Yes, but only the first sentence of that subject. If the hon. Member had waited a few minutes longer, it is possible that he would even have understood what I had to say. Possibly, but it is not a matter of certitude at all.
There is a new Clause on the Paper in the names of myself and the hon. Members for Salford, West (Mr. Royle) and Jarrow (Mr. Fernyhough): Computation of profits of business. I have no doubt that the Chancellor was reading that with very pleased interest over his oats this morning. In the first speech he made today he rather tended to reply to that new Clause and rather intimated that he is not going to accept it. That actually would be an amendment to Clause 16, and the only reason why it was not tabled as an Amendment was that it is so long and complex that the procedure is rather like driving nails in the Hindenburg statue, one has to have them all over the place and a lot of them, and we thought it would be better to table it as a new Clause.
I want to refer to that new Clause because the Chancellor did reply to it. He said he could not think of having any sort of procedure by which the Inland Revenue should be entitled, subject, of course, to the jurisdiction of the courts and full legal protection of the citizen, to say that because this device was for the collection of tax it would ignore it. He says that procedure is quite impossible, but such a device existed in the late years of the last war and the early years of the last peace, and it worked very well. It worked well, and it may be that no provisions in detail could have produced the effect which it produced.
I want to cover a little history on this form of tax evasion. Years ago my wife and I used to spend our vacations on a tiny island off the coast of Donegall, the Island of Inishcoo, out in the Atlantic. It was an historic island because General Napper Tandy made his most famous landing there and, two and a half hours later, made his embarkation from the island. It is a fascinating thought that it was from there that St. Columba came to teach the savage tribes of Britain and, but for the work of St. Columba, we might not have tax dodgers now. In a sense, the process of commerce has gone on and, on the Island of Inishcoo, we come across the Boyles and Macdonalds who used to have a prosperous time there in the sea salmon fishing season. The salmon used to come from near the Gulf of Mexico round the coast of Scotland and these fishermen, with their gallant seafaring endeavour, were able to get a measure of revenue for the island.
It is an interesting point, as indicating the prescience, knowledge and judgment possessed by these charming and eminently edible fish, that we observed they were nearly always seen off the coast at a time which indicated that they had left American waters immediately following a speech on peace by Mr. Foster Dulles. These hardy islanders, keeping observation on the weather from the cliff and watching the current, would be listening to the wireless and hearing Mr. Foster Dulles, and they were able to make a passably good income, but the real trouble is that Inishcoo is a long way from Dublin, which is the ordinary centre of Irish trade and commerce. It is so far away that it takes nearly as long to travel from Burtonport to Dublin as for the Minister of Labour to prepare an impromptu outburst of honest indignation against the Leader of the Opposition, and that is a very long time.
The result was that that very prosperous fishing industry was whittled away by a limited company, which could use lorries to convey the fish to Dublin and sell it there at high prices. I hope I am making myself clear and showing that what I am saying is relevant to this Clause. I am talking of course—[An HON. MEMBER: "A lot of nonsense."] On the contrary, Clause 4 of the 1955 Act is very long. Subsection (8) says:
'Company' includes anybody corporate, but does not extend to a company not resident in the United Kingdom.
So we have finished with Ireland now and got
a company not resident in the United Kingdom.
which has made a very large profit on salmon for a great many years. In the words of previous Chancellors, it ploughs back those profits. In other words, it acquires a very high capital value by not distributing profits. The simple view of the islanders of Inishcoo was that they were being swindled, because the climate there is such that businessmen are subject to all kinds of temptations. If they had not ploughed back profits, we might have had a balance of payments crisis with Monaco, and perhaps it was as well that the money remained in Dublin.
Everyone but Chancellors of the Exchequer has known what was going on for the last 40 years. This sort of thing is commonplace and every citizen except the Chancellor of the Exchequer knows about it. In the ordinary economic development of our institutions, businessmen used to deal in goods, but that involved a considerable amount of risk and capital. That is a Jack of Newbury, and there was the possibility of losing money. They got over that by the invention of the limited liability company.
It was then pointed out that even through a limited liability company one might lose capital, and they proceeded to the deferred share method whereby Consols could be held by people who put up the smallest amount of money. In that way they could insulate themselves. They got over the difficulty of losing money on goods by selling goods which did not exist to people who did not want them but who thought that on the whole they might make money by buying them in the future. The whole romantic story of modern adventurous industry began to expand and develop, and we reached the stage when the great genius came down and expounded the next step.
I do not know whether the Assistant Postmaster-General was here in 1945. Perhaps if he was he will recall the story told by a Tory Member in the course of the Budget debate about three businessmen who were arguing who should pay for a meal. One said that he would pay because he was paying such a high rate of Surtax that it would cost him only 2s. in the £. The second man said, "I am paying the maximum excess profit taxation and I can get it for nothing." The third said, "Give me the bill. I am working for the Government at 10 per cent. cost-plus and I can make money out of it."
The great genius said, however, that the thing to do was not to buy goods at all but to buy losses; if one made any money in any legitimate enterprise, one saved the whole of the taxation on it by buying a loss. Indeed, losses were advertised at such a rate that buying them became almost prohibitive. It was not so much because of legislation as because of competition to buy losses that their prices went up.
Next came the great genius who, working in a small way, said, "We have got it all wrong. We should buy profits." They asked how that was done and he said, "If you buy cum-div you are all right. You know that the dividend has been declared and that it has not been distributed, and you save the tax on the dividend as an item of capital, because it will not rank for your tax as income. In the value of the shares you buy capital plus dividend minus tax, and you do not have to pay any tax on that dividend." Then there was a search all over Britain for companies which had accumulated reserves of dividend on which tax had been paid, and one found companies on which one paid 100 per cent. of purchase price but only 20 per cent. of it represented capital and 80 per cent. was tax-free.
Surely the Chancellor knows about it. I do not want to be discourteous to the Chancellor, whom we hold in considerable regard and who has had rather a rough passage today, but surely he knows about this. We have had a lot of experience of Tory Chancellors in the last two-and-a-half years, and this is our experience of the sort of mental atrophy which starts from the moment they go into the Treasury. There is something in the Treasury which has the petrifying effect which is seen at Matlock; the steady application of moist atmosphere produces cranial degeneration and mental atrophy which come out in the presentation of these schemes. I am not trying to be discourteous for a moment. Indeed, I am trying to hold back a wealth of criticism.
Suddenly the City of London found that they had this great method of producing money virtually without much industry. There were more belly laughs in the City of London that day than since the day somebody invented the joke, "She was somebody's daughter, but—". A new cheerfulness came about.
I want to deal with what has happened since. First we were told by the Government, "There is no question about it; we will deal with it. We will start by passing some limited legislation but we will give a firm and formal warning that if there is any more of this, we shall deal with it." What has happened? The Clauses of the Bill do not touch it and the Amendments do not touch it. To start with, we have excluded all the companies outside the United Kingdom. All a man has to do now is to look for a company in Dublin. He finds the product of the labour of my fishermen in Inishcoo, capitalises it over about eight years, buys it up and gets his money back from the Government here. It is true the tax has not been paid, but he gets a capital asset not liable to taxation and a substantial financial benefit by that process.
Secondly, we have excluded debentures; these provisions apply only to normal profit-participating shares and debentures are excluded. The naive theory in the Chancellor's mind is, "Debenture interest is paid regularly and it will not apply to debentures." The wise guys then stop paying interest on debentures. They proceed to accumulate them, and one can now buy debentures with six or seven years' accumulated profit. So it goes on.
I do not want to detain the Committee on this, but I would say that in listening to the Chancellor's argument this afternoon I was once again reminded of the most lucid and clear dictum of the late Sergeant Arabin, which appears in a legal collection called "Arabiniana," which is perhaps almost unknown in these days. He said that if ever there was a case in which it was made clearer than in this case that this case was not that case, that case was this case. Listening to the explanations of the working of the Chancellors mind, I came to the conclusion that Sergeant Arabin had come to life again and that we were about to be regaled with some of those dubious propositions.
It is true—and everyone knows it—that tax dodging is a great industry. It is true—and everyone knows it. Let us be fair; Lord Chief Justice Hewart's dictum still stands that if you can get out of paying tax you are a fool if you do not.