New Clause. — (Charge of National Defence Contribution.)

Orders of the Day — Finance Bill. – in the House of Commons on 30th June 1937.

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(1) There shall be charged, on the profits arising in each chargeable accounting period falling within the five years beginning on the first clay of April, nineteen hundred and thirty-seven, from any trade or business to which this section applies, a tax (to be called the 'national defence contribution') of an amount equal to five per cent. of those profits in a case where the trade or business is carried on by a body corporate and four per cent. of those profits in any other case.

(2) Subject as hereafter provided, the trades and businesses to which this section applies are all trades or businesses of any description carried on in the United Kingdom, or carried on, whether personally or through an agent, by persons ordinarily resident in the United Kingdom.

(3) The carrying on of a profession by an individual or by individuals in partnership shall not he deemed to be the carrying on of a trade or business to which this section applies if the profits of the profession are dependent wholly or mainly on his or their personal qualifications:

Provided that for the purpose of this subsection the expression 'profession' does not include any business consisting wholly or mainly in the making of contracts on behalf of other persons or the giving to other persons of advice of a commercial nature in connection with the making of contracts.

(4) Where the functions of a company or society incorporated by or under any enactment consist wholly or mainly in the holding of investments or other property, the holding of the investments or property shall be deemed for the purpose of this section to be a business carried on by the company or society.

(5) This section shall not apply to any trade or business carried on by statutory undertakers and consisting wholly or mainly in the rendering in the United Kingdom of any of the following services, namely—

  1. (a) the supply of water, gas, electricity or hydraulic power;
  2. (b) the provision or maintenance of a canal, harbour, dock, pier, road, bridge, ferry, or tunnel;
  3. (c) the conservancy of a river;
  4. (d) the carriage of goods or passengers by railway, or the carriage of passengers by road.

For the purposes of this sub-section and any other provision of this Act relating to the national defence contribution—

  1. (i) the expression "statutory undertakers" means any local or public authority authorised by or by virtue of any enactment to render any of the services aforesaid in the United Kingdom, and any other person so authorised who is precluded by or by virtue of any enactment from charging any higher price for those services than that authorised by or by virtue of the enactment or, in the case of a body corporate, is either so precluded or precluded by or by virtue of any enactment from distributing any higher rate of dividend than that authorised by or by virtue of the enactment;
  2. (ii) the expression "pier" means a pier wholly or mainly used for loading or unloading goods or embarking or disembarking passengers.

(6) If the Commissioners appointed for the purposes of the Special Areas (Development and Improvement) Acts, 1934 and 1937, certify that, for the purpose of inducing any persons to establish an industrial undertaking in any of the special areas, it is expedient that those persons, in addition to being provided with financial assistance under section three of the Special Areas (Amendment) Act, 1937, should be given relief in respect of any national defence contribution which may become chargeable in respect of the profits of the undertaking, the Treasury may agree to remit the whole or any part of any national defence contribution so chargeable.—[Sir J. Simon.]

Brought up, and read the First time.

Photo of Mr John Simon Mr John Simon , Spen Valley

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

7.35 p.m.

Photo of Mr Frederick Pethick-Lawrence Mr Frederick Pethick-Lawrence , Edinburgh East

The main principle of these new Clauses has, of course, been already fairly fully discussed on the Committee stage of the Money Resolution, and on the general principle of this new tax I do not propose to add very much to what I have already said. I have never been particularly enamoured of this proposal, and cannot say that on a further study of it it grows more beautiful in my eyes. But whether I or other Members of the Committee like the tax or not is a question which it is too late to discuss now at any great length. For better or for worse the House of Commons has, broadly, decided that it wants to try the experiment, at any rate, of this new tax. Therefore, I think any main criticism at this hour would be rather out of place. The points I want to raise on the Second Reading Debate on this series of Clauses are more in the nature of questions to be put to the Chancellor in order to elucidate certain facts which will help us in the discussion of the Amendments. If the Chancellor or the Financial Secretary to the Treasury can give us fairly complete answers to some of those questions it may very much facilitate the Debate, and very much reduce the amount of time we shall have to spend on the Amendments.

The first set of questions I have to put relates to whether or no, and to what extent, certain organisations do, in fact, become subject to this tax. The organisations are: first the industrial and provident societies; secondly, the building societies; and, thirdly, the friendly societies. I propose to say a word about each, and will begin with the friendly societies. There has been a good deal of uncertainty as to whether friendly societies are included in the tax adumbrated in these new Clauses. Some people think they are brought in and others believe that the wording of the Clauses is such as to exclude them. The Committee will not forget that friendly societies are exempt from Income Tax, and if it is really proposed that they shall for the first time be brought into taxation it introduces a new principle and a very serious one, and I am sure the Committee as a whole would not wish it to happen. The wording which is thought by some people to bring in the friendly societies occurs in the ninth line on page 1590 of the Order Paper containing the Amendments. I had better read the whole paragraph, which is part of the Clause headed "Computation, of profits and accounting periods." For the purpose of this subsection the expression 'Income Tax principles' in relation to a trade or business means the principles on which the profits arising from the trade or business are computed for the purpose of Income Tax under Case I of Schedule D, Now come the words which have caused a certain amount of alarm in the minds of friendly societies: or would be so computed if Income Tax were chargeable under that Case in respect of the profits so arising. It is suggested that those words bring within the purview of this tax profits that are at present entirely exempt from Income Tax, and, it is of the utmost importance that the Chancellor should explain whether that interpretation is right or wrong. If it is wrong, that really ends the matter. If he can assure us that there is nothing in the whole of these proposals that brings the friendly societies within the purview of the tax, I think we shall be satisfied and there is no reason to go further into the matter. If the Chancellor cannot make that promise, I think his action will raise a very considerable controversy, and I suggest that he can only meet it by promising to exclude the friendly societies from the taxation, for I should be very much surprised if there were any considerable section in this House who would want to bring ordinary friendly societies within the ambit of this taxation.

I come now to the building societies. Here, again: there is a certain amount of ambiguity as to whether they come within the ambit of this tax or not, and the Committee will wish to know what the Chancellor says on that issue. Building societies do a great deal of work of a very valuable kind. They have relieved the Exchequer of a certain expenditure on subsidies to house building. Building societies pay Income Tax at a lower rate than others, but that arrangement has been made for the convenience of the Treasury and the building societies and with a view to overcoming the difficulty of the large number of small recoveries of tax which would otherwise be required. The first question, therefore, is, Are the building societies within or without the ambit of this tax?

There is another point which I will mention later which arises both in connection with building societies and with the industrial and provident societies. Income Tax is paid on undistributed profits, and—and this is particularly true of the industrial and provident societies—both loan capital and share capital are excluded in the assessment of profits to Income Tax. I think something of the same kind exists with regard to building societies. The question I wish to put, and it is one of very great importance is, If in fact the building societies and the industrial and provident societies are included within the ambit of the tax, what is the total assessment of profits on which the tax will be based? Is it to be based on the same assessment on which ordinary Income Tax is based at the present time, or are other sums to be brought into the picture, which, in the case of those societies, are at present excluded? In the one case it will mean that on top of the 5s. in the £ for Income Tax to industrial and provident societies there is, in fact, an additional is. If a very much larger figure is to be taken for profits, the amount to be called upon for the tax may mean not one-fifth, but one-half, or nearly as much as the whole of the Income Tax itself.

May I repeat those three points, because they are of supreme importance, and it is essential that an answer should be given to them? I want to know whether the friendly societies are included or excluded from this tax; in the second place, whether building societies and industrial and provident societies are in or out? If they are in, I want to know whether the net computation of profits, on which the National Defence Contribution is to be charged, is or is not greater than the computation of profits on which Income Tax is at present being charged. That is the first series of questions which I put with regard to this tax. There is a second set of questions, and when I have completed them that will be the end of what I want to say. This set of questions relates to the professions. We have been told that professional men will be exempt from the operation of this proposal. The Chancellor of the Exchequer spoke of doctors and accountants and other professional men, but I would ask about the professional men who earn large profits which are quite different from such fees as a barrister earns by going into court or a doctor makes out of his practice. When I read Sub-section (3) of the Clause, I am a little mystified. Let me read it to the Committee, so as to bring it to the attention of hon. Members: The carrying on of a profession by an individual or by individuals in partnership shall not be deemed to be the carrying on of a trade or business to which this Section applies if the profits of the profession are dependent wholly or mainly on his or their personal qualifications. There are two sources of ambiguity in that sentence. One is in the words "wholly or mainly" and the other in the words "personal qualifications." In order to elicit the facts, let us be clear about the claims of people to whom the Clause will apply. Let us take, in the first place, the accountants.

Unless I am mistaken, a fairly common plan with a firm of accountants is this: There will be perhaps three men in the firm who have the full certificate of chartered accountant, and they may be the partners in the firm. If profits are made, those three men will divide them in the contracted proportions. In addition to those three men, there will be a very large number of other people doing accounting work. Some of them may be chartered accountants. In addition to them, there will be a number of clerks and secretaries. The business may be earning a profit of £5,000, £6,000, £ 10,000, £15,000, or £20,000 a year. I am not sure what the Clause means. It does not say anything about personal exertions, but about personal qualifications. Are we to understand that such a firm of accountants as I have described, in which the money is being made by the heads of the firm, all those clerks and chartered accountants who are not actually partners, will be exempt from the working of the tax? I need not elaborate other professions, but very much the same kind of organisation may exist in a firm of solicitors. You get two or three men who are solicitors—or there may be only one man—who may not do any work at all. The actual partners in the firm get the profits, but the firm is carried on by a very large number of people who are not actually partners. I want it to be made clear whether those firms are excluded or included in the ambit of the tax.

If those people are exempt because of their personal qualifications as heads of the firm, in one case because of the charter, or whatever it may be, of the accountant and, in the case of the solicitors, of whatever it actually is called that they get which entitles them to be solicitors, what about certain other cases? How about advertising agents, architects, and a large number of others who also have businesses in which there is a considerable staff? What precisely is the definition of the word "qualifications"? Does it extend to all those different occupations, and, if so, is there to be a schedule of occupations regarded as providing the qualifications of the persons who are drawing the profits of the businesses? What is the position in this matter?

I will now come back to the words "wholly or mainly." I quite understand that if a man is doing a piece of work himself but has the help of typists or of an office, the product of his labour is not wholly but mainly due to his personal exertions, but we are not discussing personal exertion but personal qualification. What is the precise meaning of the term "wholly or mainly" in that case? If we can get an explanation on those points we shall know very much better how we stand as this Debate proceeds, and a great deal of time may be saved. The two sets of questions are of considerable concern to a large number of hon. Members.

7.54 p.m.

Photo of Mr John Colville Mr John Colville , Midlothian and Peeblesshire Northern

The right hon. Gentleman has asked certain specific questions in relation to the Clause which provides for the charge of the National Defence Contribution.

Photo of Mr Frederick Pethick-Lawrence Mr Frederick Pethick-Lawrence , Edinburgh East

The question about the friendly societies relates more particularly to another Clause.

Photo of Mr John Colville Mr John Colville , Midlothian and Peeblesshire Northern

It was pointed out by the Chair that all the other Clauses relate to the first Clause. It is clear that one of the points which the right hon. Gentleman made has particular reference to one of the other Clauses. We asked first of all whether it was the intention, as the Clause is drafted, to bring within the scope of the text the various organi3ations he mentioned: industrial and provident societies, building societies and friendly societies. As regards the first two, industrial and provident societies and building societies, the answer is "Yes." As regards friendly societies, I am advised, although I would like to look a little more closely at the actual wording, that they are not brought within the scope of the text.

Photo of Mr Albert Alexander Mr Albert Alexander , Sheffield, Hillsborough

In that case, would the Financial Secretary explain the reason for the words? If it is not intended to bring within the text bodies who do not pay Income Tax, what is the reason for including the words?

Photo of Mr John Colville Mr John Colville , Midlothian and Peeblesshire Northern

I told hon. Members that would like to look more closely into the wording. As at present expressed, it is not the intention that friendly societies should be brought in.

Photo of Mr Frederick Pethick-Lawrence Mr Frederick Pethick-Lawrence , Edinburgh East

Let us get this point quite clear. The Chancellor of the Exchequer has just come into the Chamber. The Financial Secretary has told us that it is not the intention of the Government to bring friendly societies into the tax and that he is under the impression, although he wants to look more closely into the words to verify it that the text does not bring friendly societies into the Bill. I hope I am not asking too much, but may I ask that, if it should be found that the words as they appear do bring friendly societies in, that we may take it for granted that the Government will themselves amend the wording so that friendly societies shall be left out?

Photo of Mr John Simon Mr John Simon , Spen Valley

I have made a note of the right hon. Gentleman's point, and I will mention it to my advisers. I most certainly will want to look closely into the wording to which he has called attention. We do not want any obscurity about it, and if there is any ambiguity it will be removed.

Photo of Mr Frederick Pethick-Lawrence Mr Frederick Pethick-Lawrence , Edinburgh East

May I take it that the Chancellor is willing to do what I wanted?

Photo of Mr John Colville Mr John Colville , Midlothian and Peeblesshire Northern

The right hon. Gentleman went further on the subject of the professions, in which case we have not felt that there was the ambiguity which he feared. In practice we believe there would not be much difficulty in determining whether the tax should properly be charged or not. The experience in Excess Profits Duty was that it was not impossible to determine what is a profession and what is not a profession, and cases have been decided in the courts. There are some cases in which it appeared difficult to draw the line between what was a profession and what was not, but, in general, the administration of this matter was satisfactory. It will not be difficult to define accurately what is to be included and what is not. The right hon. Gentleman will see for himself that, in cases in which professional men collect around them a large firm, in which, although the work depends to a considerable extent on the skill of the professional men themselves, who may be the principals in the firm, none the less quite a large staff surrounds them, there is gathered around them an organisation which, the right hon. Gentleman suggests, ought to be taxed. There, again, I think there is very little doubt as to the charge of the National Defence Contribution, but we do wish to except from the charge of the tax those cases where a business literally could not be carried on in the absence of the leader, on whose personal qualifications the whole thing depends—the professional man who is in fact the centre and mainspring of the work of his firm.

Photo of Mr Frederick Pethick-Lawrence Mr Frederick Pethick-Lawrence , Edinburgh East

Surely the right hon. and gallant Gentleman or his chief can give an answer on this very specific and clear point: Do the words of the Clause as they stand include or exclude the profits of a firm such as I have suggested? I have not put forward some quite imaginary or very occasional kind of firm; it is a common form in which accountants and solicitors do their work at the present time, and surely we can be told whether the words of the Clause as at present drafted do or do not include this class of people.

Photo of Mr John Colville Mr John Colville , Midlothian and Peeblesshire Northern

The right hon. Gentleman will agree that the matter depends very largely on the circumstances of the case. I cannot give him a definite answer, yes or no, as to whether such a firm would be included or not; it must depend upon whether it is covered by the words of the Clause, which we think are reasonable and commonsense words. Our intention is to exclude a professional man whose removal would cause the activities of his firm to cease, and I think that the words, if applied in a commonsense way, will mean that such a firm will not be taxed.

Photo of Mr John Jagger Mr John Jagger , Manchester Clayton

There are scores of firms which employ salaried solicitors, and the total income of which may be, and frequently is, quite large. Those salaried solicitors have all the qualifications that the head of the firm has, and the question is, will the earnings of such a firm be liable to the tax?

Photo of Mr Charles Peat Mr Charles Peat , Darlington

I should like to ask whether there will be a differentiation between different firms carrying on the same sort of business? Will it be a question of investigating in each case as to the capacity of the firm to carry on without the senior partner? I should like that point to be cleared up, because otherwise there may he a considerable amount of differentiation and unfairness.

Photo of Mr John Colville Mr John Colville , Midlothian and Peeblesshire Northern

I do not see that there is the difficulty which the right hon. Gentleman suggests. If the firm depends on the personal skill of a professional man who is at its head, it may be argued that it would properly be excluded if his removal would in fact mean a cessation of the activities of the firm. The difficulties which the right hon. Gentleman raises are not difficulties which were experienced before, or, if so, they were found to be easily surmounted by the ordinary inquiries that were made—when the Excess Profits Duty was being applied—in deciding what was or was not a profession, and what business was or was not liable to be taxed. I think that the difficulties, which the right hon. Gentleman raises, of determining in a commonsense way whether the tax should be applied, are not so great as he imagines.

Photo of Mr Frederick Pethick-Lawrence Mr Frederick Pethick-Lawrence , Edinburgh East

The difficulty seems to be so great that neither the Chancellor of the Exchequer nor the Financial Secretary has the faintest idea on which side of the line these firms would come. If it were perfectly clear that they were in, the matter would be simple, but the Financial Secretary says he does not know whether these words would or would not include the most common form in which these professions are carried on.

8.7 p.m.

Photo of Mr John Simon Mr John Simon , Spen Valley

I wonder whether the right hon. Gentleman would do me a kindness? Everyone can see what has happened. It was not expected that an answer would be given immediately, and I was not here. I am not complaining, but I wonder whether the right hon. Gentleman would do me the kindness of stating to me what his supposed difficulty is? I have not felt any difficulty in my own mind in defining these words, and I hope to be able to give him an answer. I am sorry I was not present to hear what he said, but, if he says that I am sitting here and cannot answer his question, I think it should perhaps he repeated.

Photo of Mr Frederick Pethick-Lawrence Mr Frederick Pethick-Lawrence , Edinburgh East

The point I put to the Financial Secretary was that a very common way in which accountants' work is carried on is for there to be two or three partners in the firm who are chartered accountants, or have some form of accountant's certificate. They have connected with them a considerable office, in which there may be chartered accountants who are salaried, and, in addition, other men working at accounts, together with typists and clerks—a large staff; and as a result of the whole business they make a profit which may be £5,000, £10,000, or even considerably more, in the course of the year. That is not purely an imaginary figment of my mind; it is a very common way, as I am sure the Committee recognise, in which accountants' work is carried on. The same is the case with solicitors. I asked the Financial Secretary whether the words of Sub-section (3) of the proposed new Clause means that that type of firm will be liable to the tax, or whether it will be exempt from the tax. That is a perfectly straightforward question, and I thought that probably I should be able to get a definite answer.

Photo of Mr John Simon Mr John Simon , Spen Valley

That is a part of the provisions with which I have been personally concerned and perhaps I may be allowed categorically to state the position. The Committee will observe that Sub-section (2) of the Clause deals with: the trades and businesses to which this section applies"; but the test of each case is not how particular individuals are engaged, or on what terms they serve; the test is what is the business. If the business is the business of an accountant, carried on, as the right hon. Gentleman says, by many people, some of whom May be fully qualified and some of whom may be clerks, it is still the business of an accountant. There are many such firms in London and in the Provinces. Exactly the same is true in the case of a firm of solicitors. Very often a firm carrying on the business of solicitors has on its staff fully admitted solicitors, managing clerks who may or may not be admitted solicitors, and a number of other clerks, all part of the organisation. In this case the test is what is the nature of the business. Sub-section (2) of the Clause says: Subject as hereafter provided, the trades and businesses to which this section applies are all trades or businesses of any description carried on in the United Kingdom, or carried on, whether personally or through an agent, by persons ordinarily resident in the United Kingdom. Then Sub-section (3) makes an exception to that. It says: The carrying on of a profession by an individual or by individuals in partnership shall not be deemed to be the carrying on of a trade or business to which this section applies if the Profits of the profession are dependent wholly or mainly on his or their personal qualifications. I have no doubt whatever that, if you have a firm of solicitors, or a firm of chartered accountants, that would be a case where the business they are carrying on is a business which depends wholly or mainly on personal qualifications, and is not in the possession of large sums of capital. Consequently, I answer quite categorically that firms of solicitors and accountants are not within this tax. The same is true of a large number of other professional occupations. I am asked how I determine where to draw the line, and that, of course, is a perfectly clear question, and a very important question. It might be done by attempting to make a list. That is a conceivable way, though I do not think it would be satisfactory, because I do not believe you could draw up a complete list, and there would be no end of argument as to whether a particular item should be included or excluded. That is not what the Clause does, and it is not the way in which it was done by Parliament before. Parliament did it before exactly in the way in which it is to be done now, and I can tell the Committee from my own knowledge that it then worked quite well. It is true that there were a few cases in which there was a matter of dispute or argument as to whether the business was within the exception or not, but the number of such cases was very limited. In the vast mass of cases there was no dispute about it at all, and I have in the drafting of the Clause reduced the number of cases of doubt by adding these words at line 15: Provided that for the purpose of this subsection the expression 'profession' does not include any business consisting wholly or mainly in the making of contracts on behalf of other persons or the giving to other persons of advice of a commercial nature in connection with the making of contracts. That was because it might otherwise be suggested that stockbrokers were not within the tax, or that insurance agents were not within the tax, though in my view they ought to be, because they are really carrying on what is no doubt an important class of business, but is a business as distinguished from what may be regarded as a professional occupation. I hope I have given a perfectly clear answer to the right hon. Gentleman.

Photo of Mr John Jagger Mr John Jagger , Manchester Clayton

I understand the right hon. Gentleman's answer with respect to accountants, but I am not clear as to what would be the position of those accountants who act, for instance, as Income Tax experts.

Photo of Mr William Kelly Mr William Kelly , Rochdale

May I ask what would happen in the case of a consulting engineer engaged in advising, say, as to the supply of machinery, and seeing that the right people receive orders for the work? Would the provision as to the making of contracts apply in such a case? Again, there are architects who might be engaged in designing a building, and also in giving out the contracts.

Photo of Mr John Simon Mr John Simon , Spen Valley

I will certainly endeavour to answer the hon. Gentleman's question explicitly. I should have thought from the descriptions he has given that such cases would be included, but I wish the Committee clearly to understand that, if they accept the Clause in this form, it will necessarily mean that there may be borderline cases. The hon. Member for Clayton (Mr. Jagger) mentioned the case of the man whom he described as an Income Tax expert; perhaps he might be described alternatively as an adviser on how to avoid paying Income Tax. As a matter of fact, a case of that sort did arise in the days of the Excess Profits Duty. It was decided in the courts, and the decision was that he was not a professional man.

There is one implication in the idea of a profession which perhaps I might be allowed to mention now in completing my argument. I think the courts have said, in the cases with which they have had to deal, that the idea of a profession is that a man has been prepared to do his work by a course of systematic study—academic study or something of the kind. A doctor is called a professional man because he has gone through a medical course, but the cheap-jack at the fair would not be called a professional man, whatever his qualifications might be. In the same way, you call a solicitor, a barrister or an artist a professional man, partly because, before he engages in what we may call his daily life, he has gone through a course of training. There is good sense in that, because it means that the capital that he is employing is in a special sense the capital inside his head. He has accumulated a lot of special knowledge, as a doctor has, and that is the contrast between the idea of a profession and the idea of a commercial pursuit. It is easy to imagine a case and work it up to the margin and put the Chancellor of the Exchequer on the boundary line and ask which side it is on. My answer is that on the whole this method has been found to work perfectly well before, and I think we had better rely on it again.

Photo of Mr Albert Alexander Mr Albert Alexander , Sheffield, Hillsborough

Will the right hon. Gentleman answer the other question?

8.16 p.m.

Photo of Mr John Colville Mr John Colville , Midlothian and Peeblesshire Northern

Following on the arrangement that we made to take all the Clauses together, I understood that we should have a Debate lasting some little time, and that a reply would then be given to all the points. My right hon. Friend wished to deal with this very important reply himself, and for that reason the right hon. Gentleman will understand what has happened. Many of the points will occur again on the Amendments and can be discussed in detail, but when the right hon. Gentleman asked this question, I had in mind that we should have a Debate of some duration before we dealt with the general replies. He asked me whether certain organisations were within the tax or outside it, and the basis on which it would be charged. The basis of charge for industrial and provident societies is the trading profit, less loan interest. The basis of charge for building societies is income, less expenses and loan interest, the same income will be charged to National Defence Contribution as is chargeable to Income Tax. The industrial and provident society pays Income Tax direct on its undistributed income, and the Income Tax on the distributed income is collected from the members. The building society, on the other hand, pays at the full rate on the undistributed income, and pays a composition rate on the income distributed as interest on share capital.

Photo of Mr Frederick Pethick-Lawrence Mr Frederick Pethick-Lawrence , Edinburgh East

In which way is the new tax going to be paid?

Photo of Mr John Colville Mr John Colville , Midlothian and Peeblesshire Northern

I have told the right hon. Gentleman the way in which the charge at present applies. The cooperative society is assessed to Income Tax like an ordinary trading company, except that the amount of the profits distributed as interest or share capital is taxed in the hands of the recipients and not by way of deduction. The charge to National Defence Contribution will apply to the trading profit, less loan interest.

8.20 p.m.

Photo of Mr Albert Alexander Mr Albert Alexander , Sheffield, Hillsborough

We are gradually getting at the truth of the matter. It now becomes fairly plain that the pledge that was made by the Financial Secretary when he replied to the Debate the other night has not been met. The pledge was that the whole of the assessments to be carried out for National Defence Contribution were to be on the basis of the Income Tax. Now it seems quite clear, from the two explanations which have been given up to date, that there are certain bodies brought within the ambit of National Defence Contribution which will be charged on a differential assessment from that on which they are charged in respect to Income Tax.

Photo of Mr Robert Bourne Mr Robert Bourne , Oxford

I think we shall get on better if the Financial Secretary is allowed to complete his speech, and then the right hon. Gentleman can make his observations.

Photo of Mr John Colville Mr John Colville , Midlothian and Peeblesshire Northern

I simply rose to answer the question put by the right hon. Gentleman. I have finished what I was going to say.

Photo of Mr Albert Alexander Mr Albert Alexander , Sheffield, Hillsborough

I rather deprecate the interruption, with all respect, because I have been particularly patient in listening to the answer.

Photo of Mr Robert Bourne Mr Robert Bourne , Oxford

The right hon. Gentleman will forgive me. I did not understand that the Financial Secretary had finished his speech. There have been a good many interruptions.

Photo of Mr Albert Alexander Mr Albert Alexander , Sheffield, Hillsborough

I think it is fundamental that the Chancellor of the Exchequer should address his mind to this point that, if the Government in 1933, in bringing for the first time certain corporate bodies like industrial and provident societies into assessment for Income Tax, then settled what they believed to be the actual, just basis upon which those bodies should be taxed for Income Tax, if they are keeping their word to the House in regard to the application to the new tax it should be made clear, either by a change in the wording or by a specific pledge that it will be changed, that those societies will not be assessed upon a larger sum than their present assessment in relation to Income Tax, because unless the Chancellor does that he is treating the industrial and provident societies, and will in certain respects be treating the building societies, in an entirely different manner from that in which he is treating the ordinary trading company. It is clear from a number of detailed examinations that I have made already from the last available accounts of bodies of this kind that, whereas in the case of a company assessed to Income Tax under the existing Income Tax law, they will never in any case pay more than one-fifth of the standard rate of Income Tax as National Defence Contribution, industrial and provident and building societies will pay substantially more than a fifth of the standard rate of Income Tax, and that in spite of the fact that their recognised position under Income Tax in the past has been built up and agreed to by successive Governments because of the nature of their composition, their personnel, the standard of income of the shareholders or members as the case may be, and, therefore, the actual imposition in these cases of National Defence Contribution will be at a higher rate than is placed upon large and important firms and companies.

I cannot believe that that is really the intention of the Exchequer. With his great personal experience in taxation cases and the views that he has expressed in the past, I do not believe that the Chancellor of the Exchequer can possibly intend that that differentiation shall take place. It will enormously facilitate the Debate on later Amendments on the Clause if he will make it clear now that it is not intended to put National Defence Contribution at a higher percentage rate upon those bodies than is put upon all other trading partnerships or companies, for all the figures that I have gone into prove conclusively that that is what this Clause is doing.

8.25 p.m.

Photo of Mr Charles Peat Mr Charles Peat , Darlington

There are one or two questions which I should like to ask the Chancellor of the Exchequer on the proposed new Schedule with reference to wear and tear allowances. The Schedule is not such a simple document as one might expect, and I would like some definite assurance that losses carried forward will include wear and tear allowances which have not been dealt with for Income Tax purposes. I would like that to be made quite clear, if possible. I would ask another question which relates to the principle which, I believe, has been accepted, that losses made at the end of the five-year period will be allowed as a deduction from the tax already paid for the years' accounting periods which come before the end. That is to say, if profits have been made in the first three years of the five and heavy losses have been made in the last two years, will those losses be recovered from profits taxed in the first three years? I would very much like to have these points cleared up.

8.27 p.m.

Photo of Sir John Haslam Sir John Haslam , Bolton

I rise only to endorse what the right hon. Gentleman the Member for Hillsborough (Mr. Alexander) has said in regard to the incidence of the taxation on building societies and industrial and provident societies. I am not going to enter into the controversy as to whether these societies should be taxed on the whole of their profits—I do not think that this is the right time to do so—but I regard it as morally wrong to bring in by a side wind another method of taxing these societies. In the last Parliament I voted for and approved the taxation of their reserve profits, and I think that, that could be justified, but I do not see how it can be justified for a temporary tax of this description—and it has been emphasised over and over again that it is only for a short period of years—that under a fresh system of taxation they should pay more during the five years' existence of the tax than other sections of the community. I believe that they ought to be included because they are benefiting like every other industrial concern by the revival of internal trade.

Photo of Mr Robert Bourne Mr Robert Bourne , Oxford

There is a definite Amendment to leave out the industrial societies. The point which the right hon. Member for Hillsborough (Mr. Alexander) made was not the question whether they should be exempt or not, but whether, under this Clause as drafted, they come into the scheme on the same terms as other businesses. If we start discussing whether they are to be exempt or not, I may find myself in a difficulty in selecting Amendments, and therefore I think that we had better leave this matter.

8.29 p.m.

Photo of Mr William Kelly Mr William Kelly , Rochdale

I do not want to add to the questions which have been put, and which I hope will be answered, but there is one thing which I have net been able to understand in Sub-section (5) where you are exempting certain statutory undertakings such as water, gas, electricity and so forth. I have tried to reason with myself why you have left out such things a s markets—

Photo of Mr Robert Bourne Mr Robert Bourne , Oxford

There is an Amendment on the Paper dealing with that specific point, and we had better wait until it is reached.

8.30 p.m.

Photo of Mr Alfred Barnes Mr Alfred Barnes , East Ham South

The replies that we have had from the Treasury bench have opened up rather an unsatisfactory situation. I should like, in reply to the Financial Secretary, to stress the fact that, under the 1933 assessment, in the case of industrial and provident societies, the payment of interest on share capital was taxed in the hands of the recipient. The point which my right hon. Friend the Member for Hillsborough (Mr. Alexander) has made is that under this proposal, if we understand the comments of the Financial Secretary, that practice will not prevail. It should be borne in mind that under the old method of assessment the vast majority of the members of co-operative societies, possibly 70 per cent. or 80 per cent. receive that interest as individuals, and that it is not charged for Income Tax because their incomes would be below the assessment. The thing which is disturbing us now—and it is a point of equity which will appeal to every Member of the Committee—is that the change now proposed in this case will put the whole of those interest payments together, and a large proportion of the interest on share capital which escaped under the 1933 assessment will be brought in under this new proposal. That will mean inevitably that the co-operative societies will not be paying 5 per cent. but possibly, 7, 10 or 15 per cent. with regard to the share interest now classified for taxation. That is a point to which we should like the Chancellor of the Exchequer to give his attention.

Another point I should like to stress is the inequity of the position now that the whole scheme envisaged in the first new Clause has been brought out. The Chancellor of the Exchequer's own definition in this case, as I understand it, is that a business, the head of which can be classified as a professional man, will not be charged the new National Defence Contribution tax. That includes a firm carrying on the business of chartered accountants. It is not the case that the individual person is practising in the sense that he is carrying out the work himself. I understand that under the definition of the Chancellor of the Exchequer, a firm of architects, engaged in placing contracts and drawing profits from their particular business escape this tax. On the other hand, a firm of advertising agents which is classified as a business would not be exempt, and yet as a matter of fact, you have the same main basis from which profits or the income of the firm is derived. It appears to be utterly indefensible that a tax proposal designed to secure a contribution for National Defence purposes should let out wealthy professional concerns which are in fact businesses. I entirely repudiate the definition of the Chancellor of the Exchequer that a person who passes through an educational course for a business which is classified as a profession is in a different category from the person who is trained and educated for a commercial purpose, or any other person whose occupation is classified as a business. The whole thing appears to be thoroughly inequitable.

I would draw the attention of the Committee to the inequity that will arise under the Sub-section that excludes public utility corporations. I wish that my right hon. Friend who put, these queries from these benches had also addressed points of this character to the Chancellor of the Exchequer. Under Sub-section (5) businesses carried on by statutory undertakers are exempt from this particular tax. It is equally essential that either the Chancellor of the Exchequer or the Financial Secretary should give the same kind of definition of the exemptions under this Clause. May I support my theory by quoting some examples in order to ascertain whether this exemption covers this type of undertaking?

Photo of Mr John Colville Mr John Colville , Midlothian and Peeblesshire Northern

Will the hon. Member give the Sub-section?

Photo of Mr Alfred Barnes Mr Alfred Barnes , East Ham South

It is Sub-section (5) which says: This section shall not apply to any trade or business carried on by statutory undertakers and consisting wholly or mainly in the rendering in the United Kingdom of any of the following services, namely—. It then details the services, and it is category (d) to which I would call attention: (d) "the carriage of goods or passengers by railway, by the carriage of passengers by road. I have looked into the earnings of companies of this description and I understand that any company of a statutory type carrying public passengers will be exempt from this Clause. If not, I should like to be informed from the Treasury Bench. Let me quote the earnings of a few companies. There is Tilling and British Automobile Traction Limited. This is a holding company, controlling 18 transport companies throughout the country. Their fleets of omnibuses and coaches exceed 7,000. The four railway companies are all interested in these various companies. Take the profit record of this particular concern which, I gather, will be exempt from the tax because it is a statutory undertaking and engaged in public road transport. From 1924 to 1932 this company paid 10 per cent. In 1933–34 it paid 10 per cent. and distributed a capitalised bonus of 25 per cent. In 1935 it distributed 10 per cent. and in 1936 10 per cent., with a capitalised bonus of 33⅓ per cent. Then there is Thomas Tilling as a separate company. In 1923 they paid 15 per cent., with a bonus of 30 per cent.; in 1924, 15 per cent.; in 1925, 15 per cent. and a tax free cash bonus of 33⅓ per cent. Later in the same year they distributed a capitalised bonus of 66⅔ per cent. From 1926 to 1930 their profits rose by 15 to 20 per cent. and all the way through, down to 1936, their dividends averaged 15 to 20 per cent., with periodical distributions of capitalised bonus.

The position that I want to put to the Financial Secretary and the Chancellor of the Exchequer is this: Are we to understand that under Sub-section (5) companies of this description are to be exempt, when they are paying profits of 10 to 15 per cent.? I could quote if necessary many gas companies whose dividends are 7, 9 and 14 per cent. Are they to be exempt, while co-operative societies and building societies, which are much more of the public utility type of organisation than this kind of undertaking, seeing that their membership is largely composed of wage-earners who are not classified in the ordinary way to the payment of Income Tax, are to pay? Is the type of company to which I have referred to be excused while co-operative societies are to be brought in, as my right hon. Friend the Member for Hillsborough (Mr. Alexander) pointed out, for an additional burden over and above the companies that are to pay? It is essential that not only the points that have been raised earlier but particularly the differential assessments of co-operative societies and of public utility concerns should be dealt with.

8.41 p.m.

Major Hills:

Perhaps it would be convenient if I raise on the new Clauses a point on which I should like an explanation. It is a very important point. It deals with the profits of life insurance companies that are assessable to the National Defence Contribution. As I read the law and the construction of the new Clause, the profits of a life office reserved or allocated to policy holders or annuitants are excluded from the new tax. That means that if those companies put by reserves for the purpose of securing the policies, or pay part of their profits as a bonus to the assured, then that share of profits does not come into assessment for this new contribution. The Income Tax Act of 1918, as applied by the Finance Act of 1923 to insurance companies, comes into consideration here. I have on the Order Paper an Amendment which raises that point. That Amendment is: In line 10, at the end, to insert: Provided that the principles laid down in Section sixteen of the Finance Act, 1923, shall apply to life assurance business assessed or deemed for the purpose of the national defence contribution to be assessed under Case I, Schedule D. That Amendment is, I think, nothing more than declaratory of the law. As I read the Finance Act of 1923, all these great reserves of these companies are free from Income Tax, and therefore free from the National Defence Contribution. I need hardly remind the Committee that on those reserves depends the security of the hundreds of thousands of policy holders who are insured in these companies. Therefore, the point is one of immense importance.

It has been settled for the last 14 years that in the case of a proprietary company, that is a company where part of the profits go to the policy holder either as addition to reserves or as bonus, and part to the shareholder, then only the part that goes to the shareholder or is placed to reserve for the benefit of the shareholder, is subject to Income Tax. I take it that the same principle will apply in regard to the National Defence Contribution. In addition to the proprietary companies, there are the mutual companies. In the mutual company there are no shareholders. All the profits belong to the policy holders and form part of the reserve for the policies. If I read this new Clause and the Schedule aright I believe that all the so-called profits, which are in reality the income received by the mutual companies are free from the National Defence Contribution. Certainly all their investments are free. Sub-section (5) says: Income received from investments shall be included in the profits in the cases and to the extent provided in this paragraph, and not otherwise. And it goes on to say that all investments are included except income to which the persons carrying on the trade or business are not beneficially entitled. In the case of the mutual companies the investments belong to the policy holders, and the company which carries on their business is not beneficially interested in the investments. I do not know whether I can get an answer on these points today but they are of immense importance to all policy holders; first that the reserves should be kept intact, and that in the case of a mutual company which has no shareholders and pays no dividends, but which puts all its funds to the benefit of its policy holders, their so-called profits—really it is income and not profits—should be free from the National Defence Contribution.

8.47 p.m.

Photo of Mr John Simon Mr John Simon , Spen Valley

I am obliged to my right hon. and gallant Friend for mentioning the point. It is an important one, but I think he will agree that it is a point which naturally arises on an Amendment to the Clause. Indeed, the right hon. and gallant Member has put down an Amendment. One of the disadvantages of having a general discussion is that we may sometimes discuss one particular matter more than once. But I will relieve his mind now and give him this assurance, that as regards life assurance companies the amount of profit allocated to or reserved for policy holders and annuitants is not charged to Income Tax on the company, and it will similarly not be included in the company's profits for the purposes of the National Defence Contribution. I believe that I have satisfied the right hon. and gallant Member. I do not suggest for a moment that the points raised by the hon. Member for East Ham, South (Mr. Barnes), and the right hon. Member for Hillsborough (Mr. Alexander) can be dismissed as Committee points. They are general points which naturally arise on the Second Reading of the Clause, although a discussion of details will arise at a later stage. Let me give as clear an answer as I can now. First, as to the point put by the hon. Member for East Ham, South, in regard to the operation of the New Clause in the case of public utility companies.

The view we took was that a public utility company, or in some cases a company established by law which was rendering that kind of service and was by law restricted as regards the profits it distributed or the charges it made, was a class of case which ought to be exempted, because they are not free as others may be to make what profits they please or charge what they like. I agree with the hon. Member that when we examine the Clause in detail it may be that we shall find instances in which the law has not sufficiently restricted their profits or limited their charges, but the hon. Member will see that in regard to these cases we have put sufficiently severe restrictions on the enterprise. The hon. Member quoted a possible instance, but I do not see how we can frame the Clause except on the principle of exempting this class of case. When we examine the details I shall be willing to consider the point, but I do not think we can very well frame this tax on the principle that we are going to look up some particular case which the right hon. Member has quoted and say that it is or is not a strong case for being dealt with in this way. We must have some definition, some rule which can be applied as a test as to whether a company or a public utility company does or does not get exemption. The right hon. Gentleman quoted some cases which I should have thought would be within the exemptions, but I will look at them again.

The other point raised was, to put it broadly, the case of the co-operative societies. Let me put this matter as clearly as I can. It is quite true that if you go back some years the co-operative societies were not regarded by the Income Tax laws as making a profit, and they were excluded from the tax, but the reason was because of the particular character of their organisations, and the way they manage their business. But Parliament has seen fit to amend our Income Tax laws in this respect, and we are bound in this matter to treat co-operative societies as being societies which do make a profit of a sort which might come within the tax. The issue will be raised more pointedly on an Amendment and at the moment I am merely explaining the matter to the Committee. The right hon. Gentleman does not now, I understand, make so much of that point as he does of the suggested differential treatment.

Let me deal with this point as clearly as I can. Take the case of an ordinary trading company, not a co-operative society or a building society. Suppose that this trading company makes £10,000, which is regarded as profit for the purposes of Income Tax. In the case of that trading company it would be assessed as profit, and it would pay Income Tax on the whole of that £10,000. Having done so it would distribute it to its shareholders—they may be very small people—and it would be entitled, when it declared its dividend, to pay a dividend less Income. Tax because it was paying it out of a fund which had already borne the Income Tax. That is an ordinary business arrangement as regards a limited company. What would happen to that trading company under the National Defence Contribution? It will pay a National Defence Contribution on the £10,000, and to that extent undoubtedly its ordinary shareholders will suffer because there will not be any deduction from the dividend that is paid to the ordinary shareholders in respect of the National Defence Contribution. Therefore, the shareholder, when he receives his dividend, will receive it out of the fund which has been diminished by the National Defence Contribution. That is what happens in the case of an ordinary company. I ask the Committee to observe that that will be so even though the shareholders, or some of them, are people who are receiving only a small income.

Let me now turn to the co-operative societies. Let us suppose that a cooperative society also makes a profit of £10,000, and that £5,000 of that profit is paid to the members on their share capital and the other £5,000 is put to reserve. The mechanical arrangement that is made for collecting the tax there is that the co-operative society will pay Income Tax direct, not on the £10,000, but on the £5,000. The reason for that is that the other £5,000 which is paid away in dividend and which they are entitled to deduct from their direct assessment, is paid to members and still remains, in the hands of members, liable to Income Tax. It is true that in the case of an ordinary company also many of the shareholders may have a very small income, but the fact is that in the case of the cooperative society the £5,000 that is paid away in dividend to members is liable to Income Tax, just as much as the other £5,000.

If the Committee have followed me closely, they will see that that is the principle which underlies this tax. The co-operative society must be taxed on its £10,000 for this tax just as much as the ordinary trading company is taxed on £10,000. The reason in both cases is the same, namely, that this tax is a tax on the profit that is made by the enterprise itself before there is any question of distribution, and there is no provision here for deduction at the source or for any recovery on the ground of exemption later on. That is the explanation, and I hope I have made it plain; it is as clear as daylight to me. That is the reason why a co-operative society which makes a profit of £10,000 and a trading company which makes a profit of £10,000 will both, in fact, pay the same amount of National Defence Contribution. The distinction which was drawn by the right hon. Gentleman opposite is really based, I will not say on a fallacy, because that would be too strong a word, but on a view of the situation which mistakes the merely mechanical method by which Income Tax is collected from a co-operative society, for some principle of law. The principle of law is exactly the same in the two cases. You make £10,000 profit, and you pay tax on it.

Photo of Mr Albert Alexander Mr Albert Alexander , Sheffield, Hillsborough

I hope the right hon. Gentleman will allow me to submit to him privately figures which demonstrate conclusively that on the assumptions which he has made before the Committee, co-operative societies will be mulcted of a heavier percentage of National Defence Contribution than any ordinary company, on the basis of what the National Government laid down in 1933 as the rules of Income Tax to be applied to co-operative societies. If I do that, I hope the right hon. Gentleman will examine the figures.

Photo of Mr John Simon Mr John Simon , Spen Valley

I am not speaking on this matter in any heated way, but am merely trying to serve the Committee by stating what is the arrangement contemplated here. If the right hon. Gentleman feels that he has some material that he would like me to study, I am at his service at any time, because I am sure the Committee as a whole would wish us, as far as we can, to do what is just in this matter. It may be regarded as an objection to the whole tax, but I must repeat that this form of tax does not give relief to the individual component of the enterprise merely because that individual has a very small income. In the case of the Income Tax, we have arrangements by which people get exemption and allowances for wives, children and so on, but one cannot make a simple tax and introduce all those complications. I want the Committee frankly and openly to face the fact that what we are doing here is to put this contribution upon businesses, whether firms, individuals, co-operative societies or building societies, by reference to the total profit which they, as institutions, make. The only way in which we can relieve the smaller enterprises is by saying that we shall not seek to put this charge upon any such institution if the total amount is less than £2,000 and that we shall reduce the charge if the total profit is less than £12,000. A small co-operative society in a small town or a small building society would get that advantage. But I tell the Committee frankly that that does not mean, either in the case of a company or anything else, that the individual who is possibly himself in a small way will get special relief, because the total sum that would fall to be distributed would be so much, less the tax.

Photo of Mr Alfred Barnes Mr Alfred Barnes , East Ham South

Why did the Treasury make that arrangement to tax interest in the hands of the recipient? Was it not because they realised that the vast majority could be claimed back, and if that practice has been altered here, does it not increase the ratio payment on the profit?

Photo of Mr John Simon Mr John Simon , Spen Valley

If that point is brought to my attention by the right hon. Gentleman, I will study it, but the answer to the hon. Member is that it may be true that in the Income Tax machinery special arrangements are made on the ground that many of the recipients of the dividend would be people who, because of their small income, would claim the tax back.

Photo of Mr John Simon Mr John Simon , Spen Valley

It may be so. I am pointing out to the Committee that this form of tax is bound to be directed to the institution itself. I agree it is a rough method, but we have to accept it. As regards building societies, although the details are not quite the same, the principle involved is the same, and I do not think I should help the Committee by going over the same thing again in connection with building societies. I hope I have given a clear explanation to the Committee. I recognise that I still have to await any criticisms about it and the information which the right hon. Gentleman will give me, but I hope I have made it plain to the Committee.

Question, "That the Clause be read a Second time," put, and agreed to.

9.4 p.m.

Photo of Mr Robert Bourne Mr Robert Bourne , Oxford

Before the hon. Member for Huddersfield (Mr. Mabane) moves his Amendment to line 5, I notice that he has a large number of Amendments down to another part of this scheme, and I am not quite clear whether they are consequential upon this Amendment or not. This Amendment might, to some extent, stand by itself, but equally the proposal to leave out these words at the beginning of the Clause might be part of a general scheme including the other Amendments. I should be obliged if the hon. Member will tell me.

9.5 p.m.

Photo of Mr William Mabane Mr William Mabane , Huddersfield

I thank you very much, Captain Bourne, for what you have said. The Amendment which I intend to move in line 5, to leave out from "profits" to the end of tie Sub-section has a complementary Amendment later on the Paper. That complementary Amendment is in line 116 of the proposed new Schedule (Adaptations of Income Tax provisions as to computation of profits) and proposes to insert the words: person either solely or in partnership there shall be allowed a deduction in respect of salary or remuneration to such person or partners not exceeding fifteen per cent. of the profits arising from the trade or business in that period (computed after making any deduction in respect of such salary or remuneration) or one thousand five hundred pounds, whichever is the greater, so, however, that the deduction shall in no case exceed fifteen thousand pounds, and in the case of a trade or business carried on in any chargeable accounting period by a. I think it would be convenient if I were allowed to treat those two Amendments together. This Amendment to line 5 of the proposed new Clause, if moved alone, would mean one thing, but if moved together with the complementary Amendment to which I have referred, it would mean quite another thing.

Photo of Mr Robert Bourne Mr Robert Bourne , Oxford

The hon. Gentleman has clown two Amendments to the proposed new Clause (Exemption and abatement in respect of minimum profits) which comes later on the Paper. I am not clear whether those Amendments are meant to be consequential on the Amendment which he is now about to move, or whether they raise a different point.

Photo of Mr William Mabane Mr William Mabane , Huddersfield

I do not propose to move those Amendments, in view of the opportunity I now have of moving the present Amendment which really effects something like the same purpose.

Photo of Mr Robert Bourne Mr Robert Bourne , Oxford

That is the point which I wished to have made clear.

Photo of Mr William Mabane Mr William Mabane , Huddersfield

I beg to move, as an Amendment to the proposed Clause, in line 5, to leave out from "profits" to the end of the Sub-section.

Merely to leave out these words would, apparently, have the effect of putting a private firm or partnership on the same basis as a limited company, in that it would have to pay 5 per cent. of its profits instead of 4 per cent. as is here provided. But when account is taken of the complementary Amendment to which I have already referred, the effect is different. I submit that this is an important Amendment. Its purpose is to remedy what I regard as an injustice in these Clauses as they stand. In my view, the Clauses as they stand put the private firm or partnership in a worse position with regard to the National Defence Contribution than the limited company, and particularly in a worse position than what are here called director-controlled limited companies.

The Chancellor of the Exchequer, in moving the original Resolution, referred to the bringing within the ambit of this tax of the private firm or partnership. He referred to the old Corporation Profits Tax, which did not include the private firm or partnership, and used certain words with which, I think the Committee in general, will agree. He said that partnership firms all over the country were in competition with companies, and in many cases were carrying on a similar kind of business. He went on to give examples, and said it would be manifestly unfair that the private partnership should be exempt from National Defence Contribution, while the company was to be included. So far, so good. But, in effect, the proposal now before the Committee does not place the private firm or partnership in the same position as the company but places it in a less favourable position and for the following reason. In the Clause as it stands the company is called upon to pay 5 per cent. of its profits, whereas the private firm or partnership is called to pay only 4 per cent. That might seem at first sight to be a substantial advantage in favour of the private firm or partnership, but if we turn to the proposed new Schedule to which I have referred, we find it there provided that the director-controlled company is to be entitled to make a deduction from its profits in respect of the salaries of directors, and that that deduction is to be 15 per cent. of the profits or £1,500, whichever is the greater, with a limit of £15,000. That deduction in respect of salaries is not available to the private partnership and, consequently, although there is this advantage of i per cent.—4 per cent. instead of 5—in a great number of cases and I would say in all the more important cases, the result is a disadvantage to the private partnership.

I have worked out precisely how the tax would fall upon private firms and director-controlled companies (as they are here described), on varying sums of profit and perhaps the Committee may be interested in the figures. I give the profits of the private firm and the profits of the director-controlled company before making the deduction here allowed for salaries. On a profit of £2,000, of course neither the private firm nor the director-controlled company pay anything. At £3,000 profit, however, the private firm or partnership would be called upon to pay £48 while the director-controlled company would still pay nothing. On £4,000 profit, the private firm would pay £96 and the director-controlled company £30. On £5,000 profit the private firm would pay £144, and the director-controlled company £90. It is not until profits of £10,000 are reached that there is any advantage, and that a very slight advantage, in favour of the private firm as against the director-controlled company. At £10,000 profit the private firm would pay £384 in National Defence Contribution and the director-controlled company would pay £390. I ought to say that on profits above £10,000 this provision gives a slight advantage to the private firm as against the director-controlled company. But the important point is that on profits of £10,000 or less, the private firm or partnership is placed at a disadvantage by these proposals, compared with the director-controlled limited liability company.

I take the view, which I think is generally held in this Committee, that, on the whole, the private firm or partnership, the business in which the proprietor is venturing his whole fortune, is to be preferred to the business which is carried on as a company. I think the House of Commons prefers to encourage that kind of business, and that hon. Members generally are anxious to encourage the smaller businesses. I think the view will also be generally shared in the Committee that if there is to be any slight advantage in this matter, it ought to be in favour of the private firm or partnership as against the company, and in favour of the small man as against the big man. My proposal would have the effect of putting the private firm on at least as favourable a basis as the company, but no more. I think that is a very modest demand. We might well ask the Chancellor of the Exchequer to put the private firm in a more favourable position than the company, that is to say to allow the charge to remain at 4 per cent. and also to allow the private firm or partnership a deduction in respect of salaries similar to that which is allowed to the company. I do not think that would be an excessive demand, but I have not gone as far as that. I merely ask that the private firm should not be worse off than the director-controlled company. There is a case here which the right hon. Gentleman ought to meet and he ought to be prepared to make this concession.

I will give one further reason why, if any advantage at all is to be given, it should be in favour of the private firm or partnership rather than the company. It relates to the question of Surtax. Let us suppose that two partners are operating a business and that they make £10,000 profit. Let us suppose they are equal partners and that their share is £5,000 each. They are assessed to tax and Surtax on the whole of that amount, and by no means can they escape. But if those same two men were conducting their business as a director-controlled company, and they made £10,000 profit, they could put £2,000 to reserve, then distributing the £8,000, and having £4,000 each, and they would be liable to tax and Surtax only on the £4,000, and not on the £2,000 which they had put to reserve. So, by operating as a limited company, they would be saving themselves Surtax on £2,000, which the private firm could not save. [Interruption.] Well, they would save on two separate amounts of £1,000. I think that Surtax point lends additional force to my argument in favour of the Amendment. We are told that the tax is to do rough justice, and although we are content that the tax should he rough in certain respects, we want to see justice combined with the roughness. I hope I have supported the Amendment with sufficient vigour to induce the Treasury to make this very important concession in favour of the private film or partnership.

9.17 p.m.

Photo of Mr William Spens Mr William Spens , Ashford

I rise to support the Amendment. I am one who has, for many years now, practised very largely in connection with companies and their affairs, and whereas 15, or 20 years ago I should have taken the view that there was nothing better for the country generally than that everything should be done to encourage the private trader to incorporate himself under one or other of the Acts under which it can be done, I now take the view that, from the public point of view, the less you encourage them to do that, the better it will be for all of us. I believe, personally, that a far greater human element is entailed in those businesses which are run by the partners who own them than, speaking generally, in businesses which are run by directors and others on behalf of other people. There is no doubt, on the figures which my hon. Friend the Member for Huddersfield (Mr. Mabane) has put before the Committee, that the very type of firms which are going to be treated most severely under these proposals are the small private-partnership firms, though after a certain stage there is not very much in it. It is the small private-partnership firm which I desire to see maintained in as great a number and as firmly based in this country as is possible, and I foresee that although in a way the figures which the hon. Member has mentioned, as to what they will have to pay beyond their competitors who have been incorporated, are not very great, none the less they may just be the sort of final burden which will drive many of our private traders to incorporate themselves.

I would like to remind the Committee that when it comes to comparing what the private trader has to bear in Income Tax and Surtax as opposed to his competitor who has become the owner of an incorporated company, he does stand to gain a good deal to-day by incorporating himself. The deductions that he can get as regards Income Tax and Surtax are very much greater than if he remains as an ordinary partner in a private firm, and many people appreciate this. Add to that this final attraction of being able to reduce the amount of National Defence Contribution if he incorporates himself, and I believe that you will see that during the next four or five years, if these proposals go through as they are, a certain additional number of small traders will incorporate themselves.

No one wants, or would venture from a back bench, to threaten the Treasury or the Chancellor of the Exchequer, but I would like to point out to the right hon. Gentleman that if there is anything in my anticipation, he will lose far more by loss of Income Tax and Surtax if private traders are driven to incorporate themselves than anything he will lose by putting private traders on a level with their competitors in respect of this tax. I therefore hope that the right hon. Gentleman will see his way to giving the fullest consideration to this Amendment, and I hope that, on behalf of the private traders, hon. Members in this Committee will do their best to support the Amendment.

9.22 p.m.

Photo of Sir Herbert Holdsworth Sir Herbert Holdsworth , Bradford South

I also wish to support the Amendment. I do not want to add anything on the particular points which have been made by the previous speakers, but there is one point which they did not make, and that is in regard to the way in which the private trader is handicapped as compared with a company so far as allowances for losses in subsequent years are concerned. A private trader, if he makes only 3d. in one year, before he deducts one penny for himself is considered to have made a profit. Suppose a man makes £50 gross profit without allowing any withdrawals for himself and has drawn out of the business £500. He has really lost £450, but for the purpose of Income Tax, he is considered to have made a profit. He cannot make a claim for losses in subsequent years, and he cannot, so far as I see, make a claim for deduction of losses under this new Clause, whereas the company under this new clause, in given circumstances of that description, would be able to claim an allowance for that loss in subsequent periods, and that is an added point in favour of the Amendment. I have always thought that under the present Income Tax law a grave injustice is suffered by private traders as compared with companies, and I do not think it would be the intention of the Chancellor of the Exchequer or of the Financial Secretary to the Treasury that another injustice should be added to those from which they are already suffering. I trust the Amendment will be accepted.

9.23 p.m.

Photo of Sir Edward Keeling Sir Edward Keeling , Twickenham

I should like to add my voice in support of this Amendment, and I think that if the Chancellor of the Exchequer will accept it, he will find, not only that the tax as so amended will be more just and less drastic, but also that in this case justice will be the best policy, for the reason which my hon. and learned Friend the Member for Ashford (Mr. Spens) has just stated. I will only add that I have had letters from two leading firms of accountants, both of which have a very large number of both companies and private firms on their books, and they both say that this Amendment would make the tax a very much juster tax. If my hon. and gallant Friend the Financial Secretary to the Treasury cannot accept the Amendment, I hope that at least he will promise to give it consideration.

9.24 p.m.

Capain Harold Balfour:

I would ask the Financial Secretary to the Treasury whether he will give sympathetic consideration to the Amendment, and I am glad to do so particularly as the hon. Member for Huddersfield (Mr. Mabane) was the chief assassin of a Bill which I proposed to introduce some months ago, and which met the fate that I cannot but say I think it deserved, as regards the Bill itself, but as regards its objectives, they are, I believe, common to most Members of this Committee, namely, to preserve the individuality of the small trader and to see that he is not penalised unduly by the growth of large combines and monopolies. Here we have an Amendment on which those who massacred that Bill and the victims of the assassination are able to combine in a plea to the Government that they should give sympathetic consideration to this Amendment in order that the small trader can be relieved of one more disadvantage which will be placed on him if the Government's proposal goes forward.

9.26 p.m.

Photo of Mr John Colville Mr John Colville , Midlothian and Peeblesshire Northern

I understand that the hon. Member for Huddersfield (Mr. Mabane) is not proposing to move the last two Amendments which he has down to the new Schedule. I may, therefore, direct my remarks to his first three Amendments.

Photo of Mr William Mabane Mr William Mabane , Huddersfield

I am moving in conjunction with this Amendment, or rather I have included in my discussion, the Amendment to line 116 of the Schedule (Adaptations of Income Tax provisions as to computation of profits.)

Photo of Mr John Colville Mr John Colville , Midlothian and Peeblesshire Northern

The hon. Member will correct me if in my reply I take up a point which he did not intend to raise. I understand that what he is moving is this. The effect of his first Amendment to the first Sub-section will be to leave all businesses liable to charge on 5 per cent. of their profits and thus remove the differentiation and then he will go on to give the advantage to the firm by an exemption limit instead of by a differentiation of rate.

Photo of Mr William Mabane Mr William Mabane , Huddersfield

That is not the point I have been dealing with at all. I would put private firms on an equality by giving them an equal right with director-controlled companies to make a deduction in respect of the salaries of the partners.

Photo of Mr John Colville Mr John Colville , Midlothian and Peeblesshire Northern

The hon. Member has the other Amendments down and I understand that they all hang on the first Amendment, which was to remove the differentiation at present allowed and in its place to give another form of advantage to the company. We have paid close attention to this question of putting the private firms on an equal footing with companies in the application of this tax but we conceive that the method we have employed is in fact a fair one, and we have been subjected to some criticism for the degree of advantage which we have proposed to give in the 4 per cent. rate as compared with the 5 per cent. rate.

Photo of Mr William Mabane Mr William Mabane , Huddersfield

It is not an advantage at all. Surely the right hon. Gentleman does not challenge my figures. I have indicated that the private partnership will pay more, not less. It is not an advantage.

Photo of Mr John Colville Mr John Colville , Midlothian and Peeblesshire Northern

In our view the difference between the 4 per cent. and the 5 per cent. does give a fair deal to the firms. I understand that the hon. Member's view is that the allowance in respect of remuneration whether in the form of deduction of profits for individuals or in the form of a restriction of allowance to be made for remuneration should be 20 per cent.

Photo of Mr William Mabane Mr William Mabane , Huddersfield

did not refer to that Amendment in the least. That is a quite different point.

Photo of Mr Alfred Barnes Mr Alfred Barnes , East Ham South

On a point of Order. Can we have explained to us which Amendment we are, in fact, dealing with?

Photo of Mr Robert Bourne Mr Robert Bourne , Oxford

The hon. Member moved an Amendment in line 5 to put the private firms on the same basis of taxation as public companies. On the Order Paper are a number of Amendments in the name of the hon. and learned Member for Ashford (Mr. Spens) and the hon. Member for Huddersfield (Mr. Mabane) and I think the Financial Secretary, as we have been, is somewhat puzzled as to which of these Amendments applied to the scheme by which the taxation was increased up to the limit allowed in the Financial Resolution on the private firm and other reliefs were to be granted or whether the Amendments stood by themselves. I must admit that I have been somewhat puzzled.

Photo of Mr William Mabane Mr William Mabane , Huddersfield

On that point I took the trouble to give notice three hours ago as to which of these Amendments were to hang together.

Photo of Mr John Colville Mr John Colville , Midlothian and Peeblesshire Northern

If that is so the first intimation I had of it is my hon. Friend's speech. I considered these Amendments last night. The Amendment proposed to leave out the provision that there should be a 4 per cent. charge, and in its place to propose certain other advantages to compensate, to put the private firms in the same position as the public companies. We have in our scheme, we believe, framed a method of giving fair justice to the private firms, and in doing so we have been subjected to a considerable amount of criticism. In our view the method we have adopted is a simple one and a fair one. The hon. Gentleman does not think that it goes far enough. There are many interests who hold the view that it goes too far because of the amount which we anticipate the private firms will escape in the way of the tax. Regarding this, in the phrase of the hon. Member, as rough justice—I think that he felt from his point of view that it was too rough—regarding this as a method of applying rough justice as between firms and companies, we have no doubt in our mind, after a careful and sympathetic consideration of his Amendments—which have been on the Paper for some days—that the differential rate which we propose does give effect to the Government's intentions of treating firms and companies on a fair basis. We could not accept an Amendment or a chain of Amendments which departs from that principle and seeks to apply another method of dealing with firms as distinct from public companies.

9.34 p.m.

Photo of Mr Frank Griffith Mr Frank Griffith , Middlesbrough West

I am bound to say that I am somewhat amazed by the reply, if it is a reply, which has purported to be made from the Treasury Bench. I have heard a perfectly clear case put forward by the hon. Member for Huddersfield (Mr. Mabane), in which he began by intimating with the greatest clarity which of his Amendments he was moving and I have heard a reply which has no bearing on the matter put forward by the hon. Member. We are told that this is rough justice. It is all very well to dissemble your love,But why do you kick me downstairs? That is the only kind of justice that has been done in this matter. The hon. Member for Huddersfield has put forward arithmetical calculations as to the position of private companies compared with director companies. We are told that on the whole it will work out all right, but for those people mentioned by the hon. Member for Huddersfield it will in detail work out all wrong. I cannot see where the rough justice or any other kind of justice comes in. It would be much more satisfactory if the Financial Secretary had at the beginning of his speech known to what he was replying. As he did not, is it too much to hope that he will further consider the matter now he has had it made clear to him what the grievance is, because, unless the Treasury have lost faith in the ordinary rules of arithmetic—which I dare say they have from what I have heard earlier in the day—some closer attention ought really to be given to the details put forward by the hon. Member for Huddersfield than has been given.

9.36 p.m.

Photo of Mr Herbert Williams Mr Herbert Williams , Croydon South

I was frankly surprised at the reply of my right hon. and gallant Friend the Financial Secretary. Surely the object of the differentiation of 4 per cent. for the private business compared with the 5 per cent. for the corporate body Was an attempt to make things equal. I did not hear the speech of my hon. Friend the Member for Huddersfield (Mr. Mabane), but he gave me some exposition of the matter earlier in the day and he is trying to ensure that both parties shall be treated alike. In reply to a claim like that it is no use for the Treasury representative to say that the Treasury cannot do it. That is not the way in which to address the House of Commons, because the House may say that the Treasury must do it. No one likes my right hon. and gallant Friend more than I do; we all like him; but when he is face to face with arguments he cannot just say, "We cannot do it." We are reasonable people and moderately intelligent, and if the Financial Secretary will give us arguments which will satisfy us more than the arguments of my hon. Friend the Member for Huddersfield, we shall at once ask my hon. Friend to withdraw his Amendment. Until he does that we shall vote for the Amendment.

9.38 p.m.

Photo of Mr William Mabane Mr William Mabane , Huddersfield

I pointed out that I am not asking for a differentiation in favour of private partnerships. I am merely asking that they shall be on the same footing, and I want the Financial Secretary to tell me whether he challenges my figures as to what the tax would be with the Clauses and Schedules as they now stand without amendment. I declare that with profits of £3,000 the private partnership will be called upon to pay £48 tax whereas the director controlled company will be called upon to pay nothing. With profits of £5,000 the private partnership will pay £144 and the director controlled company only £90. I cannot see how that can be interpreted as being in favour of the private partnership. If my figures are inaccurate I shall be glad to admit that I have made a mistake, but if they are not inaccurate, may I ask the Financial Secretary whether he will look into the matter again in the light of what has been said?

9.39 p.m.

Photo of Mr James Ede Mr James Ede , South Shields

I am bound to say that the House is being treated with the greatest disrespect by the Treasury Bench in this matter. I followed the hon. Member for Huddersfield (Mr. Mabane) very carefully, and it seemed to me that he was very anxious to help us because we were in the same quandary as you were, Captain Bourne, owing to the number of Amendments with which this one might be connected. He was careful to give us the page and line to which he was referring and anyone who had been detailed by the Government to follow him must have been perfectly clear as to the limits of the Amendments that we were discussing. He also went so far as to give us a careful and detailed estimate of the effect that this tax would have, and there has been no effort to reply to that. All the participants in this Debate have been supporters of the Government except for the hon. Member for West Middlesbrough (Mr. K. Griffith), and the hen. Member for South Bradford (Mr. Holdsworth) who, I gather, never supports anybody but himself. The House ought to have received more guidance than it has received, and I share the view for once of the hon. Member for South Croydon (Mr. H. G. Williams) that the attitude adopted by the Financial Secretary was an entirely wrong one. It seemed to me that the case of the hon. Member for Huddersfield merited a detailed and careful answer on the facts that he put forward. In view of the failure of the Treasury Bench to furnish an adequate reply, we ought to report Progress. If you will accept a Motion to that effect, I will move it.

Photo of Mr Robert Bourne Mr Robert Bourne , Oxford

I do not think I can accept the Motion at this moment.

Photo of Mr James Ede Mr James Ede , South Shields

I can only hope that if we are not to report Progress we may achieve some progress by receiving a good answer from the Financial Secretary or his chief. Cannot the Financial Secretary say that whoever drew his brief drew the wrong one, or that he was not able to understand it? Then we might have the advantage, perhaps, of the Chancellor of the Exchequer being brought back. We are reluctant to disturb his dinner, but after all the King's Government must be carried on whether the Chancellor dines or not. I really think that the Government ought to make some effort to meet the perfectly fair case that was made out by the hon. Member for Huddersfield and those who supported him. He said that he thought his Amendment would do rough justice. I am sure he will agree that so far he has received roughness but that his arguments have not received justice. I appeal to the right hon. and gallant Gentleman to make some endeavour to meet the case which was reasonably put forward by the Mover of the Amendment.

9.43 p.m.

Photo of Mr Reginald Croom-Johnson Mr Reginald Croom-Johnson , Bridgwater

I am bound to confess I think the Mover of the Amendment made a case which calls for a considered answer. I do not share the views of those Members who think that my hon. Friend the Financial Secretary has not done his best. It is obvious that he has not been given the answer, if answer there be, to the arguments which the Committee have had addressed to them. It is also obvious that he has not been given authority to accept the Amendment. In those circumstances, in view of the fact that there has been given neither answer to the Amendment nor authority to accept it, I am a little saddened at the spectacle of the situation in which the Committee find themselves on the very first Amendment to the new Clause. In these circumstances, now that the Chancellor has arrived, I hope that the Committee will have the answer which I imagine there must be to the powerful case which was made by my hon. Friend the Member for Huddersfield.

9.45 p.m.

Photo of Mr James Griffiths Mr James Griffiths , Llanelly

I wish to congratulate the hon. Member for Huddersfield (Mr. Mabane) on the admirable manner in which he moved his Amendment. I cannot share the amazement which has been expressed by hon. Members opposite. They seem to have discovered for the first time that this Government is not a Government out to protect the small trader. This is the Government of big business. We have seen the combination of the hon. Member for Huddersfield and the hon. Member for South Croydon (Mr. H. G. Williams), a devoted and loyal Conservative, appealing for the small trader but meeting with very little response from the Treasury Bench. The other day, when other Members were speaking on behalf of big business, for the City and for the big combines, we saw a very different attitude on the Treasury Bench. I trust that small traders will realise that there is no hope for them from this Government, which runs away from the combines and throws all the burdens it can on the small trader equally with the worker. I think the reply which the Financial Secretary gave us was worthy neither of himself not of this Committee. Small traders must realise that it is no use their seeking protection from this Government, which is the Government of big business, and that their only hope is to join up with the workers.

9.47 p.m.

Photo of Sir Louis Smith Sir Louis Smith , Sheffield, Hallam

Those who have studied this Amendment cannot, surely, agree with the hon. Member for Llanelly (Mr. J. Griffiths) in his statement that this Government will not look after the small trader, because in this instance the small business is not touched at all. We are discussing medium-sized businesses. What I think the Mover of the Amendment made perfectly clear to the Committee is that the proposal in the Bill does not work fairly towards the privately-owned business as compared with the business which is director-controlled. I thought that when the Chancellor of the Exchequer withdrew the old Clauses of the Finance Bill and replaced them with these new ones it was done with a desire not only to make very clear what the position of all those in industry would be, but also to make the new tax perfectly equitable as between one business and another. I think the Mover of the Amendment has made out an extremely good case and that the Committee ought to see to it that a private trader is put on the same basis as a director-controlled firm. Now that the Chancellor of the Exchequer himself is present, I trust that we shall hear from him that he will take into consideration the arguments so cogently and clearly put forward by the Mover and the Seconder of the Amendment and make sure that the private trader is put on the same basis as the director-controlled company.

9.49 p.m.

Photo of Mr Thomas Levy Mr Thomas Levy , Elland

I rise to support the Amendment. One thing which is characteristic of most Britishers is the love of fair play, and, as someone says sotto voce, the love of justice. There are a large number of small traders in my constituency. They do not object to pay taxes, but they object to being treated unjustly. In this House it is usual to meet argument with argument and if an argument is put forward in favour of this particular Amendment it is only reasonable for the Front Bench to put forward another argument to convince lion. Members why the Amendment should not be accepted. This is an important case and if the hon. Member for Huddersfield (Mr. Mabane) takes his Amendment to a Division I shall be compelled to go into the Lobby to support him. This is a case to which consideration should be given by the Front Bench. It may be that those on the Front Bench do not feel disposed to accept the Amendment now but would prefer to deal with the matter on Report stage, giving an undertaking that it will receive consideration; but if this Amendment is not accepted I fail to see what argument can be put forward which will show that an injustice will not be inflicted upon the small trader. Therefore, I ask the Financial Secretary or the Chancellor of the Exchequer to give us a complete answer to the argument that is put forward, to give us, if he does not accept the Amendment, something which will convince us that it ought not to be accepted.

9.52 p.m.

Photo of Mr John Simon Mr John Simon , Spen Valley

I am sorry that I was not myself present when the Amendment was moved, but it is inevitable that my right hon. and gallant Friend and myself should to a certain extent relieve one another. I have, however, had the advantage of a certain amount of private conversation concerning it. I must again ask the Committee to appreciate that it is not possible in a scheme of this sort to secure a scientifically exact application of the charge so that it will be logically and with the greatest mathematical nicety adjusted to any and every assumed case. That is not the nature of this proposal. I have known from the beginning—one needs to know very little mathematics to appreciate it—that if you provide that a tax shall be at the rate of 5 per cent. in the case of a company and 4 per cent. in the case of a firm, it is easy to imagine instances in which it can be shown that the difference between 5 per cent. in the one case and 4 per cent. in the other does not work out to produce precise mathematical equality. It must be so.

Take, for example, the simplest of all cases, that of a partnership firm which is making, let us say, £10,000 profit assessed to Income Tax and, of course, taking nothing from that total except the partnership shares, and the case of a company which may be making anything between £10,000 and £15,000, but, in the case of one company, has a cheap list of directors and in the case of another company an expensive list. It is perfectly obvious that you cannot get the figures to fit. But that is really the essential result of a general scheme of this sort. There is no mathematical solution for that. The first thing to consider is: Is it right on the whole to draw a difference between companies and firms? The second question is: Is this difference the kind of difference to draw? I think it is, because it is the result of a great deal of thought which many people have given to the point. Having regard to the different things which companies do before they pay their Income Tax which firms cannot do it is evident that you must have some differential treatment, and I have thought that on the whole the arrangement was a fair one. There will be cases where somebody will say, "I am glad that I am not a company but a firm," and other cases where somebody else will say, "I am glad that I am not a firm but a company," but I do not believe it is possible to devise a general principle which will avoid that possibility. My hon. Friend had more particularly in his mind the director-controlled company.

Photo of Mr William Mabane Mr William Mabane , Huddersfield

My point was that, as between the director-controlled company and the partnership it has been suggested by the Financial Secretary that there is an advantage in favour of the partnership. I have produced certain figures to show that that is not really quite accurate, and I am asking that partnerships should be put upon exactly the same level as director-controlled companies. By the Clause, the director-controlled company is entitled to make a deduction from its profits in respect of the salaries of directors of 15 per cent. of the profits, or £1,500, whichever is the greater, with an upward limit of £15,000, and pay 5 per cent. I am asking that the partnership should be able to make that deduction in respect of salaries and pay 5 per cent. It would suit me admirably if a partnership could make the choice whether to pay 4 per cent. and make no deduction for salaries, or deduct for salaries and pay 5 per cent. I do not desire to press the point unduly, but if the Clause could be reconsidered I think the wishes of the Committee would be met.

Photo of Mr John Simon Mr John Simon , Spen Valley

My hon. Friend has stated his point so clearly that I do apprehend it. I may be wrong, as I have not been here the whole time, but has the point been considered that, in the case of a director-controlled company, the directors themselves will ordinarily take an important position in controlling the day-to-day work of the company? If they have a manager as well, he may be a comparatively subordinate person. The directors will be the principal persons. They will go to the office every day and decide how the business will be run. It is for that reason that the Clause has been drawn to include, among those whose salaries must be deducted, a manager only where he holds as much as 20 per cent. of the shares.

Now let us take the case of a firm which is conducting the same kind of business. It is by no means always the case that the manager of a firm holds the sort of position held by the manager of a director-controlled firm. You may have sleeping partners in a firm, and it may be that the manager is the most important person and the most highly remunerated person. The position of general manager in a firm does not always correspond with that of the general manager of a director-controlled company. That was one consideration which I had in mind in framing this scheme, and I am not sure whether my hon. Friend has considered that point. It may be that the scheme as we have framed it is not in the best form, but I warn the Committee that there is no method which you could introduce into it which would be scientifically and mathematically perfect, if you select your instance. You can always select your instance to show that, as the Clause stands, it would be unfair on this side or on the other.

Having said that, I will, if the Committee will allow me, first of all take advantage of what hon. Members have said and very carefully study what was said when I was not here. I dare say that I shall have the opportunity of conferring with hon. Members who feel that they are specially qualified to point out the difficulty. It may be that some adjustment could be made in the case of director-controlled companies, either at this stage or by some Amendment of the main scheme; that is to say, that companies as a whole will be dealt with as the Clause provides. The director-controlled company is very analogous to a firm; it may be that that is almost an accident. Some are rather nearer to a firm in their nature than to a company. I am, therefore, perfectly ready to believe that some of the wording may not be precisely right, and if my hon. Friend will accept that assurance I most certainly will see what can be done.

Photo of Mr William Mabane Mr William Mabane , Huddersfield

I am grateful to my right hon. Friend. I do not want to be dogmatic about this. I put a case which seemed to me to be a good case and which apparently seemed to the Committee to be a good case. Nevertheless I recognise that it may not be accurate in every detail. In view of the full assurance given by my right hon. Friend I beg to ask leave to withdraw my Amendment.

10.1 p.m.

Photo of Mr Herbert Williams Mr Herbert Williams , Croydon South

On a point of Order. I understand that an Amendment proposed with the effect of increasing the burden would be out of order upon the Report stage, and I am asking your guidance, Captain Bourne, on the matter. Any proposal which is accepted and which alters this scheme, would inevitably make the burden higher on some people, as the Chancellor of the Exchequer has pointed out. Before we lose control of this matter now, I want to be satisfied, on the ground of Parliamentary procedure, that we can in fact do it on the Report stage. If we cannot do it on the Report stage, I should be averse to the Amendment being withdrawn, because we ought to decide the matter now. That is my interpretation of the Rules.

Photo of Mr Robert Bourne Mr Robert Bourne , Oxford

I understand that the hon. Member is putting a point of Order to me. Quite obviously, it is out of order on the Report stage of the Bill to impose any burden on anybody which is not sanctioned by the Committee, whether it is within the terms of the authorisation of the Resolution or not. At the same time, it is always possible to recommit a Bill in respect of an individual proposal. I would point out that it would not necessarily pass out of the control of the House.

Mr. Mebane:

Would it not be possible to make an Amendment, in parts that, as it were, hang together, that would not altogether increase the charge, although perhaps one part would increase the charge?

Photo of Mr Robert Bourne Mr Robert Bourne , Oxford

Obviously that is a matter for Mr. Speaker.

Mr. Mebane:

I beg to ask leave to withdraw the Amendment.

10.4. p.m.

Photo of Mr George Garro-Jones Mr George Garro-Jones , Aberdeen North

The Committee appears to be in some difficulty on this

point. On the one hand the hon. Member for Huddersfield (Mr. Mabane) has made out a case which has appealed, so far as aural evidence showed, to the judgment of the Committee as a whole. There are hon. Members on this side and on the other side who object to the withdrawing of the Amendment, if thereby we are putting the matter outside our control. I would suggest that the Chancellor of the Exchequer should accept the Amendment and reserve the right to withdraw it on the Report stage. By the reverse procedure we should run into conflict with the Rules of the House, but by the procedure I suggest the right hon. Gentleman would satisfy the Committee and would avoid our having to force this matter to a Division.

Question put, "That the words proposed to be left out stand part of the proposed Clause."

The Committee divided: Ayes, 192; Noes, 122.

Division No. 247.]AYES[10.4 p.m.
Acland-Troyte, Lt.-Col. G. J.Crowder, J. F. E.Herbert, Capt. Sir S. (Abbey)
Agnew, Lieut.-Comdr. P. G.Cruddas, Col. B.Higgs, W. F.
Allen, Col. J. Sandeman (B'knhead)Denman, Hon. R. D.Hills, Major Rt. Hon. J. W. (Ripon)
Anstruther-Gray, W. J.Dorman-Smith, Major Sir R. H.Holmes, J. S.
Aske, Sir R. W.Duckworth, W. R. (Moss Side)Hope, Captain Hon. A. O. J.
Assheton, R.Dugdale, Captain T. L.Hopkinson, A.
Baldwin-Webb, Col. J.Duncan, J. A. L.Hudson, Capt. A. U. M. (Hack., N.)
Balfour, Capt. H. H. (Isle of Thanet)Eckersley, P. T.Hume, Sir G. H.
Barclay-Harvey, Sir C. M.Edge, Sir W.Hunter, T.
Beamish, Rear-Admiral T. P. H.Edmondson, Major Sir J.Jones, L. (Swansea W.)
Beaumont, Hon. R. E. B. (Portsm'h)Elliot, Rt. Hon. W. E.Keeling, E. H.
Boothby, R. J. G.Ellis, Sir G.Kerr, J. Graham (Scottish Univs.)
Boyce, H. LeslieElliston, Capt. G. S.Keyes, Admiral of the Fleet Sir R.
Briscoe, Capt. R. G.Elmley, ViscountKimball, L.
Brooklebank, Sir EdmundEmrys-Evans, P. V.Lamb, Sir J. Q.
Brown, Col. D. C. (Hexham)Errington, E.Law, Sir A. J. (High Peak)
Brown, Rt. Hon. E. (Leith)Erskine-Hill, A. G.Law, R. K. (Hull, S.W.)
Brown, Brig.-Gen., H. C. (Newbury)Evans, Capt. A. (Cardiff, S.)Lees-Jones, J.
Bull, B. B.Fildes, Sir H.Leighton, Major B. E. P.
Butcher, H. W.Fleming, E. L.Levy, T.
Cartland, J. R. H.Furness, S. N.Liddall, W. S.
Carver, Major W. H.Fyfe, D. P. M.Little, Sir E. Graham-
Cary, R. A.Ganzoni, Sir J.Llewellin, Lieut.-Col. J. J.
Castlereagh, ViscountGledhill, G.Lloyd, G. W.
Cayzer, Sir H. R. (Portsmouth, S.)Gluckstein, L. H.Loftus, P. C.
Cazalet, Thelma (Islington, E.)Glyn, Major Sir R. G. C.Mabane, W. (Huddersfield)
Cazalet, Capt. V. A. (Chippenham)Goldie, N. B.Mac Andrew, Colonel Sir C. G.
Christie, J. A.Gower, Sir R. V.McCorquodale, M. S.
Clarke, F. E. (Dartford)Grant-Ferris, R.Macdonald, Capt. P. (Isle of Wight)
Clarke, Lt.-Col. R. S. (E. Grinstead)Granville, E. L.McKie, J. H.
Clarry, Sir ReginaldGretton, Col. Rt. Hon. J.Maitland, A.
Cobb, Captain E. C. (Preston)Gridley, Sir A. B.Makins, Brig.-Gen. E.
Colfox, Major W. P.Grimston, R. V.Manningham-Buller, Sir M.
Colman, N. C. D.Gritten, W. G. HowardMargesson, Capt. Rt. Hon. H. D. R.
Colville, Lt.-Col. Rt. Hon. D. J.Guest, Lieut.-Colonel H. (Drake)Markham, S. F.
Cooper, Rt. Hn. T. M. (E'nburgh, W.)Guest, Maj. Hon. O. (C'mb'rw'll, N.W.)Mayhew, Lt.-Col. J.
Conant, Captain R. J. E.Guy, J. C. M.Mellor, Sir J. S. P. (Tamworth)
Cox, H. B. T.Hannah, I. C.Mills, Major J. D. (New Forest)
Critchley, A.Haslam, Sir J. (Bolton)Moreing, A. C.
Crooke, J. S.Heilgers, Captain F. F. A.Morgan, R. H.
Croom-Johnson, R. P.Heneage, Lieut.-Colonel A. P.Morrison, G. A. (Scottish Univ's.)
Cross, R. H.Hepburn, P. G. T. Buchan.Morrison, Rt. Hon. W. S. (Cirencester)
Crossley, A. C.Hepworth, J.Muirhead, Lt.-Col. A. J.
Munro, P.Robinson, J. R. (Blackpool)Tasker, Sir R. I.
Neven-Spence, Major B. H. H.Ropner, Colonel L.Tate, Mavis C.
Nicolson, Hon. H. G.Ron Taylor, W. (Woodbridge)Thomson, Sir J. D. W.
O'Connor, Sir Terence J.Rowlands, G.Touche, G. C.
Palmer, G. E. H.Russell, Sir AlexanderTryon, Major Rt. Hon. G. C.
Patrick, C. M.Salmon, Sir I.Wakefield, W. W.
Peaks, O.Salt, E. W.Walker-Smith, Sir J.
Peat, C. U.Samuel, M. R. A.Wallace, Capt. Rt. Hon. Euan
Pickthorn, K. W. M.Savery, Sir ServingtonWard, Irene M. B. (Wallsend)
Ponsonby, Col. C. E.Shaw, Major P. S. (Wavertree)Waterhouse, Captain C.
Procter, Major H. A.Shaw, Captain W. T. (Forfar)Wells, S. R.
Radford, E. A.Shepperson, Sir E. W.Whiteley, Major J. P. (Buckingham)
Ramsay, Captain A H. M.Simon, Rt. Hon. Sir J. A.Williams, H. G. (Croydon, S.)
Ramsbotham, H.Smiles, Lieut.-Colonel Sir W. D.Windsor-Clive, Lieut.-Colonel G.
Ramsden, Sir E.Smith, L. W. (Hallam)Wise, A. R.
Rankin, Sir R.Smith, Sir R. W. (Aberdeen)Womersley, Sir W. J.
Rayner, Major R. H.Somerville, A. A. (Windsor)Wragg, H.
Reed, A. C- (Exeter)Spens, W. P.Wright, Squadron-Leader J. A. C.
Reid, J. S. C. (Hillhead)Strauss, H. G. (Norwich)Young, A. S. L. (Partick)
Reid, W. Allan (Derby)Strickland, Captain W. F.
Remer, J. R.Stuart, Hon. J. (Moray and Nairn)TELLERS FOR THE AYES.
Rickards, G. W. (Skipton)Sueter, Rear-Admiral Sir M. F.Lieut-Colonel Sir A. Lambert Ward
and Major Sir George Davies.
NOES
Acland, R. T. D. (Barnstaple)Hall, G. H. (Aberdare)Paling, W.
Adams, D. (Consett)Hall, J. H. (Whitechapel)Parker, J.
Adams, D. M. (Poplar, S.)Harvey, T. E. (Eng. Univ's.)Parkinson, J. A.
Ammon, C. G.Henderson, A. (Kingswinford)Price, M. P.
Anderson, F. (Whitehaven)Henderson, J. (Ardwick)Quibell, D. J. K.
Banfield, J. W.Henderson, T. (Tradeston)Richards, R. (Wrexham)
Barr, J.Hills, A. (Pontefract)Ridley, G.
Batey, J.Holdsworth, H.Ritson, J.
Broad, F. A.Hollins, A.Robinson, W. A. (St. Helens)
Bromfield, W.Hopkin, D.Rowson, G.
Brown, C. (Mansfield)Jagger, J.Salter, Dr. A. (Bermondsey)
Brown, Rt. Hon. J. (S. Ayrshire)Jenkins, A. (Pontypool)Seely, Sir H. M.
Buchanan, G.Jenkins, Sir W. (Neath)Sexton, T. M.
Burke, W. A.John, W.Silkin, L.
Cape, T.Jones, A. C. (Shipley)Silverman, S. S.
Charleton, H. C.Jones, Sir H. Haydn (Merioneth)Simpson, F. B.
Chater, D.Kelly, W. T.Smith, Ben (Rotherhithe)
Cluse, W. S.Kennedy, Rt. Hon. T.Smith, E. (Stoke)
Cocks, F. S.Kirby, B. V.Smith, T. (Normanton)
Cove, W. G.Kirkwood, D.Sorensen, R. W.
Cripps, Hon. Sir StaffordLansbury, Rt. Hon. G.Stewart, W. J. (H'ght'n-le-Sp'ng)
Daggar, G.Leach, W.Strauss, G. R. (Lambeth, N.)
Dalton, H.Lee, F.Taylor, R. J. (Merpeth)
Davies, S. O. (Merthyr)Leonard, W.Thurtle, E.
Day, H.Leslie, J. R.Tinker, J. J.
Dobbie, W.Logan, D. G.Viant, S. P.
Dunn, E. (Rother Valley)Lunn, W.Walkden, A. G.
Ede, J. C.Macdonald, G. (Ince)Walker, J.
Edwards, A. (Middlesbrough E.)McEntee, V. La T.Watkins, F. C.
Edwards, Sir C. (Bedwellty)McGhee, H. G.Watson, W. McL.
Evans, E. (Univ. of Wales)MacLaren, A.Welsh, J. C.
Fletcher, Lt.-Comdr. R. T. H.Maclean, N.Westwood, J.
Gallacher, W.Mainwaring, W. H.Whiteley, W. (Blaydon)
Gardner, B. W.Marshall, F.Wilkinson, Ellen
Garro Jones, G. M.Mathers, G.Williams, E. J. (Ogmore)
George, Megan Lloyd (Anglesey)Messer, F.Windsor, W. (Hull, C.)
Graham, D. M. (Hamilton)Milner, Major J.Woods, G. S. (Finsbury)
Green, W. H. (Deptford)Montague, F.Young, Sir R. (Newton)
Griffith, F. Kingsley (M'ddl'sbre, W.)Morrison, R. C. (Tottenham, N.)
Griffiths, G. A. (Hemsworth)Naylor, T. E.TELLERS FOR THE NOES.
Griffiths, J. (Llanelly)Oliver, G. H.Mr. Muff and Mr. Davidson.
Groves, T. E.Owen, Major G.

10.13 p.m.

Photo of Captain Sir Peter Macdonald Captain Sir Peter Macdonald , Isle of Wight

I beg to move, as an Amendment to the proposed Clause, in line 6, at the end, to insert: (2) If the total revenue raised from the tax reaches the sum of one hundred and twenty-five million pounds sterling before the expiry of the period of five years beginning on the first clay of April, nineteen hundred and thirty-seven, the tax shall cease to operate at the end of the financial year in which that sum has been received by the Exchequer. This Amendment, if accepted, would give effect to an assurance given by the Chancellor in introducing the new form of National Defence Contribution, when he stated that the reason for withdrawing the tax in its original form was that it was found to be unreasonable in its incidence, and that, in order to make it reasonable, the intention was to introduce the tax in a new form. He said that, so long as he obtained the sum of £25,000,000 per annum over a period of five years, all the requirements of the new tax would me fulfilled. But it was the intention of the Government that the taxpayer should not escape, and the Chancellor used a rather amusing simile, which was to the effect that, while the taxpayer could have an alternative, he must accept the fate of either being boiled or roasted.

The taxpayer should not be consigned to that unhappy fate for an unlimited period or indiscriminately. If the Chancellor of the Exchequer accepts this Amendment he Swill merely be reassuring the taxpayer that his original statement was sincere and that the tax will be limited to £25,000,000 per annum, and that when he has obtained the £125,000,000 which he aims at he is prepared to withdraw the tax. The right hon. Gentleman may take the view that the assurance is not necessary, but we have had ample evidence in the Debates that have taken place that it is very necessary. The country is still very unhappy about the tax. They do not know how long it is going to last and for how much they are going to be mulct. I hope, therefore, that the Chancellor will accept this very reasonable Amendment, which is only putting into effect the assurance that he gave on the introduction of the tax.

10.18 p.m.

Photo of Mr Robert Boothby Mr Robert Boothby , Aberdeenshire and Kincardineshire Eastern

The Clause and the tax are not very popular in any part of the Committee. We regard it as a great improvement on the number one proposal, but no one would suggest that it is a popular tax. The right hon. Gentleman specifically stated that his object was to raise a sum of £125,000,000 out of the profits of industry for the purpose of our exceptional expenditure on rearmament for the next few years. He will not be permanently bound if he accepts the Amendment, but that it would be a gesture to industry at a rather difficult time if he were to say that his present intention was not to raise more than the £125,000,000 that he originally stipulated for. To be frank, some of us are not absolutely convinced that his estimate will not be somewhat exceeded and, while I am the last to say that the profits of industry should not bear their fair proportion of the expense of rearmament, at the same time the right hon. Gentleman put forward a specific objective. He said he wanted to raise £125,000,000 to meet this particular expense. We are asking him to say that unless some exceptional circumstance arises which causes him, as it well may, further to increase our expenditure on rearmament, in which case it is obvious that he will require further revenue, he should make this gesture and say he will limit the tax to the amount which at present he has in mind.

10.20 p.m.

Photo of Mr John Simon Mr John Simon , Spen Valley

I am sorry that I cannot accept this proposal. It is, so far as I know, entirely a novelty in the way of taxation. It is quite true that the Committee generally accepts from the Chancellor of the Exchequer his best estimate of what a tax will produce, and very great skill and care are required to make these calculations. I am aware that they may perhaps not be right either in one direction or in the other. I do not myself recollect any occasion from beginning to end in which I have ever spoken of £125,000,000. I noticed that neither my hon. and gallant Friend who moved nor my hon. Friend who seconded the Amendment purported to produce such a quotation. What I do remember is that my predecessor, the present Prime Minister, when he was discussing his proposal that there should be a special contribution called for from trade and industry, said that he wanted, in the first year, some £25,000,000, but he went on to say that the yield thereafter would depend upon the course of profits, and further that we must not assume—we cannot assume with cast-iron truth—that the precise amount that will be wanted in the next five years will be $1,500,000,000. It may be more, it may conceivably be less, and it is possible that it may be spread over a longer or a shorter time, but what I have done by the terms of the tax before the Committee is to provide that what we are now doing shall continue in operation for five years. That in itself is a very unusual provision, and I think that it is a valuable provision. I am afraid that I cannot undertake to be the author of what, as far as I know, is an entirely unprecedented gesture in the matter of collecting taxation.

10.22 p.m.

Photo of Mr Andrew MacLaren Mr Andrew MacLaren , Stoke-on-Trent Burslem

From what we have heard since this discussion began on this particular Resolution it would appear to anyone with a sense of sportsmanship that he should defend the Government. These persistent attacks behind the Government benches have forced me to intervene. I noticed that the Chancellor of the Exchequer, with that exact precision which is characteristic of him, put his finger on the point. It has been stated by the hon. Member for East Aberdeen (Mr. Boothby) that this is only a gesture. I wonder what hon. Members would have said if that gesture had been proposed from the Labour benches? It implies, as the Chancellor of the Exchequer rightly says, an innovation that groups of taxpayers within the State shall say of their own volition the amount that shall be paid to the Treasury and the number of years that they should be subject to the impost. There is nothing that would please the Labour party more than that the working classes should have mass meetings to decide how much taxation they should pay and the number of years they should be subject to the impost. It is a good thing in constitutional law that one Parliament shall not bind another. Here we have a suggestion that, whatever happens now or in the near future, apart altogether from any consideration of whatever Government happens to be in power, they shall be bound by the gesture. If the Amendments were carried the gesture would turn into a cast-iron chain on the succeeding Government.

Photo of Mr Robert Boothby Mr Robert Boothby , Aberdeenshire and Kincardineshire Eastern

The hon. Member knows as well as I do that no Parliament can possibly bind its successor, and no Session can bind a succeeding Session. The same argument applies to the five-year limitation.

Photo of Mr Andrew MacLaren Mr Andrew MacLaren , Stoke-on-Trent Burslem

We on this side have implicit faith in the Chancellor of the Exchequer's statement regarding this Amendment. We are not showing that lack of faith in leadership which is being shown by hon. Members on the other side. We believe that the Chancellor of the Exchequer meant what he said, although we have our suspicions. We have observed in the past history of taxes in this country or in any other country, that most of these new taxes on industry are transitory. That is the farce. As soon as the tax begins, a bureaucratic machine grows up around its maintenance, and you can take it from me that it will not be abolished. Any new impost creates an army of bureaucrats to get it going and keep it going, and the most difficult thing in the world is to abolish a bureaucratic machine. You can more easily destroy a Government than you can destroy a Government Department. Therefore, I hope the followers of the Government will accept the advice tendered by the Chancellor of the Exchequer and refuse to accept this Amendment, and we on this side will help the Government in the very serious situation in which they find themselves.

10.27 p.m.

Photo of Sir John Mellor Sir John Mellor , Tamworth

I very much regret that the Chancellor of the Exchequer cannot see his way to accept the Amendment. I agree that no precise undertaking was given that the amount should be limited to an aggregate of £25,000,000, but it has been clearly said that it is to be a temporary tax for a period of five years and, most emphatically, that a yield of £25,000,000 a year on the average should be aimed at. May I quote the Chancellor of the Exchequer when he moved the new National Defence Contribution? If in a full year I am only going to get £25,000,000, and that will be subject to a deduction of one-fourth on assessment to Income Tax, I am not in a position to be generous in every quarter."—[OFFICIAL REPORT, 21st June, 1937; col. 868, Vol. 325.] I hope that he will be able to review the matter and, a little further on, be generous in respect of some of the other Amendments. That statement of the Chancellor of the Exchequer was very definitely confirmed by the Financial Secretary to the Treasury in the same Debate. He said: There can never have been any doubt in the minds of Members of the Committee as to the amount which we aimed at—£25,000,000 gross. Twenty-five million pounds is the actual amount which will be obtained from this tax, but that is off-set, of course, by the allowance for Income Tax."—[OFFICIAL REPORT, 21st June, 1937; col. 970, Vol. 325.] In view of that statement it would be very unfortunate and would give a great deal of disappointment to those concerned in industry if they are to be expected to pay something above a total sum of £125,000,000. The Chancellor of the Exchequer said he felt rather like collecting a voluntary contribution. Industry has taken these proposals with a very good grace. I do not think the proposals have been revised to such an extent that industry is expected to find more than £25,000,000 a year for more than five years. If the Chancellor of the Exchequer requires more money, as he may well do in the course of the five years, such further sums should be obtained from other sources and not from industry under these N.D.C. proposals.

10.30 p.m.

Photo of Mr George Garro-Jones Mr George Garro-Jones , Aberdeen North

Occasionally we have an Amendment proposed from the other side with a grain of common sense in it, and we have often been greatly disappointed when they have not been pressed to a Division. At the same time we have been consoled by the thought that some little good may have been done by a discussion of these Amendments. I am surprised that the hon. Member for East Aberdeen (Mr. Boothby) has put his name to an Amendment which is not going to be pressed to a Division, and speaking for myself I cannot see what good purpose can be served by discussing it. After all, the only real effect of an Amendment like this would be to debunk the venerable device by which all taxes are introduced first as a temporary tax, and I regret that they have taken away the anodine when they explain that the introduction of this new impost should be exposed by an Amendment of this kind. It is entirely unsound in principle. If the test of the duration of a tax is to be the amount of its yield, why did not hon. Members include in their Amendment that if the tax does not yield £125,000,000 in the next five years it should last for a great deal longer than five years?

Of course the real danger and objection to the Amendment is that if it was passed it would be interpreted as a pledge, and if at the expiration of five years some new circumstance was to arise such as a declaration of war, which would require the raising of a much larger amount and demand the maintenance of this impost, we should be met with a howl of protest from the interests affected that we were breaking a pledge given by the Parliament of 1937. I hope that when hon. Members bring forward Amendments which they do not intend to press to a Division they will at least do us the honour of avoiding proposals such as this which are not characterised by common sense.

Amendment negatived.

10.34 p.m.

Photo of Mr Albert Alexander Mr Albert Alexander , Sheffield, Hillsborough

I beg to move, as an Amendment to the proposed Clause, in line 10, at the end, to insert: other than that of a society registered under the Industrial and Provident Societies Acts, 1893 to 1928. A good deal has been said as to whether a tax imposed by one Parliament should be held to be binding on another. In the case of the Amendment I am moving we are dealing with a principle which we are not allowed to discuss in the House in the ordinary way because of a decision of the Finance Act of 1933. Whenever we have endeavoured to discuss whether or not we can secure a redress of the grievances of members of mutual industrial and provident societies under the Act of 1933, we have always been ruled out by Mr. Speaker in the House or by the Chairman of Ways and Means in Committee on the ground that if we obtain a redress of our grievances some other section of the community will have to bear an increased charge. Therefore, until we can altogether change the form of Government, we are absolutely precluded from Parliament to Parliament from obtaining a redress of grievances in this respect. It was perhaps just as well that the question of binding one Parliament as against another was raised just now. Here is a case in point, where, with regard to the principle of mutuality in relation to taxation, we are not allowed in the ordinary way to get a redress of grievances.

On this occasion, however, the Chancellor of the Exchequer introduces a new general tax—the National Defence Contribution—and includes a special provision within the terms of the Clause which makes it clear that industrial and provident societies are to be subject to it. The whole basis of the National Defence Contribution is that it is charged, not, as the Income Tax, upon all the people in receipt of incomes in the country, but as a special tax upon the profits of industry. The Chancellor of the Exchequer must know that our objection to including industrial and provident societies within the scope of this tax is not because any of our members or shareholders have any special antipathy to paying their due and proper share of the burden of armaments—[Interruption.] I do not see why that should cause any merriment on the part of hon. Members opposite. There is no better body of people from the point of view of paying their fair share of taxation and saving expenditure to the State than the co-operators. I would be prepared to demonstrate that to hon. Members at any time and to give facts and figures to prove my case.

Our case against this is that the Government are asking nearly 8,000,000 cooperators, the majority of whom are below the Income Tax level, to pay a special contribution, which is described by the Chancellor of the Exchequer as a tax upon profits, although they do not make profits. On that ground we can debate —and debate with effect, I think—whether or not mutuality is a process under which profits are made. Earlier in the evening T was interested to hear anxious inquiries from the right hon. and gallant Gentleman the Member for Ripon (Major Hills as to exactly how other Subsections of this Clause would affect the reserve funds put aside to meet the charges upon the life fund of insurance companies, how, for example, the tax would affect the reserves or surpluses, or even the general transactions, of those life insurance offices.

When the right hon. and gallant Gentleman was speaking, I wondered how he voted in 1933. I wonder how the hon. Members with whom he now sits in the House voted in 1933, when the Chancellor at that time, in order to make a penal attack upon one section of the community, deliberately introduced a Bill in Parliament to upset the impartial and considered judgment of the final Court of Appeal in this country, a decision which was taken, in fact, upon the very class of case to which he has referred and which has come down in the records as Styles v. Rex. taken on the New York Mutual Life Office. The disability under which those who belong to mutual trading societies are suffering to-day is entirely due to the fact that the present Prime Minister, whom the right hon. and gallant Member supports, deliberately upset the impartial judgment of the final Court of Appeal in this country as to what did or did not constitute mutual trading and whether, in fact, mutal trading did constitute a profit.

We are faced to-night with exactly the kind of position which all those who have endeavoured to lead the co-operative movement on this question forsaw would arise, once the 1933 Act was carried. We said, when the Chancellor of the Exchequer of that time brought in that Measure that it would be used as the thin end of the wedge for making further inroads upon the mutual savings of co-operators. Here is an example. Here is a National Defence Contribution for which industrial and provident societies are to be mulcted, as has been shown to-night by the Chancellor's statement, and from which, as the hon. Member for Hallam (Mr. L. Smith) said, the small trader who trades for his private and personal profit is to be exempted, because all profits up to £2,000 from trading are to be exempt and those traders who are making a profit a little better than £2,000, are to have special concessions.

Although they trade for private and personal profit they are to be specially relieved from this contribution, but the millions of working-class people who band themselves together in a mutual organisation, in order to save what they can in the spending of their already fully-taxed incomes, are to be specially charged simply because they associate together for purposes of thrift. They are to be charged upon what has accumulated in their central organisation although the majority of those to whom it belongs are not taxable persons. They are then to be told, as was indicated just now, by Conservatives and by certain traders, that because they take up their present position they are unwilling to make their proper contribution to the cost of the country's defence.

As regards raising money by direct taxation for the armaments programme, there is no section of the co-operative movement which is not willing to do its part in relation to the ability of its members to pay. So far from not having borne our proper share as co-operators, we have over and over again been overtaxed in relation to the individual incomes of our members. By our mutual thrift and association, we have saved the State from public charges which would otherwise have been incurred in the care of people who had not taken advantage of those opportunities for thrift. Now, because we were unfairly treated in 1933 because the decision in the case of Styles v. Rex was destroyed for no real reason except the envy, hatred and malice of other people engaged in trade for profit, we are to be mulcted in a further charge, and no means of redress is provided for any of the shareholders in the movement which is now described as the industrial and provident society movement.

It is still open to the Chancellor of the Exchequer to retrieve his reputation in this matter. My hon. Friend the Member for East Ham, South (Mr. Barnes) on the Money Resolution gave a little of the history of the right hon. Gentleman in this matter. While we are not going to waste time handing political bouquets to the right hon. Gentleman, we know what his authoritative position as a lawyer was on taxation questions. We could not have gone to a higher authority in the year 1920 than to the present Chancellor of the Exchequer—I think at that time he was in consultation with Mr. Wylie—as to the proper treatment of industrial and provident societies in relation to the Corporation Profits Tax. I do not mean to repeat the salient extracts from the right hon. Gentleman's opinion of 1920 which my hon. Friend quoted the other night, but if the Chancellor of the Exchequer says he cannot meet us simply because of the Act of 1933 and that the whole situation has changed because of that Act, let me say to him that as an authority on Income Tax principle, I think he will have to admit that his opinion was given, not as to whether an Act of Parliament existed or not, but on what was the principle, and I remember his saying in that opinion that it would not be rational for co-operative societies at that time to be mulcted in a Corporation Profits Tax.

We say that it is just as irrational now as it was in 1920 for those who in the main are not receiving incomes up to the taxable limit to be specially taxed on surpluses which arise from the mutual association in which they associate to save themselves in spending their fixed income, and if the Chancellor of the Exchequer can show us how the position is changed from 1920 from being irrational to something which is now rational, I shall be very glad to hear his argument, but he will have to be much more clever, I think, politically, than he has shown himself in the past, and he will have to adopt something more of the facility which he had at the Bar to persuade us on a point like that. We have, right through the movement for which I speak—some millions of them—a profound objection to the destruction of that mutual principle in 1933. We are not permitted under the Rules of the House to obtain redress of that grievance on a Finance Bill by moving to amend that law, but we can resist with all the power that we can command here a further extension of the grievance by the use of that decision of 1933 still further to impose burdens on those who ought not to bear the tax.

10.47 p.m.

Photo of Mr Edmund Radford Mr Edmund Radford , Manchester Rusholme

I hope my right hon. Friend the Chancellor of the Exchequer wi11 turn a deaf ear to the eloquent representations made by the right hon. Member for the Hillsborough Division of Sheffield (Mr. Alexander). He is an expert at conveying the impression that the Co-operative movement is an association of a lot of poor people who do a little mutual trading together, and you would not think, to hear the speech which he has just made, that the last balance sheet of the Co-operative Wholesale Society, which I have in my possession, shows a bank balance of £47,000,000, merely to mention one item. I had a considerable experience of the attitude of the Co-operative movement in 1933, and—

Photo of Mr Albert Alexander Mr Albert Alexander , Sheffield, Hillsborough

Will the hon. Member produce the balance sheet which quotes that bank balance, or is he quoting the balance of bank deposits?

Photo of Mr Edmund Radford Mr Edmund Radford , Manchester Rusholme

If the right hon. Gentleman will meet me in the "Aye" Lobby, I will produce the balance sheet to him. It is in my attache case, but I did not trouble to load myself with it now.

Photo of Mr George Garro-Jones Mr George Garro-Jones , Aberdeen North

I am sure the hon. Member has no intention to deceive the Committee, but is he suggesting that the Co-operative Wholesale Society has a cash balance of £47,000,000?

Photo of Mr Edmund Radford Mr Edmund Radford , Manchester Rusholme

Yes. It is quite clear and there are no industrial concerns in our country with such a bank balance as that, yet there are appeals ad misericordiam from the Co-operative representatives that they shall be exempt from this tax because a number of their shareholders are small people below the Income Tax level.

Photo of Mr Albert Alexander Mr Albert Alexander , Sheffield, Hillsborough

I am sure the hon. Member does not wish to give a false impression to the Committee, but obviously it is absurd to say that the Co-operative Wholesale Society have a cash bank balance of £47,000,000. What undoubtedly he means is the net balance of bank deposits in the separate banking department of the society, but that is owned by thousands and thousands of people—small depositors.

Photo of Mr Edmund Radford Mr Edmund Radford , Manchester Rusholme

I have no desire, to any greater extent than the right hon. Gentleman, to convey a wrong impression. The £47,000,000 to which I am referring as the deposit and current balance of the Cooperative Wholesale Society general trading department at that date naturally appears as a liability of their banking department, but on the opposite side of the banking department balance sheet there is £57,000,000 of investments outside the Co-operative movement. The money is there. At any rate, it ill accords with the right hon. Gentleman's very strong statement that no co-operators wish to avoid their due measure of taxation, because in 1933—and it may well be the same now—they cried out before they were hurt. They made a tremendous shout about the it liability to taxation, and before the election I fought in that year was over two of the local co-operative societies announced in their monthly reports that they had been misinformed or had miscalculated what their position would be and that after the 1933 Budget proposals had become law they found that they would not be paying any more taxation than they did previously because of the allowance in respect of their Schedule A assessment. But they had made great lamentations.

The Prophet Jeremiah must have been the original Socialist co-operator. The justification for this N.D.C. tax being placed upon industry and trade instead of all the Income Tax payers is that £1,500,000,000 of public money is likely to be spent in the next five years on rearmament and that will naturally affect the trading and profits of every concern in the country, as the money goes into the wage-earners' pockets and then finds its way into the shops and warehouses. The Co-operative movement ought not to be in any way exempted, whether it is retail stores, wholesale stores, or manufacturing concerns which make clothing, shoes, and so on which the workers will buy out of the wages contained in that £1,500,000,000, which will probably be 80 per cent. of the amount, namely, £1,200,000,000. That is the justification for my right hon. Friend levying the tax on industry to the exclusion of the Income Tax payers, and there is no reason why the Co-operative movement should be exempt any more than any other industrial concern.

10.54 p.m.

Photo of Reverend George Woods Reverend George Woods , Finsbury

Without going into Scriptural matters, from my knowledge of the Prophet Jeremiah he must have been quite a cheerful brother compared with the hon. Member for Rushholme (Mr. Radford), because the very mention of co-operative societies, since 1933, seems to bring him to his feet immediately, and gives him an opportunity of displaying his complete lack of comprehension of the nature, functions, and operations of the co-operative movement. When this matter was discussed on an earlier occasion the benches opposite were loud in their protestation that the tax should be applied with justice, and the general principle was accepted that the incidence of the tax should bear some ratio to the income of the individuals affected. That is a principle which is universally recognised, that the amount to be paid should bear some relation to the capacity of the person called upon to pay it. When this is applied to the co-operative societies it is worth reminding ourselves, in spite of what the hon. Member for Rushholme says, that the overwhelming mass of members of co-operative societies are wage earners below the scale assessable for Income Tax purposes.

Although these co-operators are not subject to Income Tax, they will, because they are co-operators, be compelled to pay not only Income Tax but the National Defence Contribution. Probably no greater service could be extended to the unemployed than to incorporate them in a vast co-operative organisation. The unemployed person is entitled to every help the country can give him. With their small incomes they have no margin with which to make themselves richer, and the whole of their purchasing power should secure to them the whole value of the commodities they buy. The only way in which that can be done is through the co-operative system of mutuality. If that were done, however, they would be subject to Income Tax and would have to contribute to this tax.

There are hundreds of thousands of unemployed people who find it a solid advantage to be members of the co-operative movement. There are, too, hundreds of thousands of old age pensioners who find the movement a blessing to them with their small spending powers. These people are being compelled to pay Income Tax and they will now also have to contribute to this tax. As against that, the Committee have agreed that private traders whose profits amount to £2,000, and in certain cases more, can be exempt. The professional classes, including the legal profession, many of them with incomes running into four figures, are also to be exempt. Accountants like the hon. Member for Rusholme (Mr. Radford), who has given evidence of his capacity to do the work, will be exempt, and will probably be paid in connection with this tax.

Photo of Mr Edmund Radford Mr Edmund Radford , Manchester Rusholme

I can assure the hon. Gentleman that I am in favour of the proposals of the Government being altered to make professional men liable. I have already voiced that view to the Government.

Photo of Reverend George Woods Reverend George Woods , Finsbury

I have not noticed any Amendment on the Paper. We are not, however, dealing with the hon. Member for Rusholme, who is small fry so far as this tax is concerned. It is a fact, however, that he will be exempt. He may have a grievance about it. I do not doubt his word, but if he is tumbling over himself to pay, I am sure that the Chancellor will not refuse a contribution from him. Shareholders in public utility companies and other companies where the rate of interest is controlled by Act of Parliament will also be exempt. The average income of the shareholders in such concerns is substantially higher than the average income of the average member of the Co-operative movement. We are not complaining that these people are exempted, but we say that on the basis of fair play and equity, if these concerns and professions are exempted, the Cooperative movement have a claim to be exempted. We are not whining. We are not asking for pity. We are just telling you. We on these benches feel that your attitude towards the Co-operative movement is very largely based on your lack of knowledge of its operations.

Photo of Lieut-General Edward Fitzroy Lieut-General Edward Fitzroy , Daventry

I would remind the hon. Member that he is addressing me.

Photo of Reverend George Woods Reverend George Woods , Finsbury

Though I am addressing you, Sir Dennis, it is obvious that the information is needed on the benches opposite. It is true that as the Bill stands a small co-operative society will be exempt from the tax, in the same way as a small trader, but let the Committee note how absurd the arrangement is in the case of a small co-operative society. An old age pensioner in the London area may have joined the London Co-operative Society because it is the only society operating in his area—or may have joined the Royal Arsenal Society or the South Suburban Society—and such a person will have to make a contribution to this tax. Another co-operator living in a smaller community where the society is smaller will be exempt. There is no advantage to the individual co-operator in being a member of a large society. In some of the smaller societies the average shareholding is much higher than in some of the larger societies, and the rate of dividend is something higher, because a small society may have been in existence for many years and have reserves and so forth which put it in a position to give its members better services than can a larger society growing up in a new area.

It was argued in reference to Income Tax when that was applied to the Cooperative movement that it applies only to the undistributed profits. That may be true, but there is a world of difference between funds allocated to reserves by a co-operative organisation and funds allocated to reserves by an ordinary profit-making concern. When a concern trading for profits allocates funds to reserve it tends to increase the value of the shares of that concern. I understand that profit and loss on shares is not taken into account by the Income Tax authorities, so that the only way in which the Chancellor of the Exchequer could gain any advantage from the additional profits was to tax the reserves. In the Co-operative movement there is no advantage to the individual member financially on account of the reserves. His shares will remain at their value and are not affected in any way—his shares will be withdrawable and there is no advantage. Why does the Cooperative movement need reserves?

Photo of Colonel Louis Gluckstein Colonel Louis Gluckstein , Nottingham East

I have been following the hon. Member's argument and accord- ing to what he has just said the reserve in a co-operative movement appears to belong to no one at all. Is that what he tells us, or is it distributable to the members in the event of a winding-up?

Photo of Reverend George Woods Reverend George Woods , Finsbury

No, it does not belong to anybody in particular. [HON. MEMBERS: "Oh."] That may sound startling, but it is so. The hon. Member can to-morrow join any co-operative society and participate in any of these advantages. It does not belong to the existing members, but is there in trust for the community. The hon. Gentleman can share in the advantage.

The point that I wished to make and which I think the Chancellor has not appreciated is as to why is it necessary for a co-operative society to allocate a certain proportion of profits to reserve so that it becomes subject to this tax. The reason is obvious. In the first place, any responsible board of a co-operative society has to carry on its business in such a way as to guarantee financial security to the investors. Secondly, the co-operative society is not merely a trading concern; it exists to carry on many functions which are carried on normally by religious and educational organisations. [HON. MEMBERS: "And political propaganda."] Yes, and political education, too. The people in this country require more than anything political education. [Laughter.] Whether there is any cause or not for that merriment, I can assure hon. Members that documents can be produced showing that thousands of classes are held all over the country for educational purposes and for social intercourse. In many areas the buildings of co-operative societies are not all fours with those of religious and educational organisations. On the one hand, religious and educational buildings are not subject to local taxation or rates, whereas those of cooperative societies are. When a society builds large central buildings which are of value to the movement, the buildings have far less value in the market, and it is necessary for the co-operative society to allocate to reserves an amount to cover that responsibility. Under existing legislation the whole of this work will be held up. The workers who build up this vast organisation for collective responsibilities of mutual trading and education, will be treated as profiteers.

I want to finish with a reference to one or two matters spoken about by the hon. Member for Rusholme (Mr. Radford). When he spoke about the millions of pounds in the Co-operative Wholesale Society, he should have divided that sum among the 8,000,000 members of the movement, and he would have found that the average holding is very small indeed. If the total holdings in the co-operative movement were put against the capital of other concerns which are to be exempted under this proposal, such as public utility companies, water, electricity and transport undertakings, he would have found that those already exempted total far more in volume than the figure which he said staggered his imagination.

Photo of Mr John Simon Mr John Simon , Spen Valley

Sir J. Simon rose

11. 10 p.m.

Photo of Mr Alfred Barnes Mr Alfred Barnes , East Ham South

I regret, in one way, that I have to precede the Chancellor. He may remember that, when we were discussing the Resolution he agreed to give more consideration to the point which I have in mind, when we came to the specific Amendment. I should now like to press further some of the points which I made on that occasion. In the first place, I want to emphasise that it is of little value to the Committee if we allow our prejudices for or against any type of trade to affect our judgment on a matter of taxation. This is obviously a tax placed upon profits, and that is the only excuse for it being introduced.

We have had a pronouncement from the Treasury Bench that the proportion of profits of an insurance company distributed back to the policy-holders will not be subject to this tax. Further, under Sub-section (3), all professions, and businesses connected with professions, will be exempt. The third point is that businesses whose profits are under £2,000 will also be exempt. Utility companies of a statutory kind will be exempt also from payment of this tax. Therefore, there are four grades of profit or income-earning sections of the community that are exempt from these particular tax proposals, and I think it is only right that we should consider in equity the grounds on which these four exemptions are permitted, and relate the grounds of those exemptions to building societies and industrial societies, in order to ascertain whether the case is not equally strong for the exemption of building societies and industrial and provident societies. That is the main point of this Amendment; neither the hon. Member for Rushholme (Mr. Radford) nor anyone else need intervene on this occasion with regard to other matters.

In the Debate on the Resolution I submitted instances of transport companies that were earning large profits. I was not sure at that stage whether they would come within that class, and I submitted that question, but the Chancellor was unable to give a definite statement as to whether that type of transport companies—road passenger transport companies—making very large profits and making big distributions of bonus, were exempt under the clause. Let me give one or two cases of gas companies. I assume that there will be no dispute about these, but in any case we ought to have these points cleared up. In the case of the Altrincham Gas Company, their profits varied from 7 to 9¼per cent. in the case of the Ashton Gas Company from 13 to 17 per cent., and in the case of the Banbury Gas Company from 10 to 7 per cent. I could give a number of these cases, but do not wish to weary the Committee with a multitude of figures. These are just one or two of a large number of examples that I have in my possession.

Now let me state the case of a cooperative society on the same basis. Obviously, a utility company can only be exempted on the ground that the State imposes certain restrictions upon it. It has to discharge a service over a restricted area to a certain population, and generally speaking there is a limitation of profits governed by price. Let the Committee look at the restrictions which operate with regard to industrial and provident societies—restrictions which are imposed by legislation. In the first place, the co-operative society's capital, that is, the individual possession of capital, is limited to £200 per member. The rate of interest generally prevailing is about 3½ per cent. Compare that with the payment of interest in relation to price and service to the community of the large profits of utility undertakings, like transport and gas. When you compare the shareholders of the two different types of business, the reason why the State taxes at the source is because it is recognised as a general rule that the vast majority of shareholders of these other companies are assessable to Income Tax and it becomes a matter of convenience both to the company, to the individual and to the Revenue to charge tax at the source. In the case of the co-operative society, even when the Income Tax law was altered to make it specially applicable to us and to destroy the principle of mutuality, it was recognised by the Treasury that the ordinary custom was quite inapplicable, and therefore tax was not imposed at the source but was collected from the recipient if he was assessable. It is well known that 70 to 80 per cent. of these people are not liable to Income Tax, and therefore the distribution of their small share is not subject to tax.

There is no distribution of bonus shares under the system of mutual trading carried out by industrial and provident societies. Compare that with the distribution of bonus shares of the utility companies that I have quoted. The shares of utility companies can exceed par value. The shares of the Underground combine and the Metropolitan Railway were quoted at £85 prior to merging into the London Transport Board. Within three years they had risen to £130. That can never happen to the shares of industrial and provident societies because of the legislation imposed by Parliament, which retains the principle that any citizen can join these organisations. The whole business of industrial and provident societies is carried out on a mutual basis and, although the law was altered for the purpose of imposing the tax on undistributed profits, it could not alter the fact that in the co-operative and provident and industrial society the member trades with himself and cannot create a profit in the ordinarily understood sense. The principle that you cannot create a profit by trading with yourself is governed and made a reality by the fact that surplus profits are given back to members in proportion to their trade. A profits tax does not fail unless profits are made, and, in the instance that the Chancellor of the Exchequer gave of a company making £10,000 profit, he said it would pay £2,500 in the ordinary way and the charge would be levied in addition.

What is ignored and is a very important point in this case is that a good deal of the proportion of the profit which will now be charged to a co-operative society arises from the fact that you bring back that interest which should not bear this charge, and which goes to persons who are not in a sense taking any measure of profit. You bring that back into our accounts for the purpose of imposing this additional charge. The net effect of that is that in the case of the industrial and provident society the payment on the profit will not be 5 per cent. or a shilling in the pound, but will amount to more than that because in the case of a cooperative society you bring back that interest charge for the purpose of making profits. In the case of a private company that share interest is not affected by the tax which is being proposed. It has always been charged at the source and has been assessable for Income Tax, and therefore it does not alter the ratio but works out at a shilling in the pound on sales. I submit to the Chancellor of the Exchequer that on the basis of comparison with his exemptions and on the basis of the Resolution of the Government the co-operative society and the industrial and provident society have an overwhelming case for exemption, and we trust that the opposition that we have put up cannot be destroyed by argument and that the case will be met by the Chancellor of the Exchequer.

11.23 p.m.

Photo of Mr John Simon Mr John Simon , Spen Valley

I am glad that I gave way to the hon. Gentleman, who not only speaks with very special knowledge of this subject, but who has put the case, as he said he would like to put it, without prejudice. He tried to state the matter as he sees it, and I am obliged to him. I will do the same because I think that, although this subject has in times past excited a good deal of feeling, and it is easy to become excited about it, it is worth calm consideration, and I will state to the Committee briefly why I think that this Amendment should be resisted. May I state one or two things which are not included in the hon. Gentleman's review but which it is useful to have on record? Of course, co-operative societies very often have to pay loan interest, and in the same way co-operative societies not infrequently have investment income. And it is important that it should be quite clear how those elements are dealt with in connection with this new scheme of tax. Under this scheme of tax, investment income is completely excluded from any calculation as to the figure upon which the tax is charged. If a co-operative society, therefore, is drawing income from investments, which it sometimes is, that does not attract tax as such.

The second point which is important for all who are interested in co-operative societies is this. There is loan interest, as I said, interest on money lent to the society, and of course, that may be deducted. But from what may it be deducted? If the loan interest was not set off against the profit, and it was set off against the investment income, it would not be to the advantage of the co-operative society. The operation of the tax is this. Loan interest will be set off against what would otherwise be the profit and will, therefore, go to reduce the figure on which the charge will be made. These are not exceptional provisions in regard to co-operative societies, but they have to be borne in mind by hon. Members, because they want to advise their societies accurately as to what will be the effect of the tax. I dealt with this matter earlier in to-day's Debate by way of illustration, and having compared the position of an industrial company and a cooperative society who had made the same amount of profit, I pointed out why I thought the principle of the tax is fair.

It is true that for a long time the view which the law took was that the advantage which came to a co-operative society through its mutual dealings was not to be classed as profit subject to Income Tax. I am not saying that there may not be a great deal of theoretic justice in that view. At any rate, it was a well understood provision of the law. In 1920 I was asked to give an opinion on a matter affecting co-operative societies. The question then put to me was this: "Here is a tax described as a tax on profits. Will you tell us whether in your view, and with your knowledge of the law, this is a tax which will catch the co-operative societies?" The answer was, and I think it was perfectly accurate: "The law does not regard as profit for the purpose of such a tax as this, the advantage which co-operative societies make, and, therefore, we think that co-operative societies' gains"—I want to use a neutral word—" will be exempt." That was a perfectly correct opinion, and I hope it was worth the money.

What has happened in regard to National Defence Contribution? Years afterwards Parliament took up this sub- ject and altered the law. I am not saying whether it was right or wrong. [Interruption.] I hope I have made it plain, even to the hon. Member, that when I was asked in 1920 whether seeing that the law was so-and-so, would so-and-so happen, I gave a correct answer. I am now pointing out that in 1933 the law was altered.

Photo of Mr John Jagger Mr John Jagger , Manchester Clayton

The question that I wanted to ask was whether that opinion did not go further than saying that the law did not allow, but that the law should not allow.

Photo of Mr John Simon Mr John Simon , Spen Valley

I am afraid the hon. Member mistakes the functions of a barrister. He is confusing a barrister, no doubt, with a spiritual adviser. If he wishes for spiritual advice I do not suggest that he should go to the Temple. But if you want to know what is in fact the position of the law, in that case it is a good thing to go to someone who knows something about it. In 1933 came the change in the law. The co-operative societies made a tremendous hubbub about it, but it has not inflicted the tremendous injury which they predicted, and I am glad that up to the present the co-operative societies have been able to stand it. When I have to propose a tax, I am asked to make it a simple tax, a tax which will collect enough money, and a tax which when it is applied to businesses shall be on the Income Tax principle. I have no desire to do any injustice to this great movement but I have to take things as I find them. I find that the profits which co-operative societies make are regarded by the Income Tax law as being open to taxation, and I cannot conceive of any principle on which I should be invited to exclude them from this tax. If you walk along a street in any great town you will see the fine magnificent building of the co-operative stores carrying on a busy trade, and in the same street the ordinary stores, the ordinary shopkeeper, selling the same articles at the same prices. When I am getting a National Defence Contribution I do not see on what grounds of justice I am to say to the ordinary shopkeeper,

"You must pay," and that this magnificent enterprise which is selling the same things to the same people at the same price is to be exempt. I really cannot see any grounds for it. The right hon. Gentleman in concluding his speech said that nothing that I could say would persuade him. Then we agree to differ, but I think that the majority of the Committee will agree that the Amendment ought to be resisted.

Photo of Mr George Oliver Mr George Oliver , Ilkeston

The Chancellor of the Exchequer says that he is applying this tax on Income Tax principles. Will he say why in applying it to co-operative societies he excludes a large number of companies who do pay Income Tax, public utility companies, railway companies, and transport companies?

Photo of Mr John Simon Mr John Simon , Spen Valley

That point has already been dealt with. It is for the Committee to decide whether they approve of the provision to exclude public utility companies which are under limitations as to their profits and the charges they can make for their services. Reference has been made to gas companies. I cannot answer here and now as to the particular gas company mentioned by the hon. Member, but the larger gas companies have to get a Board of Trade order which controls the conditions under which they provide gas and limits the charges they make. There are smaller gas companies which do not have to get an order, but I cannot tell the hon. Member whether the company he mentioned would come within the exemption or not, but if there should be a case which falls within the definition of a public utility company which has not been sufficiently closely restricted by the Bill, the remedy is to secure that it is restricted more closely. It is impossible in a tax of this sort to draw a distinction between one and the other on a ground such as that.

Question put, "That those words be there inserted."

The Committee divided: Ayes, 121; Noes, 179.

Division No. 248.]AYES.[11.35 p.m.
Adams, D. (Consett)Attlee, Rt. Hon. C. R.Brown, G. (Mansfield)
Adams, D. M. (Poplar, S.)Banfield, J. W.Buchanan, G.
Alexander, Rt. Hon. A. V. (H'lsbr.)Barnes, A. J.Burke, W. A.
Annum, C. G.Barr, J.Cape, T.
Anderson, F. (Whitehaven)Broad, F. A.Charleton, H. C.
Aske, Sir R. W.Bromfield, W.Cluse, W. S.
Cocks, F. S.John, W.Quibell, D. J. K.
Cripps, Hon. Sir StaffordJohnston, Rt. Hon. T.Richards, R. (Wrexham)
Daggar, G.Jones, A. C. (Shipley)Ridley, G.
Dalton, H.Jones, Morgan (Caerphilly)Ritson, J.
Davidson, J. J. (Maryhill)Kelly, W. T.Robinson, W. A. (St. Helens)
Davies, S. O. (Merthyr)Kennedy, Rt. Hon. T.Rowson, G.
Day, H.Kirby, B. V.Salter, Dr. A. (Bermondsey)
Dobbie, W.Kirkwood, D.Seely, Sir H. M.
Dunn, E. (Rother Valley)Lansbury, Rt. Hon. G.Sexton, T. M.
Ede, J. C.Lathan, G.Silkin, L.
Edge, Sir W.Leach, W.Silverman, S. S.
Edwards, Sir C. (Bedwellty)Lee, F.Simpson, F. B.
Fletcher, Lt.-Comdr. R. T. H.Leonard, W.Smith, Ben (Rotherhithe)
Gallacher, W.Logan, D. G.Smith, E. (Stoke)
Gardner, B. W.Lunn, W.Smith, T. (Normanton)
Garro Jones, G. M.Macdonald, G. (Ince)Sorensen, R. W.
George, Megan Lloyd (Anglesey)McEntee, V. La T.Stewart, W. J. (H'ght'n-le-Sp'ng)
Graham, D. M. (Hamilton)McGhee, H. G.Strauss, G. R. (Lambeth, N.)
Green, W H. (Deptford)MacLaren, A.Taylor, R. J. (Morpeth)
Greenwood, Rt. Hon. A.Maclean, N.Tinker, J. J.
Griffith, F. Kingsley (M'ddl'sbro, W.)MacMillan, M. (Western Isles)Viant, S. P.
Griffiths, G. A. (Hemsworth)Mainwaring, W. H.Walker, J.
Griffiths. J. (Llanelly)Marshall, F.Watkins, F. C.
Hall, G. H. (Aberdare)Messer, F.Watson, W. McL.
Hall, J. H. (Whitechapel)Milner, Major J.Welsh, J. C.
Harvey, T. E. (Eng. Univ's.)Montague, F.Westwood, J.
Henderson, A. (Kingswinford)Morrison, R. C. (Tottenham, N.)Whiteley, W. (Blaydon)
Henderson, J. (Ardwick)Muff, G.Wilkinson, Ellen
Henderson, T. (Tradeston)Noel-Baker, P. J.Williams, E. J. (Ogmore)
Hills, A. (Pontefract)Oliver, G. H.Windsor, W. (Hull, C.)
Holdsworth, H.Paling, W.Woods, G. S. (Finsbury)
Hopkin, D.Parker, J.Young, Sir R. (Newton)
Jagger, J.Parkinson, J. A.
Jenkins, A. (Pontypool)Pethick-Lawrence, Rt. Hon. F. W.TELLERS FOR THE AYES.
Jenkins, Sir W. (Neath)Price, M. P.Mr. Croves and Mr. Mathers.
NOES.
Acland-Troyte, Lt.-Col. G. J.Davies, Major Sir G. F. (Yeovil)Kerr, J. Graham (Scottish Univs.)
Agnew, Lieut.-Comdr. P. G.Denman, Hon. R. D.Keyes, Admiral of the Fleet Sir R.
Allen, Col. J. Sandeman (B'knhead)Dorman-Smith, Major Sir R. H.Kimball, L.
Anstruther-Gray, W. J.Dower, Major A. V. G.Lamb, Sir J. Q.
Apsley, LordDuckworth, W. R. (Moss Side)Law, Sir A. J. (High Peak)
Assheton, R.Duncan, J. A. L.Law, R. K. (Hull, S.W.)
Baldwin-Webb, Col. J.Eastwood, J. F.Leighton, Major B. E. P.
Balfour, Capt. H. H (Isle of Thanet)Eckersley, P. T.Levy, T.
Balniel, LordEdmondson, Major Sir J.Liddall, W. S.
Barclay-Harvey, Sir C. M.Elliot, Rt. Hon. W. E.Llewellin, Lieut.-Col. J. J.
Baxter, A. BeverleyEllis, Sir G.Lloyd, G. W.
Beamish, Rear-Admiral T. P. H.Elliston, Capt. G. S.Loftus, P. C.
Beaumont, M. W. (Aylesbury)Elmley, ViscountMabane, W. (Huddersfield)
Beaumont, Hon. R. E. B. (Portsm'h)Emrys-Evans, P. V.MacAndrew, Colonel Sir C. G.
Boyce, H. LeslieErrington, E.Macdonald, Capt. P. (Isle of Wight)
Briscoe, Capt. R. G.Erskine-Hill, A. G.McKie, J. H.
Brown, Col. D. C. (Hexham)Evans, Capt. A. (Cardiff, S.)Maitland, A.
Brown, Rt. Hon. E. (Leith)Evans, E. (Univ. of Wales)Manningham-Buller, Sir M.
Brown, Brig.-Gen. H. C. (Newbury)Fildes, Sir H.Margesson, Capt. Rt. Hon. H. D. R.
Bull, B. B.Fleming, E. L.Markham, S. F.
Burghley, LordFurness, S. N.Mayhew, Lt.-Col. J.
Butcher, H. W.Fyfe, D. P. M.Mellor, Sir J. S. P. (Tamworth)
Cartland, J. R. H.Gluckstein, L. H.Mills, Major J. D. (New Forest)
Carver, Major W. H.Goldie, N. B.Moreing, A. C.
Cary, R. A.Grant-Ferris, R.Morgan, R. H.
Castlereagh, ViscountGretton, Col. Rt. Hon. J.Morrison, Rt. Hon. W. S. (Cirensester)
Cayzer, Sir H. R. (Portsmouth, S.)Gridley, Sir A. B.Muirhead, Lt.-Col. A. J.
Cazalet, Thelma (Islington, E.)Gritten, W. G. HowardMunro, P.
Channon, H.Guest, Lieut.-Colonel H. (Drake)Neven-Spence, Major B. H. H.
Christie, J. A.Guest, Maj. Hon. O. (C'mb'rw'll, N.W.)Nicolson, Hon. H. G.
Clarke, F. E. (Dartford)Guy, J. C. M.O'Connor, Sir Terence J.
Clarke, Lt.-Col. R. S. (E. Grinstead)Hannah, I. C.Palmer, G. E. H.
Cobb, Captain E. C. (Preston)Heilgers, Captain F. F. A.Peaks, O.
Colfox, Major W. P.Heneage, Lieut.-Colonel A. P.Peat, C. U.
Colman, N. C. D.Hepburn, P. G. T. Buchan-Pickthorn, K. W. M.
Colville, Lt.-Col. Rt. Hon. D. J.Hepworth, J.Ponsonby, Col. C. E.
Conant, Captain R. J. E.Herbert, A. P. (Oxford U.)Procter, Major H. A.
Cooper, Rt. Hn. T. M. (E'nburgh, W.)Higgs, W. F.Radford, E. A.
Cox, H. B. T.Holmes, J. S.Ramsay, Captain A. H. M.
Craven-Ellis, W.Hope, Captain Hon. A. O. J.Ramsbotham, H.
Critchley, A.Hopkinson, A.Rankin, Sir R.
Crooke, J. S.Hudson, Capt. A. U. M. (Hack., N.)Rayner, Major R. H.
Croom-Johnson, R. P.Hume, Sir G. H.Reed, A. C. (Exeter)
Cross, R. H.Hunter, T.Reid, J. S. C. (Hillhead)
Crossley, A. C.Jones, Sir H. Haydn (Merioneth)Reid, W. Allan (Derby)
Crowder, J. F. E.Jones, L. (Swansea W.)Remer, J. R.
Cruddas, Col. B.Keeling, E. H.Rickards, G. W. (Skipton)
Robinson, J. R. (Blackpool)Somervell, Sir D. B. (Crowe)Ward, Irene M. B. (Wallsend)
Ropner, Colonel L.Spent, W. P.Waterhouse, Captain C.
Ross Taylor, W. (Woodbridge)Stanley, Rt. Hon. Oliver (W'm'l'd)Wells, S. R.
Rowlands, G.Strauss, H. G. (Norwich)Whiteley, Major J. P. (Buckingham)
Russell, Sir AlexanderStrickland, Captain W. F.Williams, H. G. (Croydon, S.)
Salmon, Sir I.Stuart, Hon. J. (Moray and Nairn)Wiss, A. R.
Sail, E. W.Sueter, Rear-Admiral Sir M. F.Womersley, Sir W. J.
Savery, Sir ServingtonTate, Mavis C.Wragg, H.
Selley, H. R.Taylor, Vice-Adm. E. A. (Padd., S.)Wright, Squadron-Leader J. A. C.
Shaw, Major P. S. (Wavertree)Thomas, J. P. L.Young, A. S. L. (Partick)
Shaw, Captain W. T. (Forfar)Thornton, Sir J. D. W.
Simon, Rt. Hon. Sir J. A.Touche, G. C.TELLERS FOR THE NOES.
Smith, L. W. (Hallam)Wakefield, w. W.Lieut.-Colonel Sir A. Lambert
Smith, Sir R. W. (Aberdeen)Walker-Smith, Sir J.Ward and Captain Dugdale.

Resolution agreed to.

Ordered, "That the Chairman do report Progress; and ask leave to sit again."—[Captain Margesson.]

Committee report Progress; to sit again To-morrow.