certain circumstances, there shall be a liability on the wife to make a payment in respect of a contribution imposed upon their aggregate income, of a fraction which is worked out in a manner provided by Subsection (1). The fraction is the amount which bears to the whole of the Contribution the same proportion as the investment income of the wife bears to the aggregate investment income of the husband. It was found that that fraction was not quite correctly stated because the question arose of deductions—for example, deductions of interest. We seek in this Amendment to make it clear that the wife should bear a fair proportion, having regard to the respective amounts of their investment income, of the total contribution which is imposed on the joint investment income of the husband and the wife.
There seems to be one difficulty here. It seems to me that there may be considerable hardship imposed upon the wife who has during 1947–48 lived happily with her husband but who since the end of the financial year has had cause to divorce him or to obtain a judicial separation. Is she, being the innocent party to such proceedings, still to be made liable for her husband's obligation during that financial year?
I cannot see that one can really determine the incidence of contributions during the datum year by reference to the post-datum year history of the spouses. One cannot take into account the innumerable permutations of human interests in fixing the tax. We must fix it by reference to a particular period which can be ascertained.
Is it not a fact that an innocent wife will probably have to pay for the support of a guilty husband?
Amendment agreed to.
I beg to move, in page 40, line 20, at the end, to insert:
"(3) Where after the end of the year 1947–48, and before a notice has been given under Subsection (1) of thins Section, the wife dies the notice may be given to her personal representative; and references to the wife in the last foregoing Subsection shall be construed accordingly."
This Amendment provides that notice must be served upon the wife's personal representatives in the event of her death, the object of that being that it puts it beyond doubt that they are given certain rights, which, as hon. Members know, are vested in contributors and persons who have rights of recovery.
Where no separate assessment has been made and the wife dies, does the husband have to pay the wife's contributions? I understand that under the Surtax law where there is no separate assessment, if the wife dies, the husband is liable for her Surtax and has no right to recover against his wife's estate. Does the same situation arise in regard to the levy?
In this case a special right of recovery is given. It depends on the special provisions of this Clause, which in this respect is not quite the same as in the case of Surtax.
Amendment agreed to.
I beg to move, in page 40, line 35, to leave out Subsection (4), and to insert:
"(4) Upon receipt of a notice of assessment to contribution, a husband or wife may, within 28 days of the date of the notice, require that his or her investment income and contribution shall be apportioned and charged separately, and collection of the contribution shall thereupon proceed accordingly."
The purpose of this Amendment is to deal with the case where an assessment has not been made by 5th October. Clause 53 makes it clear that assessments may not in some circumstances have been made by January, 1949. The right to claim separate assessment may not become obvious to some people until assessment has been made. The purpose of the Amendment is to give the right to claim apportionment within 28 days of receipt of the joint assessment. I am advised that my Subsection will work out fairly in practice.
Amendment negatived.
I beg to move, in page 41, line 13, at the end, to add:
"and where a husband and wife were married and living together during part only of the year 1947–48—
This is designed to make certain that when spouses marry during the year 1947–8, the contribution on their aggregated investment income shall only include that part of the wife's income which accrued since marriage. The Amendment is to ensure that, in the event of the Inland Revenue recovering from the wife, it shall be limited to the post-marriage income.
Does the same argument apply to a man and woman who married in 1946 and were therefore married during the early part of 1947–8, who during that time continued to live together, but after June, 1947, ceased to live together? What happens in those circumstances?
Very awkward.
The provisions as to Contribution which are contained in Clause 57 only apply in respect of the period of time 1947–8 when they were living together. In other words, the Clause is only applicable to a period of joint cohabitation. Where the husband and the wife are living together the ordinary Surtax rule applies. That is contained in Rule 16 of the General Rules, which deal with the joint and separate assessment of man and wife, according to the association of a wife with her husband.
Amendment agreed to.
Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."
4.0 a.m.
I should like to raise the question of the date, 5th October, 1948. There was some slight misunderstanding earlier on the reaction of the Solicitor-General to my Amendment to alter that date with the idea of extending the time for application for a separate assessment to 28 days after the receipt of the joint assessment.
We are quite prepared to consider the question of the date and to see if we can meet the point.
Question put, and agreed to.
Clause, as amended, ordered to sand part of the Bill.
CLAUSE 58.—( Provisions as to certain companies. )
I beg to move, in page 41, line 27, at end, to insert:
"ascertained without any such deduction being made as is allowable under Subsection (4) of Section fifty of this Act."
This Amendment is designed to make a slight change in the terms of Clause 58, which deals with the proportion of the Contribution which can be recovered against one-man companies in the event of the income of the company having been apportioned to a member of the company under Section 21 of the Finance Act, 1922. Where the income has been apportioned to a member, the amount recoverable from the company should be the proportion of the Contribution which that income bears to the member's aggregate income before the deduction of interest and other similar charges, which are deductable from his income under the provisions of Clause 50. I could work out the figures, but perhaps the Committee would accept it from me that it is in order to correct a slight slip which was made in working out a fraction that this Amendment is proposed. Under the Clause there would be deducted from the income of the member to whom the company's undistributed assets were apportioned under the 1922 Act, the interest charges and other similar charges which he has paid with the result that the fraction is too high against the company. The Clause provides for too high a portion being collected from the company, and this Amendment is designed to correct that fault.
Amendment agreed to.
Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."
I wrote to the Chancellor of the Exchequer with regard to a point raised by the Issuing Houses Association. I do not know whether he is in a position to give an answer on the point, but as far as I can gather, the effect of this Clause will be to enable the Special Commissioners in certain circumstances to require a five-man company, which takes over the liability to Special Contribution of any of the individuals, to have that contribution assessed, although the company has been subject to an agreement prior to the passing of this Bill, and the purchasing company has acquired the profits as from the previous date. It will be appreciated that the purchasing company, which might be a public company which has issued shares, might find itself liable to a substantial amount of tax in excess of the profits received under the sale agreement. That is a position that could not have been foreseen when the agreement was made. It is possible, as the Clause is drafted, for the Special Commissioners not to make such an assessment. I understand there are several cases of this kind which will arise, and I should like to ask the Chancellor if he can give an assurance that in cases of this kind the Special Commissioners would not require the company to pay the Special Contribution in these circumstances. If he cannot give me an answer now, perhaps he will find it convenient to do so at a later stage.
I am afraid I have not this actual case in mind now, but if I may I will write to the right hon. Gentleman in the course of a day or two.
The Amendment in the name of the hon. Member for Edgbaston (Sir P. Bennett), in page 41, line 15, leave out from "is" to end of the Clause and to add new words, has not been called. I take it, Major Milner, that the reason is because it might appropriately come with the Schedule which we were discussing earlier on Clause 48, and that any point in regard to it can be discussed at that time and ought not to be taken on the Question, "That the Clause stand part of the Bill."
The reason was that the Amendment was consequential on a previous Amendment on which the Committee had come to a decision.
With great respect, I think that was one of those which we only discussed with the Chancellor's Amendment, and agreed that we should carry forward to general discussion on the Schedule. It is in regard to private companies. All I am asking is that we should have reserved for a later stage this particular one, or whether we should discuss it now.
I can assure the hon. Gentleman that at this time of the morning all rights are reserved to everybody without prejudice.
Question put, and agreed to.
Clause, as amended, ordered to stand part of the Bill.
CLAUSE 59.—( Appeals. )
I beg to move, in page 41, line 34, after "may," to insert:
The Amendments provide that every person—that is to say, a contributor, and an indirect contributor, and what I have previously described as the second trustees—all will have the right of appeal, and no liability can be enforced against them until that appeal has been determined. I could go one by one through the Amendments to show how that works out. The only reservation I should like to make—and I think I ought to make it—is about the right hon. Gentleman's Amendment, in page 42, line 2, to leave out from "assessment" to the end of line 4. It seeks, for example, to give the first trustees, when they appeal, a right of appeal not only in respect of the amount of the income from their trust which is included in the assessment, but a right of appeal which would challenge the total amount of assessment itself. We feel that that really would not be possible, and I shall indicate why we have not found it possible to do that.
What the right hon. Gentleman's Amendment seeks to provide is this. If an assessment is made against a contributor, say, assessing him for an amount of £2,000, and he then seeks to be recouped to the extent of £500 from the trust, the right hon. Gentleman's Amendment would provide that the trustees can in the appeal not only raise the question as to whether that £500 is the appropriate figure and whether it should not be less, but they can also contend that the assessment on the contributor of £2,000 is incorrect. It would not be possible for the following reasons to entitle them to do that. Were they able to do that it would mean that they would have to have access to all the records of the contributor himself.
Would it be open, under the Amendments proposed by the hon. and learned Gentleman, for the trustees to appeal against an assessment being made upon them—not against the total amount of the assessment, but the Contribution in assessment, quite apart from the amount of the assessment?
Yes, Sir. The trustees would be entitled to appeal, and they would be entitled not merely to say £500 was the wrong figure but that no assessment at all should have been made upon them. I hope that the Committee will say that that procedure is satisfactory. Take the case of a person who has a large income and draws income from half a dozen trusts, small amounts of income from each. It really would not be reasonable to say that each of the trustees, for the purpose of appeal, should have the right to go through all his accounts and private papers to see how the whole of his large income is made out. We feel that that really is not feasible. I hope that with that assurance as to the object of the first Amendment, which paves the way for the others, the Committee will think we have adequately amended the position.
4.15 a.m.
I think that the Solicitor-General has covered all the points we could reasonably ask to be covered, but it is very important that the appeals should be satisfactory. It might often occur that the beneficiary under the trust would not know the sum of the income he had been paid out of the capital trust, and only the trustee would know that. It is important the trustee should look into that sort of thing and ensure no unfair assessment has been made. If my right hon. Friend would agree, I think we should accept these Amendments without further debate and have a look at them, and if necessary raise them again on a later stage.
Why is it necessary to have a time of appeal laid down in regulations and not in the Bill? It is, after all, the Finance Bill, and it should be made quite clear to the taxpayer what time he has got.
The Statutory Instrument which would prescribe the time is subject to annulment by the House, so that there will be an oppor- tunity to discuss it. It would be very difficult within the scope of the Clause to prescribe all the terms of the very many different people concerned. After all, this is a well recognised procedure. Take the Rules of the Supreme Court. That is a rule making authority which has extensive powers to deal with matters of that sort.
I hope that the Solicitor-General will consider this matter a little further. The most important point is that a great many people, accountants and so on, will want to find the whole learning on this subject in the Finance Bill of this year, and if there is to be a Statutory Instrument dealing with this matter it will add very greatly to the difficulties. I hope that he will consider between now and the Report stage whether it is possible for people to know what their rights are.
Can the Solicitor-General quote any other taxation Act which does not have in black and white, the amount of notice of appeal which is given? To the best of my knowledge it has been written down in the statute how long the taxpayer has to appeal.
I can give such an example—Surtax. A time is provided in Statutory Rule and Order 1910, No. 666.
Amendment agreed to.
Further Amendments made:
In page 41, line 44, at end, insert:
"and shall give a like notice to the individual assessed."
In page 42, line 1, leave out from "contributor," to "on," in line 2, and insert:
"or the individual assessed may not later than the prescribed time from the giving of the notice appeal to the Special Commissioners against the notice."
In page 42, line 4, at end, insert:
"and on any appeal under this paragraph the Special Commissioners may make any alteration in the assessment necessitated by the determination of the appeal."
In line 14, leave out from "where," to "is," in line 15, and insert. "an assessment to contribution."
In line 18, leave out "the determination of the appeal stating," and insert "any variation of."
In line 20, at end, insert:
"and shall give a like notice to the individual assessed."
In line 20, at end, insert:
"Where this Subsection applies to an indirect contributor by reason of his being trustee or tenant for life under, or otherwise concerned with, a trust under which income arose to other trustees, the notice under paragraph ( a ) of this Subsection, in lieu of stating the particulars specified in that paragraph, shall state the amount of the said income, the contribution attributable thereto and the total income of the said other trustees; and where this provision has effect—
In line 21, after "served," insert:
"under Subsection (1) of Section fifty-seven of this Act."
Leave out lines 23 and 24, and insert:
"not later than the prescribed time from the giving of the notice appeal against the notice on the grounds that her investment income has been wrongly ascertained; and on an appeal under this Sub-section—
In line 24, at end, insert:
"(4) An appeal to the Special Commissioners may be brought against the determination of an application under either of the next two following Sections, under Section (Allowance for maintenance, repairs, etc.) of this Act, or under the Schedule (Special provisions as to working directors) to this Act."
In line 24, at end, insert:
"(4) The contributor or other persons mentioned in paragraph ( b ) of paragraph ( c ) of Subsection (7) of Section fifty-five of this Act may appeal to the Special Commissioners against a determination under the said paragraph ( b ) that no repayment is due there-under or as to the amount of any such repayment or a determination under the said paragraph ( c ) how far a right of recovery is exercisable."
In line 40, leave out Subsection (7), and insert:
"(7) An assessment to contribution which has become final against the individual assessed shall be final and conclusive against any other person, so however that where under this Section a notice may be required to be given to that other person in connection with the assessment, the assessment shall not become final and conclusive against him until the notice has been given and, where the notice is subject to appeal, until the time for appealing against it has expired, or, if an appeal is brought, until it has been determined.
(8) Any notice which is given to an indirect contributor under this Section in connection with the exercise of any right of recovery and which, if subject to appeal, has become final, shall be conclusive for the purposes of the exercise of the right.
(9) Notwithstanding anything in Section fifty-five of this Act, no right of recovery thereunder shall be exercisable until any notice which may be required to be given to the indirect contributor under this Section has been given and, if subject to appeal, has become final:
Provided that this Subsection shall have effect subject to the provisions of regulations under the next following Subsection relating to the recovery of tax appearing not to be in dispute."
In page 43, line 3, after "thereof," insert:
"and for prescribing anything authorised to be prescribed under this Section."—[ The Solicitor-General. ]
Clause, as amended, ordered to stand part of the Bill.
CLAUSE 60.—( Relief where income attributable to period of years was received in year 1947–48. )
I beg to move, in page 43, line 12, to leave out "either case before the," and to insert "any case before such an."
This Amendment is intended to make clear what may be said to be left in some obscurity at the moment. Clause 60, as hon. Members know, is the Clause which is designed to give relief where, for instance, a whole series of arrears of accumulative share dividend is paid during the year 1947–48. When a payment of such dividends is made, which under ordinary Income Tax law would rank as a payment in that year, the result would be a high tax. What the Clause seeks to do is to afford relief in a case of that sort by providing that the payment of arrears in that year shall, as it were, be spread back in order to be reduced to what would be an ordinary sort of arrears payment. The way in which that is done appears in paragraph ( b ). Hon. Members will see that the income is to be deemed for that year to be a full year's income upon the basis of the income which accrued from day to day for the period to which it relates. It was thought that would give some considerable difficulty in some cases.
There might be a case in which in the year 1947–48 there might be a declaration of dividends referable to the years 1945, 1946, 1947, but at variable rates. For instance, in 1945 the rate might have been five per cent.; in 1946, 10 per cent.; and in 1947, four per cent. It would, in those circumstances, be rather difficult to work out what would be a full year's payment, worked out on the basis that those variable dividends were paid, as it were, from day to day. All we seek to do is, in a case like that, to give the Special Commissioners some slight latitude in working out, when there is a case in which it is difficult to apportion from day to day what a full year's payment should be. We felt that justice could be done in that way.
After all, the idea is to give relief by spreading back, as it were. Therefore the wording which we seek to substitute by the next Amendment is,
May I ask the hon. and learned Gentleman one question? I wish to do everything in my power to help him to be fair. I should like to ask, in the first place, if this extension of time is likely to get more money into the Exchequer, or to give a fair deal to the taxpayer. Can he also tell me the approximate amount of money which will be involved in this matter? If we are to accept this Amendment, and I hope we shall be able to do so, I think we might be told the number of cases likely to be affected, or something about the amount of money involved. Also, I suppose the intention of the Amendment is to be fairer to the taxpayer?
May I ask one question with regard to the words "if any" in the next Amendment. Under paragraph ( a ) the taxpayer has to make it clear that he received more than a year's income in a year. Under ( b ) it has to be proved to the satisfaction of the Commissioners that he has made out his claim. As the Bill is now drafted, the Commissioners have a strict duty laid on them to make an adjustment. In the new words they have now got a discretion. I should have thought these two words were surplus.
I assure the hon. Member for Torquay (Mr. C. Williams) that we desire to be fair to the taxpayer. That is the whole purpose of Clause 60, which provides relief. In regard to the words, "if any," that is a slightly technical position. In rare cases the provisions which are set out in paragraphs ( a ) and ( b ) might be complied with without any reduction being available. Let me illustrate that by an example. Take the case of a company which has been in the habit for many years of paying in November an interim dividend for the current calendar year and in the following May a final dividend for the preceding calendar year. In such a case there would come into the 1947–8 income the final dividend for the year 1946 paid in May, 1947, and the interim dividend for 1947 paid in November, 1947. Under Clause 36 of the 1927 Act these dividends would be deemed to have accrued over the years 1946 and 1947 respectively, so that there would be more than one year's income on the basis of accounting day by day. As these dividends were for preceding years, it would not be reasonable if more than one year's full income was taken into account. That is a rare case, but it could take place, and to provide for that the words have been inserted for drafting accuracy.
Would the hon. and learned Gentleman answer my question as to the amount of money likely to be affected?
I do not know whether the hon. Gentleman expected me to make a computation which would cover in the case of all the companies concerned the amount of dividends which could be said to be paid in 1947–8 in circumstances in which arrears were included in that year. It would take an enormous time to work that out. As this is a measure of relief, I do not think the Committee are objecting to it. I do not think it would assist the Committee in its deliberations to have that work undertaken and it would produce no useful results.
I know that the hon. and learned Gentleman cannot give us details now, but I thought he might be able to give us a little more knowledge. We are bound to allow for this relief, especially as we know that there are some cases like that of the Bristol Orphanage.
The hon. and learned Gentleman used the word "dividend" constantly throughout. Did he mean that this includes interest and royalties and any other investment income and is not limited merely to shares of a company on which dividends are paid? I can imagine an author receiving royalties for possibly two or three years owing to some accountancy period and really needing a relief. Does the Solicitor-General agree? Are we not going to have an answer?
Amendment agreed to.
Further Amendments made: in page 43, line 26, leave out from "such," to end of line 27, and insert:
"reduction, if any, as may be appropriate to secure that there shall be taken as representing the income from the assets an amount equivalent to a full year's income therefrom."
In line 30, at end, insert "paragraph ( b ) of."—[ The Solicitor-General. ]
4.30 a.m.
I beg to move, in page 43, line 34, at the end, to add:
"(3) Notwithstanding the provisions of this Section where a body corporate can show to the satisfaction of the Special Commissioners that the sums distributed by way of dividend on ordinary shares when taken in conjunction with other sums distributed is in excess of the profits arising in the period for which the dividend is declared, then for the purposes of this Part of this Act, the Special Commissioners shall in ascertaining the total income and aggregate investment income make such adjustment of the income arising from such ordinary shares as is necessary to affect the excess."
The object of this Amendment is to extend to ordinary shares, in a very small measure, the relief extended to other types of shares. It is a very modest request because the Amendment only calls for relief where the dividends for the year are not restricted within the actual profits and, quite obviously, this Amendment can only apply in a very small number of cases. The type of case in which it might well apply is that of a company which has been engaged on war work and which has refrained from distributing the total profits earned, but has put them to reserve, and then the war work has finished. The reserves not then being needed, they have passed to profits and have been distributed. In view of the fact that the number of cases affected must be very small, I trust that the Chancellor will see his way to accept this Amendment.
This Clause is obviously provided to give relief in cases of error, and in supporting the Amendment I submit that the Clause cannot be complete unless some such words are added. The differentiation in taxation on distributed and undistributed profits has been made to encourage companies to plough back profits into the business, and that at a time when it is undesirable that there should be big distributions of profits. But, it is evident that, if profits are ploughed back into the expansion of a business, this action will tend to yield a profit of itself, and the profit will be greater in one year than another. Our point is that it would be extremely hard on some companies if this taxation fell on a year when the profits were exceptionally large, and I hope the right hon. and learned Gentleman will accept this small Amendment.
I am afraid that we could not accept this Amendment. The hon. Member who moved it said it could only affect a very small number of companies. But it would cause great complication in administration. To ascertain whether the dividend paid by a company in a particular year was in excess of the profit arising from another year, would be a really impossible task.
Imagine the I.C.I., with perhaps a million shareholders. Many of those people may have to make a return under the special levy provisions. One would have to ascertain in regard to their income—not the company's income—whether they had received in a particular year more by way of dividend than was actually earned by the profits of the company. One would have to discover how those profits had been distributed, what sums had been put to reserve, and all the rest of it. It might well be that one would have to decide whether the use of a dividend equalisation account could be taken into account, in addition to various other matters. One would not be dealing with the company but with the shareholder. It would not be possible to investigate all the accounts of the company. There would be no right or power to do that. One could not get that information except by a complete investigation of the company's accounts for that purpose. Even if that were desirable, it would not be practical or possible.
There is one small aspect which I do not think comes quite under the general ban which the Chancellor has put up. I refer to Section 21 of the Act of 1922. I can imagine conditions under which a company came under review, leading to a really spectacular payment during the year of assessment. I ask the right hon. and learned Gentleman to consider the case of such companies as having a special convenience in administration which can be put into effect without the dangers which he has described. From its very nature, that type of company has come under the very special attention of the Commissioners. They know all about it. They may say to that company, "All your past reserves which you have accumulated must be distributed this year." If that is done we will have a precise figure, a precise and limited situation. I ask the Chancellor, between now and Report stage, to consider whether he would view favourably an Amendment designed to cover this kind of anomaly?
While appreciating that there may be some administrative difficulties in this Matter, could we have an assurance that, when the Special Commissioners are authorised to make an appropriate adjustment of the contribution, they should be permitted to take this sort of consideration into account?
It would be impossible to give the Special Commissioners the right to take this into account. It would either be meaningless, and they would not take it into account, or it would be a duty upon them to take it into account and they would have to enter into all the investigations which I have said cannot be carried out.
Amendment negatived.
Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."
I would like to ask whether war damage interest will be covered. When war damage interest is paid in a lump sum, it has to be considered, for Income Tax purposes, as paid in the year it is received. With regard to Surtax I understand that there are certain spreading provisions, whereby it is treated in a different way. I would, therefore, like to ask whether, for the purpose of computing liability for the special levy, war damage interest will be similarly spread. It is manifestly equitable that it should be spread.
I cannot give an answer offhand. As the hon. and learned Member knows, these matters are often technical, and there is special legislation on war damage payments, etc., but I will let him know my opinion later.
I would like to draw the Chancellor's attention to the point raised by my hon. Friend the hon. Member for Bath (Mr. Pitman). Would the Chancellor between now and the Report stage be prepared to get into communication with him and see whether he cannot work out something?
I will certainly look at it.
Question put, and agreed to.
Clause, as amended, ordered to stand part of the Bill.
CLAUSE 61.—( Relief in respect of error or mistake. )
I beg to move in page 43, line 38, to leave out from "mistake," to "or," in line 39.
This Amendment is purely exploratory—but it seems to me that if the Clause is left as it stands it does not cover a mistake in the assessment itself which does not become apparent until after the time limit.
There is no provision for repayment in the event of a mistake in the assessment, but of course in the ordinary way a contributor would receive notice of assessment, and he would be able to appeal against it. That is the position which obtains with regard to Income Tax and Surtax: this is an analogous procedure on the model of Income Tax and Surtax. If one gave a general right of repayment because of any sort of mistake whatever it really would be extremely difficult ever to reach finality in these matters. Records are put away and filed and after some time they are destroyed and one cannot have hanging over the head of the authorities the right to make claims for repayments arising from all sorts of mistakes, unless they arise from some specific documents like the return made by the taxpayer or something of that sort: that is the experience with Income Tax and Surtax and the system works perfectly satisfactory.
What is the position in the event of a mistake in the law? We have had the most unfortunate cases where the Revenue authorities have refused to refund taxes paid after a mistake in law, even when that mistake has been induced by their own ruling. I should like an assurance that "errors" and "mistakes" will cover mistakes of law as well as mistakes in cash.
I can give that assurance.
Amendment negatived.
4. 45 a.m.
I think that the next Amendment has been covered.
Can it be moved formally?
If that is the wish of the hon. Member.
I beg to move, in page 43, line 39, after "contribution," to insert:
"or for the purposes of the Income Tax Acts or by reason of any return used by the Special Commissioners under Subsection (2) of Section fifty-four of the Act not having contained sufficient information for the purpose of such assessment."
The Amendment would extend the claim for repayment to cover a return made for any purpose. The person can, of course, raise any matter which he thinks is wrong with the assessment by way of appeal.
In view of that explanation, I beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
I beg to move, in page 43, line 45, at the end, to insert, "and the interest thereon."
It is provided that the Special Commissioners can authorise any appropriate adjustment of the Contribution. It would appear that it is necessary to include interest, because under an earlier part of the Bill the Contribution and interest are dealt with separately.
It will be found that there is provision under Subsections (3) and (4) for the repayment of interest.
In view of that explanation, I beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
I beg to move, in page 44, line 4, after "paid," to insert:
"or from whom it was recovered."
This is a drafting Amendment, and it provides that where a payment has been recovered and is to be repaid it shall go back to the person from whom it was recovered.
Amendment agreed to.
Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."
Is there any significance in the words "error" and "mistake," or is there some old-established interpretation of these words?
As I have said, this Clause is based on the Income Tax and Surtax provisions, which include these words. To make certain that we followed the whole apparatus we thought that we should introduce the same words.
It is based purely on tradition?
Not entirely. Words which have been used in previous legislation have been construed and acted upon, and if we adopted different phraseology it might be thought it was intended that there should be some alteration in meaning. Therefore, it is safer to use that phrase.
I do not press the point now.
Question put, and agreed to.
Clause, as amended, ordered to stand part of the Bill.
Clause 62 ordered to stand part of the Bill.
CLAUSE 63.—( Interpretation of Part V. )
Motion made, and Question proposed, "That the Clause stand part of the Bill."
There is one point which I wish to raise with regard to the definition of the income of an individual arising out of a trust. I had a case of this kind brought to my notice very recently. Long before this imposition was ever conceived by the brain of the Chancellor of the Exchequer the tenant for life had assigned his equitable interest to a company, and the income of the life tenant had gone straight to the company from that time onwards. It is, in fact, the only income of the company. The life tenant and the other members of his family received their income by way of dividend from that particular company. If that life tenant and other shareholders, who receive their dividends from that company, are liable to this capital levy, as I understand the Clause, unless this definition of the income of an individual arising under a trust is made a little wider, there will be no right of recovery by the shareholders and the private company against the trust funds, because of the way in which this private company is created.
The extension of this definition will not affect the amount which the Chancellor will collect, but it will obviously bring into line the position of people who are really the beneficiaries of a trust, receiving the proceeds of the trust indirectly through a private company. Such a case is not covered in the Bill. I had hoped that the words I had on the Order Paper would, in fact, have covered the point. If the Chancellor is not ready to deal with the matter now, I hope he will give it careful consideration and will seek to meet it at a later stage.
I had not quite understood from the hon. and learned Gentleman's Amendment on the Paper what he was after. I appreciate from what he has said the idea he has in mind, and perhaps he will let me look into it in the light of his explanation.
There is one point I should like to put to the Solicitor-General for Scotland if he is present. The Clause states that:
"the expression 'tenant for life' means, in relation to any settlement, any person who has the powers of a tenant for life under the Settled Land Act, 1925, or in Northern Ireland under the Settled Land Acts, 1882 to 1890."
I should like to ask whether this expression in regard to a tenant for life appears in the Settled Land Act, 1925, and whether it is made applicable to Scotland, because it is a matter of doubt whether that is actually an expression which is satisfactory in Scottish law. I would be grateful to have some reassurance on the point.
The point which has just been raised by my hon. and gallant Friend the Member for Perth and Kinross (Colonel Gomme-Duncan) was precisely the point I was going to raise. I have been listening for some time now to the Chancellor of the Exchequer and other lawyers, and I always notice that, if there is anything of this kind referring to an Act of the type of the Settled Land Act, and where an Act of Northern Ireland is brought in, it is necessary for some phrase to be brought in to cover Scotland. It would be rather a pity if the whole of this Clause became inoperative or over-operative as far as Scotland is concerned. It gives me great annoyance that this industrious race of Scottish people having produced one Law Officer he should not be here. It is a shocking position.
In fairness to the Solicitor-General for Scotland, he was here quite a short time ago.
I have no doubt he was, but the fact is that now is the time he is wanted, and by his own fellow countrymen. If we are to have a reply from an English Law Officer I am bound to accept it, but I am sure that it would not be acceptable if the Scottish Members who usually sit behind the Government were here. They would make an awful fuss about it.
The Scottish draftsmen and legal authorities were consulted on this point, and they thought that no adaptation was necessary and that the Clause was satisfactory as it stands.
Are there actually any Scottish draftsmen?
Are we being given accurate information on this?
I would like to take the opportunity, on this definition Clause, which applies to the whole of this Part of the Bill, to find out what really is the meaning of the word "income." It is possible that a football pool dividend, which can be very big and can all fall within the year of assessment that we are discussing, might come under Clause 48. Subsection (2) of Clause 63 says:
"Save as expressly provided in this Part off this Act, expressions used therein have the same meanings as in the Income Tax Acts."
But Clause 48 really arrives at a definition of investment income, and it begins by excluding earned income altogether, and says that income that is not earned is therefore investment income—with certain exceptions in which dividends from football pools are not included. Would it not be advisable in this definition Clause to make clear what I imagine to be the intention of the Government, that they do not wish the receipt of a big football pool dividend by a relatively poor man, who has investment income of not more than £250, to make him liable for a really swingeing amount both on the football pool dividend and on the other? Here again, as in many other cases, he will not have the capital behind him.
5.0 a.m.
"Income" is a term used almost every day in a variety of contexts and connotations. It is one of those terms which, although it is employed day in and day out in the business world, is impossible to define. If the hon. Gentleman were concerned with tax cases that come before the courts as much as some of us in this Committee are, I think he would know this is one of the most vexed questions. Payment made as a result of pool winnings could, I think, in those circumstances, be regarded as income, but it would be treated as capital payment and not a payment of income. "Income" is as difficult to define as "investment,"
Provided that that is clear I am quite satisfied.
May we now clear up the point about the Scottish draftsmen? I think it ought to be made clear.
Question put, and agreed to.
Clause ordered to stand part of the Bill.
Part VI.—(The Profits Tax.)
CLAUSE 64.—( Payments of interest, etc., between connected companies. )
Having regard to the fact that most of the Amendments seem to have been met by the Amendment in the name of the Chancellor of the Exchequer, I gather it would be for the convenience of the Committee to call only the Chancellor's Amendment on this Clause, and for the discussion to take place on that.
There is one Amendment which, perhaps, does not fall quite within that category; that is the Amendment in the name of the hon. Member for Edgbaston (Sir P. Bennett), in page 45, line 33, to leave out from "by," to the third "of," in line 34, and to insert:
"the same percentage of the amount of the payment as has been paid by the payer or that percentage."
Would it not be desirable to take that Amendment before the Chancellor's?
I was given to understand that those responsible for the Amendment in the name of the hon. Member for Edgbaston (Sir P. Bennett) agreed with my view. That being so, perhaps any point arising could be raised on the Chancellor's Amendment.
I beg to move, in page 46, line 3, at the end, to insert:
It was pointed out that the effect of that provision in the anti-tax evasion Clause might operate very unfairly in the case of certain group companies. It might bring it about that the proportion of what is called in Profits Tax law the gross relevant distributions which ranks as net relevant distributions, and, in consequence, attracts Profits Tax, is too high. In these circumstances the hon. Member for Edgbaston (Sir P. Bennett) put down the Amendment, among others, to which attention has just been called. He wanted to adjust the fraction in such a way as to offset that excessive increase in the fraction. What we have done is to provide that by an election made at the appropriate time and in the appropriate form, both groups of companies, those which have not elected for what is called group treatment for the purpose of Profits Tax, and also those companies which have so elected, can opt that that Section of which I spoke, namely, Section 42 of the Finance Act, 1938, and Clause 64 of the present Bill shall not apply to them.
I think I am right in saying that the hon. Member for Edgbaston feels that this does meet the point he has in mind to prevent. In event of such an election being made, that undue increase of the fraction of the gross relevant distribution which ranks as net relevant distribution and accordingly qualifies for attracting Profits Tax liability, will be avoided. If the group companies so desire, they can elect to go outside these two sections, altogether. That meets the point sought to be met by the Amendments, and prevents this unduly inflated fraction of their profits from being liable to attract Profits Tax.
Was not the Solicitor-General a little unfair in saying, in his introduction to this Amendment, that it was drafted to prevent evasion? That is not necessarily so. The transfer of interests between a subsidiary and a parent company is perfectly normal practice, and am I not right in saying that it is believed that the object of this Clause is to correct the flow of Profits Tax arising out of the differentiation between distributed and undistributed profits? The Solicitor-General's interpretation, which I think was wrong, of my hon. Friend's Amendment provided that the interest shall be allowed to the company paying it and taxed in the case of the receiving company. Am I right in gathering from what the Solicitor-General said that the Government's Amendment will make a complete offset as between the parent company and the subsidiary?
If election is made, it takes them altogether outside the section. It leaves them in the position they would be in if they were outside the sections altogether. That cannot cause hardship.
I cannot accept that. I put a simple question deserving a straightforward answer. I asked whether it really meant a complete offset of the interest payable between a parent company and a subsidiary company, or the reverse, because while one has a differentiation in the rate of Profits Tax there is bound to be that adjustment, and my hon. Friend was intending to bring that about. It is quite unfair to argue this point if the Government assume that this Clause is to prevent an evasion of tax. It is really done to adjust a perfectly reasonable business transaction which is going on all the time.
I was referring, of course, to the 1938 Act when I used that term. The effect of the Clause is that interest payments will be included in the profits of the parent company, and will be deducted from the profits of the subsidiary company which pays the interest.
Amendment agreed to.
Clause, as amended, ordered to stand part of the Bill.
CLAUSE 65.—( Repayment of loans treated as gross relevant distributions. )
Motion made, and Question proposed, "That the Clause stand part of the Bill."
I would like to ask for one word of explanation on this Clause. It appears to be designed as a kind of drafting Amendment to deal with a flaw in the 1947 Act. I would like to ask if that is so.
Section 36 of the Finance Act, 1947, provides that certain payments made by a company to directors and other persons rank as what are called gross relevant distributions. They form part of the gross distributions of the company which, when reduced to what are called net relevant distributions, rank for a payment of Profits Tax. The difference between gross and net distributions is that in order to reduce gross to net distributions, it is necessary to take account of what is called franked investment income. That means income which a company has got from a company which has already paid tax upon that income. In order to scale down the gross distribution of the company, one has to apply a fraction of its total distributions attributable to that part of the income which has already paid tax.
Section 36, having provided that, if payments were made by such a company they should rank as part of the gross distributions, also provided that if the payments were repaid to the company there should be a corresponding rebate in the tax. As the Clause was drafted, it was found that the rebate had not been quite properly worked out. It was found that it was not high enough, and was therefore unfair to the company. By reason of this inter-relation between gross and net distributions, the wording of Section 36 did not give a sufficiently high rebate. What we are doing in this Clause is to increase the rebate on this tax which is given to the company in the event of such payment which it 'Chas made being repaid to it by the person to whom it was made. It is a measure of justice to the company, and also to correct a flaw in the drafting of the 1947 Act.
Question put, and agreed to.
Clause ordered to stand part of the Bill.
Clause 66 agreed to.
Part VII.—(Stamps.)
Clauses 67 to 69 ordered to stand part of the Bill.
Part VIII.—(Miscellaneous.)
CLAUSE 70.—( Estate duty where policies kept up or effected under settlements. )
5.15 a.m.
I beg to move, in page 49, line 24, after "deceased," to insert:
This Clause, we understand, arises out of a recent decision of the court in which an insurance policy was held not to be within the statutory provisions relating to Death Duty. We suggest in this Amend ment that gifts of life insurance policies should be brought into line with other gifts of property and not treated differently. This would have the effect of seeing that gifts would be caught by this Clause only if made within a period of five years before the death of the donor. We think this is an eminently reasonable proposal and hope the Government will see their way to accept it.
I am sorry that we cannot see our way to accept this Amendment. The hon. and gallant Gentleman will agree there is no case for it when he realises what the object of the Clause is. The object is to prevent a form of evasion of Estate Duty which at the moment is not too difficult. As the hon. and gallant Gentleman stated, there was a case, Barclays Bank against the Attorney-General, decided in 1944, which brought to light a comparatively easy method of evasion.
It arises in this way. Under the Customs and Inland Revenue Act, 1889, money received under a policy effected by any person where the policy is wholly kept up by him ranked as his for Estate Duty purposes. That applies to most policies, but what was decided was this. In that case a trust had been established and curtain income-bearing assets were transferred to the trustees and they were told to pay premiums on the policies out of the income. It was argued that, as the trustees paid the premiums out of these income-bearing assets transferred to them, it could be said that the policy had been effected by the deceased person, but it could not be said that it was kept up by the deceased person and it was not, therefore, subject to Estate Duty. It was decided against the taxpayer in the King's Bench Division and by a majority decision of the Court of Appeal, but the House of Lords took another view and that is now the law of the land.
It would be easy to avoid Estate Duty by arranging two trusts into one of which the testator put money, and into the other of which his wife would put money. The wife would pay the premiums, and the husband's fund would refund the wife's trust. That would be a very easy way of evading Estate Duty provisions, and this Clause is designed to stop that sort of evasion. It is designed to stop what is a form of tax evasion, and there is no case for assimilating it to gifts inter vivos. It cannot be said that the same measure of protection can be afforded to what are really tax evasion schemes, and I hope the hon. Gentleman will agree that his Amendment ought not to be accepted.
I put my name to the Amendment and I support it, but it was never my desire or intention that this Amendment should try to deal with the narrower point of the evasion of duty which we on this side, just as much as the Government and their supporters, agree should be stopped. But we feel that the Clause, as drafted, is far too wide, and it may be that the words which we have got in our Amendment are not quite the exact words; the Amendment may be badly drafted, and not to the point, but there is no sort of arrangement which is excluded. There is no limitation of time whatever, and the exact wording of the Amendment may be such that the Government could alter it. I ask the Solicitor-General to look at this again between now and the Report stage in order to see whether it is not necessary to put in some limitation of date in this Clause.
I do not wish to imply that right hon. and hon. Members opposite desire to have tax evasion, but do hope they will think that the protection they wish to afford ought not to be afforded. There is no case for the five years period being applicable to the sort of scheme covered by this particular Clause.
I am grateful to the Solicitor-General. This is a complicated and rather difficult matter to discuss at this hour in the morning, particularly with all the giggling which is going on among hon. Members opposite. A number of hon. Members opposite are not following the proceedings. They have not been following them for a long time. In the circumstances it is difficult to discuss serious business. I am grateful to the Solicitor-General for his explanation. I feel that he put his case rather too strongly. When these gifts take place in the five-year period I think the word "evasion" is rather a strong one. We would like to look at this matter again between now and the Report stage and, perhaps, put down another Amendment. I beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Clause ordered to stand part of the Bill.
Clause 71 ordered to stand part of the Bill.
CLAUSE 72.—( Extension of time in relation to relief from excess profits tax for terminal expenses. )
I beg to move, in page 51, line 13, at the end, to insert:
"or such later date as they may allow."
On Clause 32, the Committee agreed to a similar series of Amendments as the series of which this Amendment is the first. I am sure that hon. Members will accept the Amendments to this Clause in respect of Excess Profits Tax.
Amendment agreed to.
Further Amendments made: In page 51, line 19, after "March," insert:
"or such later date as they may allow."
In line 22, leave out from "before," to "the," in line 23.
In line 24, after "forty-nine," insert:
"or such later date as the Commissioners may allow."—[ Mr. Marquand. ]
Clause, as amended, ordered to stand part of the Bill.
Clause 73 ordered to stand part of the Bill.
CLAUSE 74.—( Provisions as to permanent annual charge for the National Debt and as to the Old Sinking Fund. )
Motion made, and Question proposed, "That the Clause stand part of the Bill."
Although it is almost half-past five in the morning, I do not think we ought to pass this Clause without noting that the permanent annual charge for the National Debt for the financial year ending 31st March, 1949, will be the sum of £500 million instead of the sum of £355 million.
Question put, and agreed to.
Clause ordered to stand part of the Bill.
CLAUSE 75.—( Certain Defence Bonds and Savings Certificates issued by the Government of Palestine to form part of the National Debt. )
Motion made, and Question proposed, "That the Clause stand part of the Bill."
May I ask the right hon. and learned Gentleman in what circumstances we have assumed this liability; what is its extent; and whether we have any recourse against Palestine funds in our possession or against successor Governments, if and when they are established?
This Clause provides, as is obvious, for the Savings Certificates and Defence Bonds which were issued by the Palestine Government. It provides that we should treat them as if they had been issued by the United Kingdom Government. During the war, the Palestine Government were asked to issue such bonds in Palestine currency for the purpose of helping the war effort. They were made under the Palestine War Loan Ordinance of 1941. The terms of issue were prescribed by rules made by the High Commissioner. In fact, the terms of issue corresponded very closely to those of the National Savings Certificates and the Defence Bonds issued in this country.
The High Commissioner was also empowered to lend any money so raised to the Government of the United Kingdom for the prosecution of the war. The whole of the money has been so lent. As a security for the loan, the Treasury has issued to the Crown Agents for the Colonies, on behalf of the Palestine Government, a series of Treasury Certificates for amounts which are repayable to the Palestine Government as and when that Government make repayments to the holders of the certificates and bonds in Palestine. As a matter of fact, considerable sums have already been repaid and the amounts outstanding at present are: Savings Certificates, £238,100, and Defence Bonds, £332,800. Many British Service men and others now resident in the United Kingdom were encouraged to buy these Palestine certificates and bonds and they did so under the impression that they were, in fact, substantially guaranteed by the United Kingdom Government, and the prospects are that the holders will not be able to obtain repayment in Palestine or anywhere for some period of time because of the difficulties of the Administration.
5.30 a.m.
In the interests of the Government's credit, we therefore decided that the United Kingdom Government should take over direct responsibility for the amount of the Palestine certificates and bonds still outstanding. That will be done by arranging for Post Offices in the United Kingdom to take over the dealing in these certificates en bloc and administer them with the corresponding securities of this country. Therefore, the holders will be able to take interest and repayments from any Post Office or Post Office agency in the United Kingdom. We thought that was the right and proper thing to do.
May I ask why the British Government's guarantee does not also cover the one per cent. Palestine Government Bearer Bonds? Palestine policemen and Service men in Palestine were, I believe, encouraged to buy these bearer bonds in exactly the same way as the other securities covered by this Clause.
I cannot answer that question but I am making inquiries. The intention was, in regard to all the securities issued during the war, that the proceeds were handed over to us as a loan and the liability should be taken over.
Will the right hon. and learned Gentleman look into this, as there is some dissatisfaction about it?
Certainly, I will look into it.
Question put, and agreed to.
Clause ordered to stand part of the Bill.
Clause 76 ordered to stand part of the Bill.
Committee report Progress; to sit again upon Monday next.
Textile Industry
Motion made, and Question proposed, "That this House do now adjourns."—[ Mr. Joseph Henderson. ]
5.34 a.m.
I am sorry to detain the House at 5.33 in the morning, but the subject I want to raise is that of the textile industry in my constituency and the situation is so serious that I am sure hon. Members will appreciate that I am fully justified in raising this matter even at this very extraordinary hour.
Macclesfield is well known for making very high quality silk goods. In fact, the bulk of the silk is made in that town and a very large proportion is exported, particularly to the hard currency areas. That has been going on steadily since the end of the war, and the unfortunate thing is that the industry is only allowed 5 to 10 per cent. of their total production to experiment with and for home consumption. On top of that they have now had the Purchase Tax increased to 66⅔ per cent.
Retailers have to pay the Purchase Tax when they take the goods into the shops. One London store has paid one million pounds in Purchase Tax and is unable to sell the goods. Consequently, they are not placing any repeat orders other than for utility fabrics. The situation is serious because it is causing unemployment in my division. Last week-end, one firm of hand printers had to pay off 45 men. In any textile town it is usual to employ women, and when 45 men are paid off in one factory it is a very serious problem. In my view, this is just the beginning of our real difficulties, and something must be done to put the matter right before the situation deteriorates. I have a letter here from one of the leading manufacturers, who deals with silk, rayon handkerchiefs and scarves. It states:
Industrialists in my constituency feel that if the situation continues for another 12 months many hand-printers will have to close down because they will be out of business. The last thing this Government wants is unemployment, and I beg of them to deal with this situation before it gets out of hand. Steps can be taken to-day to unload these goods and get them out to our own people, and we can sell them abroad. I admit that the exports have been disappointing to some extent, but nevertheless good results have been achieved in spite of the many difficulties, particularly regarding currency difficulties in South America, which has always bought high quality silk goods from Britain.
The argument can be made that we want to concentrate on non-utility goods because we want to get labour into these mills and factories, but when we export high quality silk, with a highly specialised and beautiful design, out to America, the designs next year are copied by the utility goods. If we cease to produce high quality goods it is only a question of time before the textile industry as a whole will close down. To have a good export business it has to be linked up with the home trade. The manufacturers have to find out what are the ideas of the people and what are their reactions to the new designs. It is absolutely necessary to have a home market.
I would suggest to the hon. Gentleman that he consults his right hon. Friend and tries to get the allocation increased from 5 to 10 per cent. or even to 15 per cent. I believe that an increase to the latter figure would be very satisfactory. If the Chancellor could read what is being said in this Debate and reduce the Purchase Tax to 33⅓ per cent., which it was a year ago, it would help enormously. If the present position continues it will bring about unemployment and the foreigners like the Italians, the French and the Japanese, will be placed in a much more favourable position than are our own manufacturers. To give one example, the Purchase Tax on cloth costing 2s. a yard in grey with four colours bears a tax of 4s. 8d. a yard That tax should be reduced.
I have one final point. There is a tremendous shortage of dye stuffs in Great Britain and printers are unable to get good quality dye stuffs. In fact, most of them are not able to get any at all from the manufacturers. I am told that in many cases dye stuffs are exported in bulk to the detriment of our own people at home. This is something which should be looked into. I have here copies of letters from Imperial Chemical Industries going back to October, 1947, in which they say they regret they are unable to supply the orders. In one or two cases a printer might get 20 lbs. of dye. That is a hopeless situation. I ask the hon. Gentleman to look into this matter and do all he possibly can to prevent unemployment. By doing so he will help our exports and also the women of this country, who want to buy these things, particularly if the counpons were greatly reduced. I hope he will be able to do something in that line.
5.43 a.m.
I am sure I am speaking for Members on this side when I say that we are grateful to the hon. and gallant Member for Macclesfield (Air-Commodore Harvey) for taking up this matter. Being in the constituency which is next to his, I should like to point out to the Minister that both in Macclesfield and Leek this industry contributed towards the war effort and at the present moment is a dollar-earning industry. While I am not able to confirm all that he said, I can confirm most of it from information which I have got from manufacturers in the Leek constituency. I beg the Minister, in no partisan way, to pay due and close attention to the words spoken by the hon. and gallant Member for Macclesfield.
There is one point I should like to make. I wonder if it is possible to increase the allocation so that the surplus can be allowed to go to the home market. Finally, we are concerned in Leek and Macclesfield and other areas engaged in silk and rayon with the impending possibility of Japanese competition when the Americans have geared up Japanese industry. I assure the Minister that none of us is looking at this in any partisan fashion. We want the Government to give the best possible attention to this very valuable industry that exists in the constituencies of Leek and Macclesfield, and in parts of Lancashire.
5.45 a.m.
I am very glad my hon. and gallant Friend has raised this subject, and I would like to support all he has said, and what the hon. Member opposite has said too. I only want to make one point very briefly. First, I ought to declare my interest, because I am—or was, until I took up the day-and-night-shift job on which I am engaged at this moment—a textile manufacturer. I do not want to complain because the textile industry is in for what I believe will be a difficult and rather painful stage. That is the kind of experience that is normal in business, and we do not expect the Government to provide the industry with a feather bed. But I am very worried indeed about one point. That is, that I believe that the Government are, unintentionally, creating an almost insuperable obstacle to the development of export trade in high quality rayon piece goods and dress materials, and dresses made from them, owing to the enormous price gap which exists, because of Purchase Tax, between the prices of utility and non-utility fabrics.
I can illustrate what I mean by quoting the instance of a company with which I am familiar. This company concentrates its production on high quality fabrics. Its turnover is approximately 50 per cent. for export trade, about 40 per cent. on utility fabrics for the home market, and about 10 per cent. on non-utility fabrics for the home market—that 10 per cent. being about the limit which it is at present allowed. In its export trade it is competing with the highest grade manufacturers on the Continent and in America. In the short term it is possible to do a certain amount of export trade in utility materials, but not, I believe, for this country, in anything more than the short term. In the long term, we must concentrate on the production of the highest quality textiles generally.
The point is that all production development, all research, all new trials and fashion tests, have to be confined now to this 10 per cent. of non-utility production for the home trade. These sales are now in jeopardy. For non-utility fabrics it is proposed that the purchase tax should be 66⅔ per cent., for utility, nil, and for dresses made out of non-utility fabrics 33⅓per cent. Today the public are becoming not only price conscious but definitely Purchase Tax resistant. The President of the Board of Trade has recently given concessions on coupons, but it is clear that the limiting factor is no longer shortage of coupons so much as the unwillingness of the public to pay prices swollen by Purchase Tax.
The consequence of that is that it is becoming increasingly difficult for the manufacturer at home to sell even the tiny proportion of non-utility production in the home market which he is permitted, because the gap is too wide between the 66⅔ per cent. tax and nil. It is a fact that prices of utility fabric are artificially low, and to some extent manufacturers have to subsidise their turnover on utility fabrics from this scanty proportion of non-utility. In the face of this situation manufacturers have obviously to cut their prices for non-utility fabrics to the bone.
It is also clear—and this is the point I want to make—that the President of the Board of Trade ought to reconsider the proposed rates of Purchase Tax on non-utility rayon piece goods, particularly the new rate of 66⅔, not in the interests of the manufacturers or the merchants or the makers-up, but in the interests of the future textile trade of this country.
Would my hon. Friend allow me? I do hope he will excuse me, but I would draw his attention to the time. We have only 10 minutes left, and we do want to get the Minister's reply.
I shall sit down in a minute. I agree we want to know the Minister's reply. When the war ended the prospects for capturing new markets with high quality products of this kind were bright, and a good deal of progress has been made, but I think the whole thing is in hazard now owing to the penal rates to which I have referred. I hope the Government will see the red light and take appropriate action before it is too late.
5.52 a.m.
The hon. and gallant Member for Macclesfield (Air-Commodore Harvey) surprised me when he said there was a problem of unemployment here, and I should be obliged if he would tell the House why operators are not being kept in work in Macclesfield at the present time. I imagine that all the goods we can manufacture are wanted for overseas. I do not know of any country in the world that produces goods of better quality than are produced at Macclesfield at the present time. Would the hon. and gallant Member tell the House what kind of operators are unemployed at the present time?
I said that one firm last weekend had to dismiss 45 men in the hand-printing trade. I said unemployment was beginning, and that I feared that, unless something were done, it might grow. It has just started, but I felt it right to bring the matter to the attention of the Government at this stage. So far as goods are concerned, goods are not selling as they did six months ago, and warehouses are becoming full.
5.53 a.m.
I thank the hon. and gallant Member for Macclesfield (Air-Commodore Harvey) for raising this matter. He talked about silk as such. But silk manufacturers do not deal exclusively with silk alone; they do work in rayon and other fibres, and then they do not meet the same difficulties as he has narrated in the case of silk alone. He mentioned that stocks were accumulating, and said that that had something to do with the fact that we did not raise the coupon concession. That may be so, but I think I ought to point out that the coupon concession was for the purpose of reducing stocks of goods meant for supply in the home market. Stocks of silk have been built up because they were meant for export and there have been difficulties in the markets overseas. We cannot possibly at this stage consider letting goods go that have to be exported in order to obtain us the raw material and food we require, just to flood the home market, until every effort has been made to see if the goods can be sold abroad. However, I recognise that this is a strong point. I can say that we have a committee looking into the matter. I cannot say that anything will be done, but the points the hon. and gallant Gentleman has made will be taken into account.
It is most urgent.
It is also urgent that we should export goods, or else we shall not get in return the valuable things we want.
Will my hon. Friend please bear in mind that in order to capture the export market and maintain our exports we must have development of non-utility lines at a cost which will be competitive in the export market? One of the difficulties is that if one restricts home consumption one adds enormously to the costs in the export trade.
That may be true in part but one is faced with the difficulty, that one has to see that a particular share must go overseas. That has been done in other industries, and must be done if we are to make our economy work and give the maximum benefit to all. We say that in this industry two-thirds should be exported. I accept that stocks are accumulating and I have given a promise that the committee concerned will have a look at it. With regard to the suggestion that Purchase Tax is one of the limiting factors, and that silk cannot be sold because of it, that is quite wrong. The limiting factor is the amount of silk available. It is bought up as rapidly as it appears on the market. I think I ought to correct the hon. Member for Tiverton (Mr. Amory), who suggested there was a Purchase Tax on silk exports. There is no Purchase Tax on goods exported.
I am sorry I did not make my point clear. My point was that the high 66⅔ Purchase Tax on the non-utility product now for sale in the home market was bringing to a mimimum the sale in the home market on which all future export trades depend.
We have no evidence of that. In connection with figured fabrics of silk, as hon. Members know, the tax is being reduced from 125 per cent. to 66⅔, and I should think that is going to be very helpful in meeting this point.
I made it clear that I was dealing with high quality rayon pieces and not silk.
I did not take it in that sense, but I accept the hon. Member's statement. From our evidence there are satisfactory sales taking place, and Purchase Tax is not the limiting factor.
With regard to dyestuffs, these are in short supply not only in this country but everywhere. I have no evidence that there is too great an export of them on our side so perhaps the hon. and gallant Gentleman can give me information about that. We are doing all we can to increase production. The limiting factor is availability of raw materials, which we have to obtain by bargaining means, and we have at this stage to restrict capital expenditure and to some extent that too limits the amount of dye stuffs that can be made available. However, I will take note of the point.
With regard to the unemployment question which was mentioned I am afraid I do not share altogether the feeling of the hon. and gallant Member that it is as bad as he makes out, though naturally I accept that we do not want any unemployment at all. I did get some figures from the Ministry of Labour about unemployment in Macclesfield and over a wide range from December, 1947, until last month of this year the monthly figures were: December, 1947, two men; January, 1948, two men; February, one man; March, one man; April, two men; and May, one man, three women.
I did say that unemployment had only just started, and when the hon. Gentleman says he does not appreciate the difficulties in selling I would extend an invitation now for him to come to Macclesfield, and I will arrange for him to visit the mills and learn quite a lot about the industry.
I accept that. All industries now are having difficulties overseas and if the silk industry is feeling the export markets are hardening and that they cannot sell their goods easily I accept that also. I am going to see the matter is looked into by this committee.
That is a recognition that there are difficulties. But these difficulties exist because other countries have balance of payments problems, and are putting up import restrictions and all kinds of barriers. We try to overcome them in various ways. One way in which we try to do so is by means of bilateral trade agreements. We see to it that when we have a trade agreement with some country that we make provision for them to take what are known as less essential goods, and we make sure that these consumer goods are included in the trade agreement. The silk industry will not be forgotten. It has not been forgotten in the past, and in forthcoming trade agreements we shall have to be the more ready to see that provision is made for those industries in which unemployment is beginning to show itself.
May I make an urgent appeal to the hon. Gentleman to have regard also to the difficult position in the cotton and linen sheet industry? The trade is quite capable of supporting a much bigger allocation to the home market and at the same time increasing its export trade.
The work of the committee I have mentioned is not confined solely to this one matter of silk and rayon. I have given answers in regard to silk, but I naturally take note of what the hon. and gallant Member has said. With regard to these export markets, I think I ought to say, in fairness to the industry, that we know there are difficulties and that the industry has done a really good job. I am fortified in the assistance which I hope to be able to give by the knowledge that the industry has not slacked. It has difficulties, as many industries have, and I hope that it will, with our assistance be able to break through them.
Regarding stocks which have accumulated, there will be ways in which benefit can be given as a result of recent concessions. For instance, if the price is reduced to half the legal maximum amount or less, there can be reduced coupon rates. The industry can benefit in the same way as other textiles.
Costs have gone up. It is not possible.
I know that costs have gone up. It is unfortunate that we had to buy before the Japanese came into the market. They have now brought more materials forward, and prices have fallen. But other textile industries have been faced with the same problem and they seem to recognise that this concession whereby half coupon rates prevail, subject to the bargain sales, will be of advantage to them. Silk ties will be coupon free, and silk goods will benefit in the way I have mentioned.
The Question having been proposed after Ten o'Clock on Thursday evening and the Debate having continued for half an hour, Mr. DEPUTY-SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
Adjourned at Four Minutes past Six o'Clock a.m.