Amendment of Law

Part of Orders of the Day — Ways and Means – in the House of Commons at 12:00 am on 16 April 1947.

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Photo of Mr Stanley Holmes Mr Stanley Holmes , Harwich 12:00, 16 April 1947

I was coming to that. Directors of companies have to consider what may be termed the "small shareholders." A few months ago, I went to an annual meeting of a well-known company, one for which I am in no way responsible. This company had an ordinary share capital of £800,000. During the war and up to last year it had put aside, in addition to paying moderate dividends, £500,000. That £500,000 was standing as "carry-forward," and was available at any time for the payment of dividends. After the chairman had made his speech, a man got up and said that he was a retired teacher, that he had saved enough money to live in retirement and was looking for increased dividends because of the increased cost of living. He thought it was disgraceful that the company had not increased its rate, and had in "carry forward" some 62 per cent, of the whole capital of the company available for dividends. To my surprise he was supported by other shareholders, and when it came to the vote of thanks to the chairman and directors for a really magnificent report, six shareholders voted against it on the ground that increased dividends were riot being paid. The hon. Member for South Nottingham (Mr. Norman Smith) asked about the small shareholders. Last year, I mentioned a company which made a very careful analysis of its shareholding list, and which came to the conclusion that of its 22,500 shareholders, 22,000 of them did not pay Surtax

A progressive limited company has from time to time to raise new capital. Its best hope of getting more money is from its existing shareholders. The Government find it easy to raise money. They merely have to create Government stock by the use of the printing press. A limited company cannot do that. In order to obtain new money, it must have had a successful past and good prospects for the future. It must be willing to give a reasonable share of the profits to the shareholders in acknowledgment of the risk which they have taken. The Chancellor has now seen that his policy of threat was unworthy of him and unreasonable. He now says to each limited company, "You will pay a five per cent. Profits Tax on all your profits, but on the profits which you distribute by way of dividends in any year, you will pay an extra 7½ per cent." That new tax may he open to discussion. I venture to say that, while I think it is hard, companies would rather have Draconian constitutional severity than Daltonian unconstitutional threats.

I would like to ask the Financial Secretary a number of questions on this particular matter. The first is, Will the dividend paid by a wholly-owned subsidiary company to a parent company be subject to the extra 7½ per cent. tax? If so, will the parent company's profits, including the dividends received, also be subject to the 7½ per cent.? In other words, is it to be double taxation in those cases? The second question is, Does the provision in the White Paper mean that if a company's year ended on 31st March this year, the extra 7½ per cent. will be paid in one-fourth of the total dividend paid on the equity shares for that year?

I wish to say one word with regard to bonus issues. So far, with regard to bonus issues, the Chancellor has been like Mr. Molotov. He has always said "No." There is now a change of mind on the part of the Chancellor and he has decided to allow applications to be made to the Capital Issues Committee for the issue of bonus shares. If the application is granted by the Committee, the Chancellor proposes to collect To per cent. on the amount of any "bonus element." Why should this imposition of 10 per cent. be made? I suggest that it is merely a sop to Cerberus, and that the Chancellor of the Exchequer is not willing to be a Hercules. If I may, I will give an illustration. A company is formed with a capital of £10,000, and it pays a dividend of 10 per cent. each year. In the course of a few years, after paying its dividends, it accumulates out of taxed profits the sum of £10,000—shareholders' money available for the payment of dividends. The company does not desire to pay dividends out of that sum. It has followed the Chancellor's wish that the money should be ploughed back into the business. It may be assumed that this is a case in which the Capital Issues Committee would give approval for £10,000 bonus shares to be created, so that £10,000 would be set aside out of the profits to become the permanent capital of the company. Why should a company have to pay a fine of £1,000 in order to carry out the Chancellor's wish that the money should be permanently ploughed back into the business?

While I am speaking of the Capital Issues Committee, I would like to ask whether it is an independent body or whether it acts under instructions laid down by the Chancellor. May I refer to what has happened in the past year? We had a very active year in which many permissions have been given by the Capital Issues Committee to companies. Companies have desired to convert into a lower interest category a debenture or a preference issue, where the rate of interest was reasonable at the time of issue but today is above the yield required by the public. Such conversions were always agreed to by the Committee, as it helps the Chancellor in maintaining a lower rate of interest. in the second place, companies have sought additional capital in order to instal modern plant and equipment to fight American or other competition, or to go all out in the development of exports. These proposals have nearly always been accepted by the Capital Issues Committee. But, in the third place, I cannot help feeling that permission has been given to far too many issues where the reason was that the existing owners wanted to sell out. I do not want to criticise the Capital Issues Committee, because they have done a difficult task well, but I feel that they have too often devoted themselves too much to the terms of the issues rather than to the objects. The last question I want to ask on this point is: When an application for an issue of new capital is made to the Capital Issues Committee, why does it have to be referred to a large number of Government Departments for comment and advice, and will the Financial Secretary say which Departments are so consulted and for what reasons?

I want to make one or two general comments. I could not help regretting the very steep rise in the Tobacco Duty. One understood the Chancellor's anxiety with regard to dollars, but, nevertheless, it has rarely been my privilege to hear in this House a Chancellor of the Exchequer from any party impose a tax which affects rich men less than it affects other people. One cannot help thinking of the number of people—I shall not merely mention old age pensioners, because there are many others—who will be completely unable to afford to buy an ounce of tobacco for their pipes at 3s. 9d. a time. I regret very much that the Chancellor has found it necessary to put so high a duty on tobacco.

Notwithstanding what my right hon. Friend the Member for the Scottish Universities said, I very much regret that the Chancellor has not been able to deal with betting. Yesterday he sheltered himself behind what my right hon. Friend the Member for Woodford had done in 1929 when he was Chancellor of the Exchequer in withdrawing the betting tax. I would remind him that circumstances today are entirely different from what they were in 1929. Today we have a "tote" on every racecourse and greyhound track, and we have the football pools. The only people who are left are the bookmakers. I hope the Chancellor will think again on this matter, because I am sure a tremendous number of people would like to sec this source taxed for the purpose of getting a high income for the Treasury. Lastly, I would repeat, because I regard it as most important, that the most disappointing point about the Budget is that it does so little to assist the production drive.