Clause 40. — (Interest on certain loans not to be treated as profits for purposes of Corporation Profits Tax.)

Part of Part Iii. – in the House of Commons at on 20 June 1921.

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Photo of Sir Robert Horne Sir Robert Horne , Glasgow Hillhead

The names on the Order Paper attached to the various Amendments make it perfectly clear that you cannot divide the House on any such principle. I, for one, decline to have myself written down as a supporter of one side or the other, because of the general character of my political opinions. No one is more ardent than I am in the tribute I am prepared to pay to the very great work which the Co-operative movement has done in this country. It has been referred to as a great movement towards thrift, and I am perfectly certain that, no matter how prejudiced any individual trader might be, he would be compelled to acknowledge the truth of the claim made for the Co-operative movement that it has probably done more to encourage thrift among the masses of our people than any other single factor of which we are aware. Accordingly, I approach this topic with every desire not only to do justice by the Co-operative movement but even to act generously, because of the feeling which I have that it deserves every support that people who value the institutions of this country can give, and I should like to endorse what my right hon. Friend the Member for the Gorbals Division of Glasgow (Mr. G. Barnes) said, that it is a great, stabilising influence amongst the mass of our people to-day.

Let us approach, accordingly in that spirit, the question as to whether the co-operative movement should be liable for any duties under the Corporation Profits Tax. We have for long in this country recognised the immunity of the co-operative society from Income Tax upon the proceeds of their trade, and even their immunity from Income Tax upon the investments outside of the co-operative societies themselves. I do not. know whether my hon. Friend the Member for Central Edinburgh (Mr. W. Graham) would go so far as to say, not merely that they should pay Corporation Profits Tax upon such investments, but whether they should pay Income Tax. I do not know, and perhaps it is not relevant to the present discussion. But, at any rate, we have recognised their immunity from the ordinary Income Tax law of this country. But the Corporation Profits Tax is something quite new, and it is well to look at the basis upon which it is founded. The theory of a Chancellor of the Exchequed who looked round for some new tax was that corporations enjoyed special privileges under our law, and they do. They have a perpetual existence. They do not become liable to the ordinary obligations which others coming into succession from time to time endure; and, in the second place, they have a system of limited liability which enables individuals to become members of them with confidence that they will not be required to pay more than a certain limited amount of money, no matter what happens. Those are great privileges. Incidentally, they have enormously increased the trade of this country, and been the soul of enterprise in many fields of venture, and it was thought not to be inequitable that corporations, as such, should pay something for these privileges. They are corporations of individuals and every one of them enjoys the privileges which the law in this respect confers.

Could you, therefore, upon any ground, say that the co-operative societies, which in that respect are upon the same platform as all other limited companies, should escape from paying something for that privilege? Do not let us talk about it in the meantime as profits, but let us say that every corporation ought to pay something by way of tax for the privilege that it enjoys as a limited company, carrying on its business under these immunities. It was found that, so far as the ordinary corporation was concerned, the profit which it earned formed the most convenient basis upon which to assess the measure of its liability to the State for some form of revenue, and, accordingly, in the case of the ordinary corporation, the Profit Tax applies. Now you come to the co-operative societies. What can you get that seems in a similar position? Do not let us get into a squabble as to whether they earn profits or not, but let us see where they stand. They enjoy the possession of property which they themselves occupy. They draw rents from property which they let. They draw interest upon large investments outside of the ordinary co-operative society; and, in the last place, and in the most important respect, they have got the proceeds which they enjoy from trading. With regard to one portion of that trading, obviously, on the line of argument upon which I am proceeding at the moment, it would be unfair to tax them upon the basis of something which they divide amongst their members. We have always recognised this argument, that what is divided amongst the members of co-operative societies is, in reality, a discount upon purchases, and, accordingly, it is quite unfair to base any tax upon that part of it. But once they divide that which they regard as appropriate amongst their members, what about the balance?

The theory of co-operative trading, as the right hon. Member for the Gorbals Division has pointed out, is that you do not want to charge more than cost price and the expense of selling the article to your members. You do not want to make profit. That is the theory, and once you have distributed your dividends you are supposed to have fulfilled your obligation in that respect. But you have got something over. What about that balance? I am not going to enter into the controversy whether it is profit or not, or what you choose to call it. There is something other than that which is necessary to keep your obligation to your members to supply the goods at what they cost to supply them, and I do not think it is unfair to treat the balance as something which, whatever you call it, is a measure of the liability of the co-operative societies to contribute to the support of the State. I think that is a fair argument, and I do not think it does any injustice to the theory of mutuality of trade, or discourages that which we all want to encourage and to see prosper. But somebody in the course of debate said, "If you are going to treat the balance like that they will take care to distribute the balance in advance. If they do that, of course, you will lose the measure upon which you profess to assess their contributions to the State." But I do not believe they can do that, and I say that, not merely as a practical question, but by way of indicating a point of view as to what this balance may be considered to be. One of the reasons why you cannot do it is this: You cannot, with regard to each article, tell at any particular moment precisely what your costs are, and therefore, in selling your pound of butter or tea, assess the exact amount you ought to charge.

The Member for Linlithgow (Mr. Kidd) last year, in a notable speech on this subject, gave an illustration of five people buying a chest of tea and distributing it amongst each other at exactly what it cost. That is a prime example of mutuality of trading, but cooperative societies in these days have gone far beyond that. It is not five people known to each other that are carrying out trading operations to-day, but multitudes of people, who never see each other, and you cannot, in regard to each sale and purchase, make a calculation such as my hon. Friend produced in order to make appear to the Committee the simplicity of the whole of this operation. Believe me, co-operative trading is not nearly so simple as that to-day. Not only so, but if I am rightly informed, your distribution now of dividends is not on the basis of what each article a person bought has cost, but it is on the basis of general profit and loss over a large field of trading. You may lose on your butter and gain on your tea, and therefore you are not in a position nowadays, under your system of co-operative trading, with all its ramifications, to perform the operation of mutual division at precisely cost price. I suggest to the Committee, keeping these considerations in view, that it is not an unfair thing for the State, which gives these amenities and privileges to co-operative societies, to assess, as in the case of every other corporation, upon some such measure as I have indicated, what they ought to pay towards the upkeep of the State.

It is said, "But this is an Income Tax," or perhaps I ought rather to say that the hon. Member for Kettering said it was not an Income Tax, and one of his supporters said it was. There seems to be some dubiety as to what it is. I am confident, however, that it is not an Income Tax, which is something charged upon the individual. This is not a charge on an individual at all, but on a corporation, and just like any corporation, although the corporation pays this tax, its individual members also pay Income Tax on their incomes including the share of income they get out of a limited liability company. This is not an Income Tax at all, but it is a Corporation Tax on something perfectly separate, and it has nothing to do with the principles of Income Tax. It is said that it is a tax upon thrift. It is no more a tax upon thrift than any tax which is imposed upon us is a tax upon thrift. You may always say that because a tax takes something from what you have earned there is a less inclination to earn. Let me remind my hon. Friends opposite that if this is a tax upon thrift, it is not the only tax upon thrift. There is a much more severe one that applies to the Income Tax payer. What is unearned income but the savings of thrift? Yet unearned income is far higher taxed. If I make £500 a year and buy with the extra £100 some stock or share, immediately the stock or share I buy with that extra £100 becomes something yielding unearned income, and is more highly taxed than if I earned it, although in point of fact it is the earnings of my labours. Therefore, keep in mind that the Income Tax payers of this country who are paying on unearned income are paying what is really a tax, and a large tax, on thrift.