I beg to move, in page 16, line 17, to leave out from "months" to the end of the subsection.
As the Committee will appreciate, this is the first of a group of Clauses dealing with tax avoidance. It is a group of rather highly technical Clauses designed to remove some of the existing devices by which the Revenue is deprived of revenue which it otherwise would receive. This is not the first occasion on which we have had to discuss tax avoidance measures on the Finance Bill. In fact, it has become common form in almost every Finance Bill to have a group of Clauses designed to remove one ingenious device after another for avoiding tax.
As the Financial Secretary pointed out on Second Reading, this group of Clauses, 18 to 21, is designed to stop certain kinds of transaction colloquially called "bond washing". Bond washing is the name given to a device whereby an individual or a company buys securities cum-dividend and subsequently sells them ex-dividend, thereby making an apparent loss, and collects the dividend on which in the ordinary way tax is deducted.
As the Financial Secretary and the Committee are aware, there are certain groups of taxpayers who are able to benefit, illicitly as we think, from that kind of transaction. They are corporations which benefit either because they can set off the apparent loss against some other profits, or add them to some other loss, or in some cases, like charities, they are bodies which can ignore the apparent loss, because although they have collected a dividend which has paid tax, they can recover the tax which would be deducted at the hands of other taxpayers.
It has been common ground on both sides of the House that bond washing is something which should be stopped. Two or three years ago, when the present Prime Minister was Chancellor of the Exchequer, he gave assurances that measures introduced at that time were designed to stop it. They are like the categorical assurance given in 1955 by the present Minister of Housing and Local Government, then Financial Secretary to the Treasury, that a Clause in that year's autumn Finance Bill was designed to exterminate the small tribe of dividend strippers.
I shall preface what I want to say about the particular scope of the Amendment by saying that some of us on these benches, if not all of us, are getting heartily sick and tired of having to spend a great deal of time year after year on complicated Clauses designed to stop up one loophole after another. We believe that the time has come when the Committee should not be troubled with this kind of proceeding. There are at least three ways which I believe would be more effective. First, there is the method adopted in certain parts of the Commonwealth, notably Australia, where there is an overall Act of Parliament—rather similar to the Section in the Excess Profits Act—the effect of which is to provide that any contract or arrangement devised to defeat the operation of the Income Tax Acts or Finance Acts is absolutely void as against the Commissioners of Inland Revenue, but valid between the parties.
That, probably, is the most drastic and powerful way, but there are two other methods. There is the remedy suggested by my right hon. Friend the Member for Huyton (Mr. H. Wilson) a year or so ago whereby, if an appropriate Act were passed, the Chancellor of the day would be able, by Statutory Instrument, to close a particular loophole as soon as it was detected instead of having to wait ten, eleven or twelve months until the next Finance Bill. Parliament could well arrange for a Statutory Instrument, to be confirmed in the next Finance Bill, to operate in the same way as the Provisional Collection of Taxes Act has operated since Mr. Gibson Bowles was responsible for its introduction in 1913.
The third method, which I favour, is the method of enabling the Chancellor to give a clear warning that if future devices of this kind are practised, they will be stopped retrospectively in the next Finance Bill. It is all right for the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) to pretend to be horrified, but that is a precedent hallowed by a great many previous Conservative Chancellors of the Exchequer, including the late Mr. Neville Chamberlain, the late Sir John Simon and the late Sir Kingsley Wood. In fact, that had become the classic way to deal with this kind of matter until the lamentable failure of the present Chancellor of the Exchequer in his last Budget to follow this method, and his quite deliberate abandonment of that powerful weapon in the armoury of the Treasury.
The great merit of retrospective legislation after a clear, emphatic and explicit warning is that it acts as a very powerful deterrent. The mere knowledge that it was no use trying to invent ingenious devices, because they could be stopped retrospectively, deterred people from trying new tax dodges. That principle, which had been built up over a number of years, was abandoned last year. The result is that we now have the Financial Secretary proposing these Clauses to deal with an admitted evil. I interrupted his Second Reading speech, after he had been explaining these Clauses, to ask whether he could give an assurance that the Clauses dealing with bond washing and dividend stripping would finally check bond washing.
I asked him whether he expected that next year further Clauses would be required to stop up further loopholes. The Financial Secretary, in all honesty, was unable to give me that assurance. He said:
I certainly would not say that ways may not be found round this or any conceivable legislation."—[OFFICIAL REPORT, 28th April, 1959; Vol. 604, c. 1119.]
We are now trying to stop up a few limited loopholes with the clear knowledge, admitted by the Government, that the Clauses will be inadequate and that further ways will undoubtedly be found round them and that next year and in subsequent years, unless we adopt one of the three alternatives which I have indicated, we shall have to have another series of similar complicated Clauses. This is a most unsatisfactory cat-and-mouse way of dealing with the situation. All we can do, by this Amendment, is to try to strengthen the Clause, which we believe to be quite inadequate in its present form. Previous experience has shown that these provisions are inadequate to deal with the evil which they are attempting to cure.
On the face of it, the Clause is open to objection and seems almost to invite these people who delight in devising methods of tax avoidance to try to devise other similar related methods which are just outside the scope of the Clause. That is why we have put down the Amendment. As the Clause stands, the only bond-washing operations which are stopped are those where the purchase and the sale take place within a month. If the Amendment were adopted, bond-washing operations would be stopped if the purchase and the sale took place within six months.
The Financial Secretary did not attempt to justify the Government proposal. He made quite clear what was the object of framing the Clause in this way. He pointed out that Clause 18 defines the whole field of review which governs the separate classes and cases referred to in Clauses 19, 20 and 21. He said that the revision would apply automatically if the time which elapsed between the purchase cum-dividend and the sale ex-dividend did not exceed a month.
Then there is this very curious provision in paragraph (b) which we want to eliminate. As the Bill stands, bond-washing operations which take place within a six months' period are not caught at all where the purchase and sale are effected at current market prices. It is part of the normal device that ordinary bond-washing operations take place at the ordinary market price, but the companies and individuals who benefit from those operations benefit equally whether the period which elapses is one month, six weeks, two months, or any longer period. There is no magic in the period of one month.
There is a certain magic in the sense that if a security is bought and sold on the Stock Exchange within 28 days, the broker need charge only one commission, and, therefore, there is a certain magic in the period of one month.
I am much obliged to the hon. Member. That is an indirect advantage, but it does not touch the point that persons and companies against whom these Clauses are directed can equally get a tax benefit if they buy cum-dividend and sell ex-dividend, say, six or seven weeks later, because they make a loss which is a camouflaged or artificial loss in respect of which they get back a tax advantage. They still get the dividend, but instead of paying the tax on the dividend, like every other taxpayer, they can recover the tax.
Therefore, people who buy and sell within six or seven weeks may have to pay a marginal amount more, but they still benefit. They are still bond-washing operators whether they come into Clause 19, Clause 20 or 21. They are in pari materia, and although there might be some marginal difference about the benefit which they derive, they derive a benefit from a bond washing operation.
The object of the Amendment is to catch all bond washers who operate in this way, and we define bond washers as those who buy and sell within six months. It is noteworthy that this was the interpretation which the Economist, when first commenting on the Clause, gave to it in its publication of 25th April. After explaining the Chancellor's intentions about bond washing, the Economist said:
All in all the intention of the clauses appears no more than a reasonable attempt to protect the Revenue from a growing loss—the more so as they do not apply if the resale takes place more than six months after the date of the original purchase.
We would be quite content if that were the fact. The Economist thought that it was and thought that all bond-washing operations which took place so that the different operations occurred within six months were caught, but a careful review of the Clause manifests that that is not so.
If the Financial Secretary is truly concerned, as he ought to be, to make the Clause as watertight as possible, the Amendment ought to be accepted. Surely we are not to be told that, having abandoned last year what was a very powerful weapon in the armoury of the Treasury and which was a very useful deterrent for stopping tax avoidance after clear and explicit warnings, the Chancellor will be content to have this sort of thing going on year after year.
Surely we are not to be told that the Treasury will abandon these powers even further. But apparently that is so and apparently it is done deliberately, because, in a passage of the most dire defeatism, the Financial Secretary said that next year further Clauses would be wanted to stop further devices. I have no doubt whatever that manipulators on the Stock Exchange and those who delight in discovering ways round tax avoidance Clauses will already have found certain devices.
It is clear that the present Clause is not watertight, because the Chancellor himself has tabled an Amendment which we shall come to later. The Chancellor's Amendment does not go so far as the Amendment of my right hon. and hon. Friends and myself, but it is one indication that if it were not for our Amendments, which in part the Chancellor has accepted, a glaring loophole would have been immediately apparent in the Bill.
Obviously, there are other loopholes, but this is by far the most serious one. Unless all bond washing within a six months' period is stopped the device which we are now condemning will continue. It may not continue on so extensive a scale, but it may continue on a scale so serious as to cause not only considerable loss to the Revenue, but considerable and growing irritation and annoyance to all other classes of taxpayers.
The hon. Member for Islington, East (Mr. E. Fletcher) started by dealing generally with tax avoidance. Perhaps I can say—I hope that I shall be keeping within the rules of order—a word or two about what he said by way of introduction. It is tiresome for the House of Commons to have to stop up loopholes, but the hon. Gentleman suggested three ways of avoiding it which are of very doubtful efficacy. The first is that which was adopted under the Excess Profits Tax code, which I do not think finds support now in any part of the Committee. In giving it even the limited approbation which the hon. Gentleman did, he was not speaking for his side of the Committee.
I see that the hon. Gentleman himself is not particularly enamoured of it.
The second is a method of warning, plus retrospective legislation. I know that the hon. Gentleman himself, supported by the hon. Member for Gloucester (Mr. Diamond), is still an adherent of that method. From what the right hon. Member for Huyton (Mr. H. Wilson) said, I do not believe that it commends itself to him, nor do I believe that it commends itself to the bulk of Committee. The method which, if I understood him aright, commends itself to the right hon. Member for Huyton—in that respect he is speaking for the overwhelming mass of his party—is the method of Statutory Instrument.
Mr. H. Wilson:
Yes. The hon. and learned Gentleman is right in saying that my right hon. and hon. Friends and I very much prefer the proposal which I made for a Statutory Instrument or an affirmative Resolution of the House of Commons. That does not mean that in all circumstances we would rule out the possibility of retrospective legislation, any more than the Chancellor would. The Chancellor was quite specific in saying that he does not rule it out. It was merely that he ran away from it last year. He does not rule it out altogether.
If we could introduce legislation on the basis I proposed last year, it would be more acceptable, even on the other side of the Committee, than the idea of retrospective legislation. But if, for any reason, that cannot be done, or if it were to be limited in its effect, in cases such as we were debating a year ago we would feel justified, as the Chancellor felt justified in his Budget speech in 1958, in proposing retropsective legislation.
I think that I represented the right hon. Gentleman's position fairly, although he has expanded it somewhat. It would be fair to say that, in general, both sides of the Committee reject the method of retrospective legislation, even though there might be some cases where it would be appropriate.
Even if the third method of the affirmative Resolution were adopted, it does not mean that the Committee does not have to deal periodically and successively with methods of avoidance which Parliament thinks ought to be stopped for the protection of the Revenue and other taxpayers. Therefore, there is no question of being sick of stopping up loopholes. The alternative method proposed by the right hon. Member for Huyton and mentioned by the hon. Member for Islington, East is merely a way of anticipating by a matter of months what, on our present procedure, Parliament does in a Finance Bill.
My right hon. Friend adverted to the matter, shortly at any rate, in reply to an interpolation in his speech on the Finance Bill. The objection is that one is buying a matter of months at a cost of a very considerable invasion of the established Parliamentary procedure in the imposition of direct taxation. I leave the matter there, merely pointing out that unless one accepts the sort of provision there was under the Excess Profits Tax code, there is no method of saving Parliament from stopping up loopholes which may disclose themselves in the general system of taxation which we think right to impose.
I expressly mentioned direct taxation because, in general, very much larger sums may be involved for the individual taxpayer. That is by no means a matter to be dismissed so lightly. If one is to deal with these extremely complicated matters in a way which does not admit of any Amendment, as a Statutory Instrument does not admit of any Amendment, it seems to me that there is a profound difference between direct and indirect taxation. One has only to consider the number of Amendments tabled to these sort of Clauses from both sides of the Committee to see the difference between direct and indirect taxation.
No. I mentioned that as one of the matters. The other is the complication of taxation and the desirability, above all, of vouchsafing and preserving to Parliament its right to amend the fiscal code, which is never more necessary than in these sort of complicated fiscal provisions Having said that, may I pass to the Amendment?
Before the hon. and learned Gentleman passes from that, perhaps he would deal with this point. In considering this matter, which, admittedly is a most difficult one, has the hon. and learned Gentleman given due weight of consideration to the distinction which exists already in the fiscal law between debts due to the Treasury and civil debts in other matters between citizens? I remind the hon. and learned Gentleman of something of which I am sure he is fully aware. The Limitation Act, limiting the recovery of civil debts to six years if the debtor chooses to plead the Act, applies already to all debts except debts to the Treasury. The Treasury is in a position to go back ten years, fifteen years or twenty years if the facts warrant such a course, whereas if it were a civil transaction that would not be possible. In that sense the Treasury has a retrospective right to recover debts which could not be recovered by a private citizen.
That seems to me to be very doubtfully relevant to what we have under discussion, nor is it accurate. This is not the occasion to go into it, but the right of retrospective recovery on either side, by the Crown against the taxpayer and by the taxpayer against the Crown, is limited under statute.
Mr. H. Wilson:
Surely, what is relevant and accurate is the fact that the hon. and learned Gentleman and his party in this present Session have voted in favour of retrospective legislation affecting the constituencies of my hon. Friend the Member for Widnes (Mr. MacColl) and my hon. and learned Friend the Member for Kettering (Mr. Mitchison) and my constituency in respect of town and country planning legislation.
The Measure for which they voted said that a certain thing shall be the case and shall be deemed always to have been the case. In fact, the local authorities concerned had a claim against the Crown. Although the hon. and learned Gentleman and his party have voted for legislation to say that something shall be deemed always to have been the case, the hon. and learned Gentleman is squeamish about having that same formula in respect of measures which are clearly and deliberately undertaken for the purpose of defrauding the Crown after long and repeated warnings from Her Majesty's Ministers.
The right hon. Gentleman has the advantage of me in the examples which he has mentioned, for I have not got them in mind and am not in a position to controvert him. Perhaps I might reply in the words of Browning, when asked about the meaning of "Sordello." I may have known at the time what I was voting for, but I cannot, after this lapse of time, recollect what it was.
It is perhaps sufficient to say that the right hon. Gentleman is right in saying that there are many examples of retrospective legislation which we would all accept, not least those which are in favour of the subject. But I think it fair to say that the House of Commons and the country at large have always been extremely jealous of retrospective penal legislation, and I would include in that the penal provisions of the fiscal code.
After that exordium, which was rather longer than I intended, I was about to deal with the Amendment. What we are seeking to do here is to preclude what I believe all hon. Members in the Committee believe to he an unjustifiable gain by individual taxpayers at the expense of the Exchequer—in other words, the general body of taxpayers—by the device of bond washing. We all believe that the fiscal profit which is being made is not one which is conscionable. On the other hand, we are all anxious to ensure that we do not interfere with the normal operations of the gilt-edged market.
It is extremely important that any Government should preserve a free market for dealing in its own bonds. Therefore, we have to balance, on one side, these necessary provisions to protect the Revenue and, on the other hand, the freedom of the market. Any provisions of this sort, any anti-avoidance measures, amount to some extent to an invasion of the freedom of the market. We have to accept some impairment of that freedom, but, all the same, let us be quite certain that we limit it to what is absolutely necessary.
In the first place, on ordinary transactions by dealing concerns one can rely on the swings and the roundabouts. An ordinary dealing concern will be buying ex-dividend, selling cum-dividend, and doing the opposite because it has to take up all the stock and securities that are offered to it in the ordinary way of business. So what the Revenue loses on the swings it picks up on the roundabouts.
Secondly, if securities are bought in the normal course of investment, it is a fact that the purchaser's circumstances may make it necessary for him to realise his investment after, say, two or three months. That does not imply any avoidance motive at all. In fact, in the avoidance cases that we have come across so far, the interval between the purchase cum-dividend and the sale ex-dividend the period has been only a few days; and we are advised that the period of one month, therefore, gives a substantial margin and a substantial safeguard.
There are two reasons why the operator who tries to carry out a transaction outside the one-month period is likely to run into trouble. The first is that the market may very easily turn against him, and the second is that, so far as we have been able to ascertain, these operators work on borrowed money, and therefore, the longer they hold the stock the greater the interest they have to pay, and the more that diminishes the dividend which constitutes the profit.
In these circumstances we feel that the one month period is sufficient. But we have provided ourselves with a long-stop in subsection (2, a)—the period of six months, where the purchase and sale were effected at something other than the current market price, which would be prima facie a sign of collusion or—this is the second half of the limb—where there is otherwise shown to be a collusive arrangement.
If the Amendment were accepted by the Committee, the effect on legitimate business would be a serious one, and, indeed, a damaging one for the normal operation of the market. It would mean that an institution which had money available for the time being in a bona fide investment would then feel unable to invest it in any stock on which the dividend date was approaching, because it could not feel certain of leaving the investment undisturbed for at least six months.
Does the inclusion of the six months' period, the long-stop period, mean that where there is what the hon. and learned Gentleman called a collusive arrangement it will, nevertheless, not attract the provisions of these Clauses if it is for a longer period than six months?
Yes, that is so. If it is for a period of over six months, the hon. and learned Gentleman will appreciate that another dividend will have become due. We are concerned with a single dividend becoming due, with the result that one gets a price change through the security going ex-dividend.
That may be so, but, in practice, bond washing takes place in gilt-edged securities.
The point I was making was that perfectly legitimate institutions having money available for investment in gilt-edged securities would not be able to invest normally in any security which was approaching its dividend date because it could not feel certain of leaving the security undisturbed for at least six months. Indeed, if it were forced before the end of the six months' period to realise this security, it would be faced with the liability under Clause 19 or Clause 20 in the case of an exempt institution.
Therefore, I am advised that it would involve the periodical withdrawal of support from the gilt-edged market as the dividend period approached on a scale which would very seriously affect the stability and efficiency of the market. In a word, we believe that this falls well on the side of interfering with legitimate trading and is unnecessary for the purpose which we all have in mind, which is to stop bond washing in gilt-edged securities. Therefore, I advise the Committee to reject the Amendment.
Am I following the hon. and learned Gentleman's argument correctly? Is he saying that the practice of tax dodging by stripping gilt-edged securities is so widely established that, notwithstanding the enormous amount of Government securities which are available on the market at any time, the withdrawal of the tax dodging facilities will seriously affect the price of gilt-edged securities?
No, the hon. Gentleman has got the precise opposite of the point that I was making. What we are afraid of is the withdrawal from the market of legitimate traders, investors and institutions, because if we extended this period to six months they would be liable to be caught if they realised their investments within six months; for they would be buying before the security went ex-dividend and might be forced to sell within six months. They would then come precisely within the mischief of this Amendment. That is the point. This is more than is necessary to deal with the bond washers; it would hit the legitimate investors and would, therefore. interfere with the normal operation of the market.
We are not satisfied with the reply and we are not satisfied with the Clause as it stands unamended. We are, in the words of my hon. Friend the Member for Islington, East (Mr. E. Fletcher), sick of stopping up gaps in this way. After all, this is not the first time that we have dealt with this problem. A vigorous effort was made in the 1957 Finance Act to deal with this sort of thing—the other way up, but it was intended to deal with this sort of thing. The Stock Exchange Council made special arrangements in 1957 to do it.
Ways were found round all of those methods, and that is why we now have this legislation. I am perfectly certain that these clever gentry have already found ways round this legislation. We know from long experience that this is always what happens. Every two or three years we get new anti-avoidance legislation with regard to dividend stripping and bond washing. If this is the way it is done, tax avoidance will continue. Indeed, after the careful scrutiny and care which must have been given to this matter before the Finance Bill was produced, we now have a number of other Government Amendments already on the Notice Paper to stop up further loopholes which had not been thought of before the Bill was published, but which have been thought of now.
The hon. and learned Gentleman himself was quoted by my hon. Friend. On 28th April, he said:
I certainly would not say that ways may not be found round this or any conceivable legislation."—[OFFICIAL REPORT, 28th April, 1959; Vol. 604, c. 1119.]
The important point is this. He has no assurance that ways will not be found round this legislation. That is why our basic point is that this is the wrong method of doing it, and that the right way is to have powers to deal with it by Statutory Instrument embodied in legislation.
This deals with both the points which the hon. and learned Gentleman made. First, it is not just a question of a few months. Real speed and certainty of speed is the way of stopping this sort of trickery and dodging. If these ingenious gentlemen know that directly the thing is discovered it can be stopped, it will deter a great many of them from doing this sort of thing. As to the hon. and learned Gentleman's point about amendment, it does not apply if this is embodied in legislation within a given period—say, within six or twelve months—because the legislation can be amended. Members can put down any Amendments.
The hon. and learned Gentleman's objections to this Amendment do not apply, whereas our point is that the Government will go on chasing the tails of these people and never catching up with them. If they can have two years or eighteen months in which to get round this sort of thing, they can make their profits and then they are ready to make their new illicit profits in the next eighteen months. This will always, in effect, make tax avoidance possible and will continually complicate the law. The effect of our Amendment is to catch any transaction of buying cum and selling ex within six months.
We are still far from convinced that it would be wrong to remove this subsection, as it only affects transactions within one month. We think this brings the whole matter very near the margin of safety. When the hon. and learned Gentleman himself was defending this provision on the Second Reading of the Bill he said:
We believe that"—
that is, the period of one month—
to be sufficient to deal with the ordinary type of case which we have in mind …".—[OFFICIAL REPORT, 28th April, 1959; Vol. 604, c. 1117.]
But, of course, it is not the ordinary type of case about which we are worried. It is the extraordinary and ingenious type of man whom we are worried about. We are sure that the Bill would deal with the ordinary type of case, but it is the extraordinary type of case with which we want to deal.
When we come to the Clause itself, the hon. and learned Gentlemen called it a long-stop, but it really is hedging around this concession of one month with enormous precautions, because it is a dangerous thing to do. We would not always have to put in all these provisions about satisfying the Commissioners that the transaction was bona fide and not rigged, if it were not a dangerous thing to do. The very wording of this subsection which we want removed shows what a dangerous thing
Therefore, on general grounds, we have little confidence in this whole method of dealing with the matter, and on particular grounds we would have no confidence at all in this Clause unless our Amendment were accepted. We do not think this is the proper way of doing it, and even if the hon. and learned Gentleman intends to adhere to his way of doing it he ought to do it properly. It could be done properly only if our Amendment were adopted. We therefore feel that we must divide the Committee on this very important matter.
|Division No. 124.]||AYES||[4.18 p.m.|
|Agnew, Sir Peter||Corfield, F. V.||Gurden, Harold|
|Allan, R. A. (Paddington, S.)||Craddock, Beresford (Spelthorne)||Hall, John (Wycombe)|
|Alport, C. J. M.||Crosthwaite-Eyre, Col. O. E.||Harris, Frederic (Croydon, N.W.)|
|Arbuthnot, John||Crowder, Sir John (Finchley)||Harris, Reader (Heston)|
|Armstrong, C. W.||Cunningham, Knox||Harrison, A. B. C. (Maldon)|
|Atkins, H. E.||Currie, G. B. H.||Harvey, Sir Arthur Vere (Macclesf'd)|
|Baldwin, Sir Archer||Davidson, Viscountess||Hay, John|
|Balniel, Lord||Davies, Rt. Hn. Clement (Montgomery)||Heald, Rt. Hon. Sir Lionel|
|Barber, Anthony||D'Avigdor-Goldsmid, Sir Henry||Heath, Rt. Hon. E. R. G.|
|Barlow, Sir John||Deedes, W. F.||Henderson-Stewart, Sir James|
|Barter, John||Donaldson, Cmdr, C. E. McA.||Hicks-Beach, Maj. W. W.|
|Batsford, Brian||du Cann, E. D. L.||Hill, Rt. Hon. Charles (Luton)|
|Baxter, Sir Beverley||Duncan, Sir James||Hill, John (S. Norfolk)|
|Beamish, Col. Tufton||Duthie, W. S.||Hinchingbrooke, Viscount|
|Beg, Ronald (Bucks, S.)||Eden, J. B. (Bournemouth, West)||Hirst, Geoffrey|
|Bennett, F. M. (Torquay)||Elliott, R.W. (Ne'castle upon Tyne, N.)||Hobson, John(Warwick & Leam'gt'n)|
|Bennett, Dr. Reginald||Emmet, Hon. Mrs. Evelyn||Holland-Martin, C. J.|
|Bevins, J. R. (Toxteth)||Errington, Sir Eric||Holt, A. F.|
|Bidgood, J. C.||Erroll, F. J.||Hornby, R. P.|
|Biggs-Davison, J. A.||Fell, A.||Hornsby-Smith, Miss M. P.|
|Bingham, H. M.||Finlay, Graeme||Howard, Gerald (Cambridgeshire)|
|Birth, Rt. Hon. Nigel||Fisher, Nigel||Howard, John (Test)|
|Bishop, F. P.||Fletcher-Cooke, C.||Hughes Hallett, Vice-Admiral J.|
|Body, R. F.||Fraser, Hon. Hugh (Stone)||Hutchison Michael Clark (E'b'gh, S.)|
|Bonham Carter, Mark||Freeth, Denzil||Hutchison, Sir James (Scotstoun)|
|Bossom, Sir Alfred||Gammans, Lady||Hylton-Foster, Rt. Hon. Sir Harry|
|Bowen, E. R. (Cardigan)||Garner-Evans, E. H.||Iremonger, T. L.|
|Boyd-Carpenter, Rt. Hon. J. A.||George, J. C. (Pollok)||Irvine, Bryant Godman (Rye)|
|Braine, B. R.||Gibson-Watt, D.||Jenkins, Robert (Dulwich)|
|Brewis, John||Glover, D.||Jennings, J. C. (Burton)|
|Brooman-White, R. C.||Glyn, Col. Richard H.||Jennings, Sir Roland (Hallam)|
|Browne, J. Nixon (Craigton)||Godber, J. B.||Johnson, Dr. Donald (Carlisle)|
|Bryan, P.||Goodhart, Philip||Johnson, Eric (Blackley)|
|Bullus, Wing Commander E. E.||Gough, C. F. H.||Jones, Rt. Hon. Aubrey (Hall Green)|
|Burden, F. F. A.||Gower, H. R.||Joseph, Sir Keith|
|Butcher, Sir Herbert||Graham, Sir Fergus||Kerr, Sir Hamilton|
|Campbell, Sir David||Grant, Rt. Hon. W. (Woodside)||Kershaw, J. A.|
|Cary, Sir Robert||Grant-Ferris, Wg Cdr. R. (Nantwich)||Kirk, P. M.|
|Channon, H. P. G.||Green, A.||Lambton, Viscount|
|Chichester-Clark, R.||Gresham Cooke, R.||Lancaster, Col. C. G.|
|Cole, Norman||Grimond, J.||Leavey, J. A.|
|Conant, Maj. Sir Roger||Grimston, Hon. John (St. Albans)||Leburn, W. G.|
|Cooper-Key, E. M.||Grimston, Sir Robert (Westbury)||Legge-Bourke, Maj. E. A. H.|
|Cordeaux, Lt.-Col. J. K.||Grosvenor, Lt.-Col. R. G.||Legh, Hon. Peter (Petersfield)|
|Lindsay, Hon. James (Devon, N.)||Noble, Michael (Argyll)||Speir, R. M.|
|Lindsay, Martin (Solihull)||Nugent, Richard||Spens, Rt. Hn. Sir P. (Kens'gt'n, S.)|
|Linstead, Sir H. N.||Oakshott, H. D.||Stanley, Capt. Hon. Richard|
|Lloyd, Maj. Sir Guy (Renfrew, E.)||O'Neill, Hn. Phelim (Co. Antrim, N.)||Stevens, Geoffrey|
|Longden, Gilbert||Orr-Ewing C. Ian (Hendon, N.)||Steward, Harold (Stockport, S.)|
|Loveys, Walter H.||Osborne, C.||Steward, Sir William (Woolwich, W.)|
|Lucas, Sir Jocelyn (Portsmouth, S.)||Page, R. G.||Stoddart-Scott, Col. Sir Malcolm|
|Lucas-Tooth, Sir Hugh||Pannell, N. A. (Kirkdale)||Storey, S.|
|Macdonald, Sir Peter||Partridge, E.||Stuart, Rt. Hn. James (Moray)|
|Mackeson, Brig. Sir Harry||Peel, W. J.||Summers, Sir Spencer|
|McLaughlin, Mrs. P.||Peyton, J. W. W.||Taylor, William (Bradford, N.)|
|Maclean, Sir Fitzroy (Lancaster)||Pike, Miss Mervyn||Temple, John M.|
|McLean, Neil (Inverness)||Pilkington, Capt. R. A,||Thompson, Kenneth (Walton)|
|Macleod, Rt. Hn. Iain (Enfield, W.)||Pitman, I. J.||Thornton-Kemsley, Sir Colin|
|MacLeod, John (Ross & Cromarty)||Pitt, Miss E. M.||Tiley, A. (Bradford, W.)|
|McMaster, Stanley||Pott, H. P.||Tilney, John (Wavertree)|
|Macmillan, Maurice (Halifax)||Powell, J. Enoch||Turton, Rt. Hon. R. H.|
|Macpherson, Niall (Dumfries)||Price, David (Eastleigh)||Tweedsmuir, Lady|
|Maddan, Martin||Price, Henry (Lewisham, W.)||Vane, W. M. F.|
|Maitland, Hon. Patrick (Lanark)||Prior-Palmer, Brig. O. L.||Vickers, Miss Joan|
|Markham, Major Sir Frank||Profumo, J. D.|
|Marlowe, A. A. H.||Ramsden, J. E.||Wade, D. W.|
|Marples, Rt. Hon. A. E.||Redmayne, M.||Wakefield, Edward (Derbyshire, W.)|
|Mathew, R.||Rees-Davies, W. R.||Wakefield, Sir Wavell (St. M'lebone)|
|Mawby, R. L.||Remnant, Hon. P.||Walker-Smith, Rt. Hon. Derek|
|Maydon, Lt.-Comdr, S. L. C.||Renton, D. L. M.||Wall, Patrick|
|Medllcott, Sir Frank||Ridsdale, J. E.||Ward, Rt. Hon. G. R. (Worcester)|
|Milligan, Rt. Hon. W. R.||Rippon, A. G. F.||Ward, Dame Irene (Tynemouth)|
|Molson, Rt. Hon. Hugh||Robertson, Sir David||Webbe, Sir H.|
|Morrison, John (Salisbury)||Rodgers, John (Sevenoaks)||Webster, David|
|Mott-Radclyffe, Sir Charles||Roper, Sir Harold||Williams, Paul (Sunderland, S.)|
|Nabarro, G. D. N.||Russell, R. S.||Williams, R. Dudley (Exeter)|
|Nairn, D. L. S.||Scott-Miller, Cmdr. R.||Wills, Sir Gerald (Bridgwater)|
|Neave, Airey||Sharples, R. C.||Wolrige-Gordon, Patrick|
|Nicholls, Harmar||Shepherd, William||Woollam, John Victor|
|Nicholson, Sir Godfrey (Farnham)||Simon, J. E. S. (Middlesbrough, W.)|
|Nicolson, N. (B'n'm'th, E. & Chr'ch)||Smithers, Peter (Winchester)||TELLERS FOR THE AYES:|
|Noble, Comdr, Rt. Hon. Allan||Spearman, Sir Alexander||Colonel J. H. Harrison and|
|Abse, Leo||Diamond, John||Jenkins, Roy (Stetchford)|
|Ainsley, J. W.||Dodds, N. N.||Jones, Rt. Hon. A. Creech(Wakefield)|
|Albu A. H.||Ede, Rt. Hon. J. C.||Jones, Elwyn (W. Ham, S.)|
|Allaun, Frank (Salford, E.)||Edelman, M.||Jones, J. Idwal (Wrexham)|
|Allen, Schofield (Crewe)||Edwards, Rt. Hon. Ness (Caerphilly)||Jones, T. W. (Merioneth)|
|Awbery, S. S.||Edwards, Robert (Bilston)||Kenyon, C.|
|Bacon, Miss Alice||Edwards, W. J. (Stepney)||Key, Rt. Hon. C. W.|
|Baird, J.||Evans, Albert (Islington, S.W.)||King, Dr. H. M.|
|Balfour, A.||Fletcher, Eric||Lawson, G. M.|
|Bellenger, Rt. Hon. F. J.||Foot, D. M.||Lee, Frederick (Newton)|
|Bence, C. R. (Dunbartonshire, E.)||Forman, J. C.||Lee, Miss Jennle (Cannock)|
|Benson, Sir George||Fraser, Thomas (Hamilton)||Lindgren, G. S.|
|Beswick, Frank||Gaitskell, Rt. Hon. H. T. N.||Lipton, Marcus|
|Bevan, Rt. Hon. A. (Ebbw Vale)||Gibson, C. W.||Logan, D. G.|
|Blenkinsop, A.||Gordon Walker, Rt. Hon. P. C.||Mabon, Dr. J. Dickson|
|Blyton, W. R.||Greenwood, Anthony||McAlister, Mrs. Mary|
|Boardman, H.||Grenfell, Rt. Hon. D. R.||McCann, J.|
|Bowden, H. W. (Leicester, S.W.)||Grey, C. F.||MacColl, J. E.|
|Bowles, F. G.||Griffiths, David (Rother Valley)||MacDermot, Niall|
|Boyd, T. C.||Griffiths, Rt. Hon. James (Llanelly)||McInnes, J.|
|Braddock, Mrs. Elizabeth||Griffiths, William (Exchange)||McLeavy, Frank|
|Brockway, A. F.||Hale, Leslie||MacMillan, M. K. (Western Isles)|
|Broughton, Dr. A. D. D.||Hall, Rt. Hn. Glenvil (Colne Valley)||MacPherson, Malcolm (Stirling)|
|Brown, Thomas (Ince)||Hamilton, W. W.||Mahon, Simon|
|Burke, W. A.||Hannan, W.||Mallalieu, E. L. (Brigg)|
|Burton, Miss F. E.||Hastings, S.||Mallalieu, J. P. W. (Huddersfd, E.)|
|Butler, Herbert (Hackney, C.)||Hayman, F. H.||Mann, Mrs. Jean|
|Butler, Mrs. Joyce (Wood Green)||Healey, Denis||Mayhew, C. P.|
|Callaghan, L. J.||Henderson, Rt. Hn. A. (Rwly Regis)||Mellish, R. J.|
|Carmichael, J.||Herbison, Miss M.||Mitchison, G. R.|
|Champion, A. J.||Hilton, A. V.||Moody, A. S.|
|Chapman, W. D.||Hobson, C. R. (Keighley)||Morris, Percy (Swansea, W.)|
|Chetwynd, G. R.||Holman, P.||Morrison, Rt. Hn. Herbert (Lewis'm, S.)|
|Clunie, J.||Holmes, Horace||Mort, D. L.|
|Coldrick, W.||Houghton, Douglas||Moss, R.|
|Collick, P. H. (Birkenhead)||Hoy, J. H.||Moyle, A.|
|Cronin, J. D.||Hughes, Cledwyn (Anglesey)||Mulley, F. W.|
|Cullen, Mrs. A.||Hughes, Emrys (S. Ayrshire)||Neal, Harold (Bolsover)|
|Darling, George (Hillsborough)||Hunter, A. E.||Noel-Baker, Francis (Swindon)|
|Davies, Ernest (Enfield, E.)||Hynd, H. (Accrington)||Oliver, G. H.|
|Davies, Harold (Leek)||Hynd, J. B. (Attercliffe)||Oram, A. E.|
|Davies, Stephen (Merthyr)||Irving, Sydney (Dartford)||Oswald, T.|
|Deer, G.||Jay, Rt. Hon. D. P. T.||Owen, W. J.|
|Delargy, H. J.||Jeger, George (Goole)||Paget, R. T.|
|Paling, Rt. Hn. W. (Dearne Valley)||Short, E. W.||Thornton, E.|
|Paling, Will T. (Dewsbury)||Simmons, C. J. (Brierley Hill)||Timmons, J.|
|Pannell, Charles (Leeds, W.)||Skeffington, A. M.||Tomney, F.|
|Parker, J.||Slater, Mrs. H. (Stoke, N.)||Usborne, H. C.|
|Parkin, B. T.||Slater, J. (Sedgefield)||Viant, S. P.|
|Paton, John||Smith, Ellis (Stoke, S.)||Warbey, W. N.|
|Pearson, A.||Sorensen, R. W.||Watkins, T. E.|
|Popplewell, E.||Sparks, J. A.||Wheeldon, W. E.|
|Prentice, R. E.||Spriggs, Leslie||White, Mrs. Eirene (E. Flint)|
|Price, J. T. (Westhoughton)||Steele, T.||Wilkins, W. A.|
|Price, Philips (Gloucestershire, W.)|
|Probert, A. R.||Stewart, Michael (Fulham)||Willey, Frederick|
|Proctor, W. T.||Stonehouse, John||Williams, David (Neath)|
|Rankin, John||Stones, W. (Consett)||Williams, Rt. Hon. T. (Don Valley)|
|Redhead, E. C.||Straohey, Rt. Hon. J.||Williams, W. R.(Openshaw)|
|Reeves, J.||Strauss, Rt. Hn. George (Vauxhall)||Willis, Eustace (Edinburgh, E.)|
|Reid, William||Stross, Dr. Barnett (Stoke-on-Trent, C)||Wilson, Rt. Hon. Harold (Huyton)|
|Reynolds, G. W.||Summerskill, Rt. Hon. E.||Woof, R. E.|
|Rhodes, H.||Swingier, S. T.||Yates, V. (Ladywood)|
|Robens, Rt. Hon. A.||Sylvester, G. O.||Zilliacus, K.|
|Roberts, Albert (Nomanton)||Taylor, Bernard (Mansfield)|
|Ross, William||Thomas, lorwerth (Rhondda, W.)||TELLERS FOR THE NOES:|
|Shinwell, Rt. Hon. E.||Thomson, George (Dundee, E.)||Mr. John Taylor and Mr. Rogers.|
I beg to move, in page 17, lire 27, at the end to insert:
but does not extend to the securities issued by a company which is not resident in the United Kingdom or in the Republic of Ireland or to securities issued by the national or local governments in any country outside the United Kingdom or the Republic of Ireland".
Clauses 19 to 21, as we heard earlier from the hon. Member for Islington, East (Mr. E. Fletcher), are designed to catch bond washers on a wide scale, and Clause 18 defines the persons and transactions which are to be caught in the net. I wonder very much whether Clause 18 as drawn goes too far. I think that the Government have had second thoughts in that direction also, because they have put down an Amendment to Clause 19 which will exclude, among others, discount houses from the operation of Clauses 19 to 21.
It is the fact, of course, that when some people overdo it, legislation has to be introduced, but then the innocent are likely to be caught in the same net as the guilty. Despite the Government Amendment to Clause 19, I still feel that Clause 18 goes too wide. I have in mind here not persons, but property. Clause 18 (6, c) defines the securities as including stocks and shares. I wonder whether there is an anomaly here in that, if those are stocks and shares of a company resident overseas and not itself liable to United Kingdom Income Tax at the standard rate, the dividends being received net at a rate of tax less than the United Kingdom standard rate, the Clause as drawn may not deal with this situation in a proper manner.
It seems to me in general terms inappropriate to bring in overseas income which becomes chargeable to tax only because the recipient is liable to United Kingdom Income Tax because of residence here. It seems to me that there is a second anomaly there. My Amendment seeks to put that anomaly right without destroying the purpose either of Clause 18 or the three following Clauses.
At present, securities are construed under the Clause as including stocks and shares, and that includes securities dealt with abroad. As I understand, my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens) wants to exclude securities issued by companies or institutions which are not resident in the United Kingdom.
As the Committee knows, a certain amount of dealing in securities is carried out in the way of arbitrage. What happens is that where a discrepancy in price of a security which is dealt with in more than one national exchange comes about, so that in one exchange it is standing above what it is standing at in another exchange, there are dealers who carry out arbitrage operations designed to buy in the market where the security is cheaper and to sell in the market where it is dearer, thus making a profit, and, I suppose, economically speaking, carrying out the function of providing an overall market and bringing the prices into adjustment.
That is perfectly legitimate business, but it can take place in such a way as to involve bond washing. It may be perfectly legitimate, in which case it is let out by the provisions which we have written into these Clauses, particularly Clause 18, which are designed to prevent legitimate business from being penalised. On the other hand, it may be a perfectly ordinary case of bond washing such as those at which we are trying to strike.
In other words, not only does one get the ordinary arbitrage profit that one gets by buying in the market where the stock stands lower and selling in the international market where it stands higher, but, if it takes place at a period when the dividend is declared, one can get the artificial loss that ranks in the case of a dealing concern as an income loss and, therefore, supports a claim against the Inland Revenue.
There is nothing in the provisions which we are asking Parliament to enact which interferes in any way with the arbitrage business. The ordinary arbitrage profit can still be made. All we say is that if a bond washing operation is involved in addition, then the fortuitous profit arising from the bond washing operation must be discounted—I use a neutral term to cover the three following Clauses—for tax purposes. In other words, we would stop bond washing in a domestic market, but would still leave an avenue open for it in the international market. It is because my hon. Friend's Amendment would expose that gap that I cannot advise the Committee to accept the Amendment.
I think that the Financial Secretary's explanation is quite convincing. I do not think that the hon. Member for Portsmouth, Langstone (Mr. Stevens) made his point to the satisfaction of the Committee. He doubted whether the Clause went too far. Generally in these matters we wonder whether the Clauses go far enough. In a Clause which tries to stop further bond washing transactions the hon. Member seems anxious to let up in some way.
What the Clauses are trying to do is to stop avoidance of United Kingdom Income Tax on transactions of a kind referred to in the Clause. It does not seem to matter what kind of stocks and shares they are—whether they belong to a company resident outside this country or not—if transactions in those stocks and shares can result in the avoidance of United Kingdom Income Tax. The Financial Secretary has explained that nothing legitimate is being stopped by these provisions, but what the hon. Member's Amendment might do would be to admit in this sphere of operation transactions which in United Kingdom companies would be caught by these Clauses. That would seem to be anomalous. We on this side are satisfied that the hon. Gentleman's Amendment should be rejected.
I am happy to find myself in agreement with the hon. Member for Sowerby (Mr. Houghton), although I regret to say that the circumstances in which I do so are different. I confess that my practical knowledge of bond washing is nil, but it has seemed to me from discussions which I have had in recent years that bond washing normally takes place in British securities rather than in overseas securities. I would have thought that the number of operators of the type that we want to get at and who operate in foreign securities is very small, but I may be wrong.
I associate myself with the hon. Member for Sowerby in paying tribute to the clear manner in which my hon. and learned Friend has advised the Committee to reject the Amendment and I beg to ask leave to withdraw the Amendment.
I beg to move, in page 17, line 29, to leave out "against the same persons".
Would it be for the convenience of the Committee if we took with this Amendment those in page 17, line 30, to leave out "capital and", and to leave out from "interest" to "notwithstanding", in line 31? I do not know whether it would also be convenient to take the Amendment standing in the name of the Chancellor of the Exchequer, in line 34, at the end to add:
and for the purposes of this paragraph rights guaranteed by the Treasury shall be treated as rights against the Treasury.
Clause 18 describes the scope of the operations which are
more particularly dealt with in the three following Clauses. They are, broadly speaking, in one form or another, the purchase of securities and their subsequent sale. Where the securities are the same, no question arises, but the Clause rightly provides for cases where the securities are not the same but are similar. In subsection (4) there is a reference to
a sale of securities similar to, and of the like nominal amount as, securities previously bought.
If the matter rested there, that would cover quite a lot of ground and it would strike at the root of the trouble where a man had bought securities of one kind and resold similar securities in such a way as to amount to bond washing. When one goes further into the Clause, however, one comes to the definition of what is similar. It is no ordinary definition. One has first to remember what one is dealing with. It is not merely British Government securities. It will include, for instance, the securities of local authorities in this country and by definition it includes stocks and shares, too. Therefore, it goes a long way into the various sectors of investment that are possible.
One has to consider the position, for instance, in the following Clause, of someone who is carrying on a trade which consists of dealing in securities and who will for that purpose, presumably, have a stock of securities carried from time to time and varying from time to time and who will purchase before the date of the declaration of the dividend or the payment of interest, as the case may be, and sell afterwards. Suppose that he buys, for instance, the stock of a county council which pays interest at a given rate on a given date and that he has in his pool stock of another county council which pays interest at the same rate and on the same date.
As I read the Clause, if that person sells the stock of the same council in a way that amounts to bond washing, he will get caught. If, however, instead of doing that, he sells the stock of the other county council, the effect on his affairs would be exactly the same, but he would not be caught. That can be extended for a very long way.
The reason why I come to this curious conclusion, although, at first sight, one would say that it really cannot be so and that "similar" must extend to cases of that kind, is that when I look at the definition of "securities", I find that they are deemed to be similar if they entitle their holders to the same rights against the same persons and, therefore, the rights against county council A and the rights against county council B, though in substance, time and everything else exactly similar, would be against different people and the effect of the Clause would consequently differ according to whether, having bought the stock of one county council, a person resold it or resold a precisely similar stock instead of it. As the Clause is dealing with people who necessarily keep a pool of this sort, all that they have to do is to choose the right stock at the moment and they will thereby avoid paying a great deal of tax which, on ordinary definitions of the word "similar", one would suppose that they had to pay.
Then one comes to the question of rights. The first Amendment is directed to leaving out "against the same persons" and I have given the reason for it. Holders of securities have to have the same rights against the same persons as to capital and interest. I am not versed in the niceties of the Stock Exchange, but it seems to me perfectly conceivable that one might have two stocks which convey the same rights against the same persons as regards interest but which do not convey the same rights against those people as regards capital.
One might have, for instance, two sets of debenture stocks, one a first mortgage and the other a second mortgage, both paying interest at the same rate on the same date. If somebody bought the one debenture stock and happened to have the other in his bundle at the time and sold it out of the bundle instead of out of his recent purchase, he would be left in, if not exactly the same, at least a very similar position, and yet by so doing he would have avoided the effect or the intended effect of the Clause.
What is the point of insisting that, for the purposes of the Clause, rights against people should be the same as to capital? It is a Clause concerned with interest rather than capital. Accordingly, the second of the two Amendments would leave out the reference to rights in respect of capital.
The third Amendment, to line 30, is, perhaps, a little more difficult. Up to that point, paragraph (d) runs:
securities shall be deemed to be similar if they entitle their holders to the same rights against the same persons as to capital and interest".
What we propose to do is to stop at that point. By so doing, we would leave out the reference to remedies and we would leave out, too, a rather mysterious reference to
notwithstanding any difference in the total nominal amounts of the respective securities or in the form in which they are held or the manner in which they can be transferred.
I understand that reference to relate purely to the remedies for enforcement. If I am wrong in so understanding it, I shall, no doubt, be corrected. If, however, I am right, all we are trying to do is to leave out the question of enforcement and remedies for enforcement.
Again, I cannot see the relevance of this. I should have thought that stock. were sufficiently similar for this purpose, at least when one had a payment of interest of the same amount at the same date, and that questions of remedies, which might well be complicated, ought not to be allowed to shield a person who was dealing in securities similar for the purposes of the Clause as I understand them.
The question of interest raises an aspect which, I agree, is perhaps not fully covered by our Amendment. It raises it, however, and it will be interesting to hear the Government's reply. It may be necessary later to make some addition to what we propose and what the Government will accept. The case I have in mind is as follows. Let us assume some completely identical stock—the same stock—and let us suppose that a person buys a given amount of it before the declaration of interest and sells afterwards the given amount less, say, 1s.
Obviously, that may be a bond-washing transaction and yet the Clause is worded in such a way that the securities have not only to be similar, but they also have to be of like nominal amount. When one comes to the definition of "similarity", one finds that there has to be the same right as regards interest. I am not clear what "right" in that connection means. Does it include the right to receive a given amount of money as interest or is it some other form of right; and if so, what?
I wonder whether the Government will make clear what is being done to avoid the case of a person who, quite deliberately, makes a minimal change in the amount of the security that he sells after the interest date as against the amount of the security which he bought before the interest date? If the answer is this kind of thing, suppose that he buys £100,000 and sells £99,999. The Clause would attach to the £99,999. If that is the answer, then it is very difficult to reconcile the reference to the "nominal amounts" in the subsection.
If it is not the answer, what is the answer? If, as I suspect to be the case, there is no answer, is this not merely one other instance of the extreme difficulty of catching operations of this kind, when we feel we must not interfere with lawful transactions—and one appreciates the feeling—and when we are reluctant at the same time to provide for anything but statutory Clauses of this kind at the time of the Budget?
I have been thinking lately that it was about time that the Treasury had a coat of arms, and I am going to make a suggestion for that purpose. It would be one of those gushing taps, and the Treasury attempting to stop the leak: I am afraid, with rather insufficient plumbers. Hon. Members can have their own ideas as to what the supporters should be. The motto, I think, might be taken from Offenbach's song about the gendarme, who always, be it remembered, came on the scene singing "Toujours trop tard"—always too late.
Really, it is all very well, but these bond-washing transactions can and do, as we have been told, involve very large sums indeed, and it is most unsatisfactory that we should be able to deal with them only year by year at the time of the Budget, and that when we try to deal with them the language with which we are attempting to cope with the evil does seem to allow of the most obvious evasion, in the spirit, at any rate, and that the Government are being practically driven to say, "We cannot deal with the bond washer without interfering with legitimate business."
I do not believe that that can be the case, but I do believe that if we are confined to dealing with the bond washer by annual legislation, and if the Government are very cautious about it, as they seem to be in this Clause about similar securities, all they do is make the man laugh, get out of it as easily as anything a month or two afterwards, and put into his own pocket a precious packet of money which ought to have paid tax during the ten or eleven months between those transactions and the next Budget.
If the hon. Member had not interrupted me, he would have found my sentence rounded off in a compliment to his hon. and learned Friend the Member for Kettering (Mr. Mitchison). Now I feel that I must move forward from that point.
I myself equally find difficulty in trying to construe the accurate and definite meanings, if such there be, of subsection (6, d) to which this group of Amendments refers. Indeed, I did write to my hon. and learned Friend the Financial Secretary to inquire of him how he understood certain of these definitions to read. I think that it was probably due to one of my letters that the Amendment standing in the name of my right hon. Friend the Chancellor, the Amendment to page 17, line 34, was put down, because "against the same persons", which the Amendment under discussion would omit, seems to me a rather important point.
I gather that my right hon. Friend's Amendment refers to the necessity for maintaining Three per cent. Electricity Stock, 1968–73, and Three per cent. Transport Stock, 1968–73, as being similar stocks, since otherwise it might be argued that the Electricity Council and the British Transport Commission were different persons.
However, as I understand this paragraph, it would appear that each local authority is a separate person. Frankly, I do not believe that that will nullify the effectiveness of this Clause, because if one attempts to undertake bond washing by means of buying cum-dividend and selling ex-dividend, it is necessary to buy a fairly substantial amount of stock if the undertaking is to prove profitable. That means that one is virtually limited to dealing in British Government stock, or possibly the stocks of Commonwealth and Colonial Governments. It is almost impossible to think, and at the moment I cannot think, of a local authority stock or of two local authority stocks in which there is a sufficiently free market to enable this type of operation to be undertaken. While it naturally does not matter in dealing with the bond washer, I think it would limit still further the mark et in local government securities which it is necessary that the Government should help to maintain if local authorities are to be able to finance themselves reasonably from time to time.
Of course, the people who do hold one local government stock against another local government stock by becoming the bull of one stock against the bear sale of another stock are the jobbers on the London Stock Exchange or the dealers on other stock exchanges, and I notice that there is an Amendment to the next Clause in the name of my right hon. Friend specifically designed to exclude those people from the operation of these Clauses. These are the only people who would be operating by going bear on one local government stock in order to become bull on another local government stock, and I should have thought that as they were being excluded from the Bill this Amendment of the hon. and learned Gentleman was an unnecessary one.
As to debenture stocks, my hon. and learned Friend the Financial Secretary was kind enough to write to me that he understood that two debentures with the same dates of redemption, paying the same nominal rate of interest at the same interest dates, would be deemed similar if they were issued by the same company, even though separate registers
were kept of each of them and even if each had a separate sinking fund. I do agree that the hon. and learned Gentleman raised a point when he said that what he wanted to raise was the effect if they were secured on different assets belonging to the same company, but I should have thought that the words of this paragraph (d)
the same rights against the same persons
did cover as a major point the minor point of the particular assets belonging to the same person against which those particular debenture stocks were secured. I should have thought this an irrelevancy in any case, because it is no use attempting to bond wash if one has to pay Government Stamp Duty as well as broker's commission.
If one attempts to buy and sell debenture stocks within a relatively short period of time, one not only has to pay a commission to the stockbroker which is nearly twice, and possibly much more than twice, the commission one has to pay in buying Government securities, but in addition one has to pay the Chancellor of the Exchequer 2 per cent. Stamp Duty; and this type of operation becomes totally uneconomic. One would get really serious about this particular type of operation in relation to debenture stocks only if one anticipated that the Chancellor of the Exchequer would remove the 2 per cent. Stamp Duty on the transfer of securities, of which I see no sign of his doing.
Yes, but I cannot see the great difficulty here. We are talking about how we should define "similarity". In the case of ordinary preference stocks or shares, I should have thought it pretty simple, and the arguments which I have used about Stamp Duty and commission apply even more. In fact, bond washing takes place only with Government securities 999,999 times out of 1 million, but I think that my hon. and learned Friend would be doing us a service if he dealt with the question of the same nominal amount.
Not being a lawyer, I assume that if a person bought £100,000 nominal of a security cum-dividend and sold £99,999 ex-dividend, he was buying and selling the same amount, namely, £99,999 nominal, and would be charged with bond washing on that £99,999. The hon. and learned Member for Kettering is an expert in this kind of legal unwinding, and unravelling, but I hope that my hon. and learned Friend the Financial Secretary will clear up for the benefit of the Committee this particular point. I should have thought that in view of the practicability of bond washing and in view of the need to get a clear and concise statement in the various Amendments on the Order Paper, only the Amendment in the name of my right hon. Friend should be accepted by the Committee.
My task is rendered easier on these Amendments because the problems which we have to face were posed with great clarity, as well as entertainingly, by the hon. and learned Member for Kettering (Mr. Mitchison) and answered with masterly authority by my hon. Friend the Member for Basingstoke (Mr. Denzil Freeth). I respectfully agree with the hon. and learned Member for Kettering when he says that this is an extremely difficult task. We are all agreed that what we have to do is to stop bond washing on the one hand but, on the other, not interfere with the legitimate operations of the gilt-edged market. Secondly, as far as the subsection and the Amendments are concerned, we want to prevent an operator from side-stepping the Bill's provisions by selling securities which are, for all practical purposes, fully equivalent to those he bought cum dividend but are distinguishable on some purely formal aspect only.
The hon. and learned Member gave a clear example. It would be ridiculous, obviously, if we let off a case where a dealer was already in possession of £100,000 conversion stock and then bought cum dividend shortly before the dividend date another £100,000 conversion stock and sold the original one which he held and claimed that this was not a bond-washing transaction. It is to stop that kind of transaction that we have Clause 18 (4) and subsection (6, d).
Other examples are the registered and bearer forms of the same sort, or bonds of the same issue but of different denominations. I should like to look
again at the question of debentures. I looked at it carefully when my hon. Friend the Member for Basingstoke was good enough to see me and to write to me about the subsection. I should like to pay tribute to him and to say that it is indeed true that the Amendment in page 17, line 34, at end add:
and for the purposes of this paragraph rights guaranteed by the Treasury shall be treated as rights against the Treasury
was due to his expert knowledge. I think and hope, however, that I can satisfy the Committee and the hon. and learned Member and my hon. Friend about the words
'… of the like nominal amount. …
The case put was that A buys £10,000 of bonds cum dividend and sells £9,999 of them ex dividend. I am advised, and I put this before the Committee with confidence, that that would be in any event caught by subsection (4), which says:
For the purposes of this and the three next following sections a sale of securities similar to, and of the like nominal amount as, securities previously bought … shall be equivalent to a sale of the original securities …
It seems to me that the courts could put no other construction on that than to say that when he bought £10,000 of bonds he bought the £9,999 that he subsequently sold plus one and, therefore, it is of the same nominal amount.
There is a further example. Suppose that he had three bearer bonds of £50 and then bought cum dividend a further bond of £150 and then sold the three of £50 ex dividend. I should have thought it perfectly clear that those would have been of the like nominal amount, and those words were put in the Bill precisely for that object. But if there was any doubt, I should have thought that it was resolved by the words in subsection (6, d), which states:
securities shall be deemed to be similar if they entitle their holders to the same rights … notwithstanding any difference in the total nominal amount. …
Therefore, if there were any doubt about the words "like nominal amount" they would be resolved by those words.
Would my hon. and learned Friend consider substituting "a" for "the" in the
expression "the like nominal amount" so that it would read:
… securities similar to, and of a like nominal amount. …"?
The difficulty, if there is one, arises from the fact that "the" suggests that one has to buy and sell the same packet, but if one buys a large packet and sells something out of it, that must be caught by the Clause. I should have thought that the use of "a" would have made the Clause clearer.
I am much obliged to my right hon. and learned Friend. Obviously, any suggestion from him on a matter like this merits very serious consideration, and I gladly undertake to look into the construction before Report.
May I ask the Financial Secretary to go a little further? I cannot quite agree with the advice that has been given to him. It is, at any rate, doubtful. Surely, if what is intended is that, having bought a given amount of stock, in selling afterwards any part of that stock in the circumstances suggested one will then be caught by Clause 19, it is perfectly simple to say that, whereas, as it is, I doubt whether it is clear.
I doubt whether the hon. and learned Gentleman is right when he says that it is perfectly simple to say so, because our experience of this type of drafting is that it is extremely difficult to put in ordinary language what we intend. I believe, and I am advised, that that is what we have done. The hon. and learned Gentleman is quite right in saying what is our object, but I will, as I have said, look again into this matter of drafting.
The Amendments put forward go very much too far. In effect, they mean the complete abandonment of the principle of real equivalence. Any two securities would have to be treated as similar provided only that the respective rates of interest differed by not more than a marginal amount. That is going much too far. Quite unconnected transactions could be linked together as a common deal and caught by Clause 19. The effect would be that no one buying cum-dividend could sell anything at the same interest rate or even at a marginal difference of interest rate for six months. That would be a serious interference with the market and go far beyond what the hon. and learned Gentleman intends.
In fact, the hon. and learned Member would stop them. If we take the case of a perfectly reputable investor, say, a large pension fund, and we say that it can only buy cum-dividend at the risk that anything it sells ex-dividend within the next six months at approximately the same interest rate will attract tax, it is a very serious innovation. Exactly the same applies to the dealings concerned in the next Clause. We should, in effect, be preventing people from buying cum-dividend in the way that they would want to do in order to balance their funds against their actuarial responsibilities.
Secondly, as a result of that, every possible combination of purchase and sale would have to be tested to see whether the respective securities are similar, according to the enlarged definition Therefore, there can be no question of accepting this group of Amendments, because they go far beyond the test which the hon. and learned Gentleman himself posed. That is not to say that then is no problem here. There is the problem which was pointed out by my hon. Friend the Member for Basingstoke, which arises on the particular similarity of two nationalised industries' stocks. We are discussing the Amendment in page 17, line 34, with these Amendments, and it is really covered. The point in that case is that there are these two stocks, the Three per cent. Electricity Stock and the Three per cent. Transport Stock which are made on the same day and have the same coupon rights and also the same dividend rights and the same earliest and latest redemption dates, 1968–73.
There is a technical distinction that each is the liability of a different public board and, therefore, as the Clause is drafted, it would be possible to wash the bonds between them—to do a switch operation, if the Committee understands me. It is for that reason that we have put down the Amendment in page 17, line 34, because they are both subject to a Government guarantee. That Amendment, I am advised, will ensure their being treated as similar stocks and prevent any bond washing switching between them. For those reasons, I would recommend the Committee to reject the series of Amendments of the hon. and learned Gentleman and to accept the Amendment which my right hon. Friend has put forward.
May I ask if in the case of either of the two guarantee stocks which the hon. and learned Gentleman has mentioned there is any right to appoint a receiver in any circumstances?
I cannot answer that one without notice. Perhaps there will be an opportunity at a later stage of discussing this matter, or I will try to let the hon. and learned Gentleman know.
Nothing that I say on these Amendments will deserve the compliment of masterly authority. I am not even a long-stop; I am a stop-gap. Like the Financial Secretary, I am speaking from a brief which has been put in my hands, but I have not had as long to study it as in his case.
Incidentally, on a minor matter of drafting, I am advised that in subsection (4), line 35, the word "subsection" should be "subsections", since every reference to the "foregoing subsection" refers to subsection (3), which merely states what disposing of stocks means. I leave that suggestion with the hon. and learned gentleman; it is not my own.
Another thing that I have been asked to say is that it is not bulls and bears that we are after but foxes. The extraordinary thing is that so far we have not found it possible to go too far in stopping bond washing. Nothing that we have done yet has set up a screen. All we have done up to now has been to give fresh opportunities for those whose ingenuity has so far frustrated the intentions of Parliament.
We believe that it is important to have a safeguard against bond washing in similar stocks. I think that we are agreed on that. Then we have to be satisfied that our definition of similarity is watertight. The hon. and learned Gentleman says that our proposal is more than watertight; it really changes the basis of similarity. Quite frankly, we do not mind if it does, because for once in a way we would rather hear representations that we have gone too far than repeat the experience of realising that we have not gone far enough. The Financial Secretary says he is prepared to give further attention to any weaknesses on this matter that there are in Clause 18 as drafted, and in order that he shall not forget this we think we should ask our hon. and right hon. Friends on this side of the Committee to divide in favour of our Amendment. At least that is the point I have to come to before I sit down.
I see that our Amendments carry the definition of similarity to an extreme,
but then extreme measures have to be adopted here. We are probably fighting a losing battle anyway, because nothing that has gone before suggests that we have come out on top. Even if it does restrain some of the transactions in stocks and shares and activities of bond holders, are we really rendering any real service to the community or to the economy thereby? The time may come when these restraints are inevitable if we are to succeed in stopping tax avoidance.
|Division No. 125.]||AYES||[5.22 p.m.|
|Agnew, Sir Peter||Crosthwaite-Eyre, Col. O. E.||Henderson, John (Cathcart)|
|Aitken, W. T.||Crowder, Sir John (Finchley)||Henderson-Stewart, Sir James|
|Allan, R. A. (Paddington, S.)||Crowder, Petre (Rulsilp—Northwood)||Hicks-Beach, Maj. W. W.|
|Alport, C. J. M.||Cunningham, Knox||Hill, Rt. Hon. Charles (Luton)|
|Amory, Rt. Hn. Heathcoat (Tiverton)||Currie, G. B. H.||Hill, Mrs. E. (Wythenshawe)|
|Arbuthnot, John||Davidson, Viscountess||Hill, John (S. Norfolk)|
|Armstrong, C. W.||D'Avigdor-Goldsmid, Sir Henry||Hinchingbrooke, Viscount|
|Atkins, H. E.||Donaldson, Cmdr. C. E. McA.||Hirst, Geoffrey|
|Baldock, Lt.-Cmdr. J. M.||Doughty, C. J. A.||Hobson, John (Warwick & Leam'gt'n)|
|Baldwin, Sir Archer||du Cann, E. D. L.||Holland-Martin, C. J.|
|Balniel, Lord||Duncan, Sir James||Holt, A. F.|
|Barber, Anthony||Duthie, W. S.||Hornby, R. P.|
|Barlow, Sir John||Eden, J. B. (Bournemouth, West)||Hornsby-Smith, Miss M. P.|
|Barter, John||Elliot, R. W.(N'castle upon Tyne, N.)||Horsbrugh, Rt. Hon. Dame Florence|
|Batsford, Brian||Emmet, Hon. Mrs. Evelyn||Howard, Gerald (Cambridgeshire)|
|Baxter, Sir Beverley||Errington, Sir Eric||Howard, John (Test)|
|Beamish, Col. Tufton||Erroll, F. J.||Hughes Hallett, Vice-Admiral J.|
|Bell, Ronald (Bucks, S.)||Fell, A.||Hughes-Young, M. H. C.|
|Bennett, F. M. (Torquay)||Finlay, Graeme||Hutchison, Michael Clark(E'b'gh, S.)|
|Bennett, Dr. Reginald||Fisher, Nigel||Hutchison, Sir James (Scotstoun)|
|Bevins, J. R. (Toxteth)||Fletcher-Cooke, C.||Hylton-Foster, Rt. Hon. Sir Harry|
|Bidgood, J. C.||Fraser, Hon. Hugh (Stone)||Iremonger, T. L.|
|Biggs-Davison, J. A.||Freeth, Denzil||Irvine, Bryant Godman (Rye)|
|Bingham, R. M.||Gammans, Lady||Jenkins, Robert (Dulwich)|
|Birch, Rt. Hon. Nigel||Garner-Evans, E. H.||Jennings, J. C. (Burton)|
|Bishop, F. P.||George, J. C. (Pollok)||Jennings, Sir Roland (Hallam)|
|Body, R. F.||Gibson-Watt, D.||Johnson, Dr. Donald (Carllsle)|
|Bonham Carter, Mark||Glover, D.||Johnson, Eric (Blackley)|
|Bossom, Sir Alfred||Glyn, Col. Richard H.||Jones, Rt. Hon. Aubrey (Hall Green)|
|Bowen, E. R. (Cardigan)||Godber, J. B.||Joseph, Sir Keith|
|Boyd-Carpenter, Rt. Hon. J. A.||Goodhart, Philip||Kerr, Sir Hamilton|
|Braine, B. R.||Gough, C. F. H.||Kershaw, J. A.|
|Braithwalte, Sir Albert (Harrow, W.)||Gower, H. R.||Kirk, P. M.|
|Brewis, John||Graham, Sir Fergus||Lambton, Viscount|
|Brooman-White, R. C.||Grant, Rt. Hon. W. (Woodside)||Lancaster, Col. C. G.|
|Browns, J. Nixon (Craigton)||Grant-Ferris, Wg Cdr. R. (Nantwich)||Leather, E. H. C.|
|Bullus, Wing Commander E. E.||Green, A.||Leavey, J. A.|
|Burden, F. F. A.||Gresham Cooke, R.||Leburn, W. G.|
|Butcher, Sir Herbert||Grimond, J.||Legge-Bourke, Maj. E. A. H.|
|Campbell, Sir David||Grimston, Hon. John (St. Albans)||Legh, Hon. Peter (Petersfield)|
|Carr, Robert||Grimston, Sir Robert (Westbury)||Lindsay, Hon. James (Devon, N.)|
|Grosvenor, Lt.-Col. R. G.||Lindsay, Martin (Solihull)|
|Cary, Sir Robert||Gurden, Harold||Linstead, Sir H. N.|
|Channon, H. P. G.||Hall, John (Wycombe)||Lloyd, Maj. Sir Guy (Renfrew, E.)|
|Chichester-Clark, R.||Harris, Frederic (Croydon, N.W.)||Longden, Gilbert|
|Clarke, Brig. Terence (Portsmth, W.)||Harris, Reader (Heston)||Loveys, Walter H.|
|Cols, Norman||Harrison, A. B. C. (Maldon)||Lucas, Sir Jocelyn (Portsmouth, S.)|
|Conant, Maj. Sir Roger||Harvey, Sir Arthur Vere (Macclesf'd)||Lucas-Tooth, Sir Hugh|
|Cooper-Key, E. M.||Harvey, John (Walthamstow, E.)||Macdonald, Sir Peter|
|Cordeaux, Lt.-Col. J. K.||Hay, John||Mackeson, Brig. Sir Harry|
|Corfield, F. V.||Heald, Rt. Hon. Sir Lionel||McLaughlin, Mrs. P.|
|Craddock, Beresford (Spelthorne)||Heath, Rt. Hon. E. R. G.||Maclean, Sir Fitzroy (Lancaster)|
|McLean, Neil (Inverness)||Peyton, J. W. W.||Steward, Sir William (Woolwich, W.)|
|Macleod, Rt. Hon. Iain (Enfield, W.)||Pike, Miss Mervyn||Stoddart-Scott, Col. Sir Malcolm|
|McMaster, Stanley||Pilkington, Capt. R. A.||Storey, S.|
|Macmillan, Maurice (Halifax)||Pitman, I. J.||Stuart, Rt. Hon. James (Moray)|
|Maddan, Martin||Pitt, Miss E. M.||Summers, Sir Spencer|
|Maitland, Hon. Patrick (Lanark)||Pott, H. P.||Taylor, Sir Charles (Eastbourne)|
|Markham, Major Sir Frank||Powell, J. Enoch||Taylor, William (Bradford, N.)|
|Marlowe, A. A. H.||Price, David (Eastleigh)||Temple, John M.|
|Marples, Rt. Hon. A. E.||Price, Henry (Lewisham, W.)||Thompson, Kenneth (Walton)|
|Mathew, R.||Prior-Palmer, Brig. O. L.||Thornton-Kemsley, Sir Colin|
|Mawby, R. L.||Profumo, J. D.||Tiley, A. (Bradford, W.)|
|Maydon, Lt-Comdr, S. L. C.||Ramsden, J. E.||Tilney, John (Wavertree)|
|Milligan, Rt. Hon. W. R.||Rawlinson, Peter||Turton, Rt. Hon. R. H.|
|Molson, Rt. Hon. Hugh||Redmayne, M.||Tweedsmuir, Lady|
|Morrison, John (Salisbury)||Rees-Davies, W. R.||Vane, W. M. F.|
|Mott-Radclyffe, Sir Charles||Remnant, Hon. P.||Vickers, Miss Joan|
|Nabarro, G. D. N.||Renton, D. L. M.||Wade, D. W.|
|Nairn, D. L. S.||Ridsdale, J. E.||Wakefield, Edward (Derbyshire, W.)|
|Neave, Airey||Robertson, Sir David||Wakefield, Sir Wavell (St. M'lebone)|
|Nicholls, Harmar||Rodgers, John (Sevenoaks)||Walker-Smith, Rt. Hon. Derek|
|Nicholson, Sir Godfrey (Farnham)||Roper, Sir Harold||Wall, Patrick|
|Nicolson, N. (B'n'm'th, E. & Chr'ch)||Ropner, Col. Sir Leonard||Ward, Rt. Hon. G. R. (Worcester)|
|Noble, Comdr. Rt. Hon. Allan||Russell, R. S.||Ward, Dame Irene (Tynemouth)|
|Noble, Michael (Argyll)||Scott-Miller, Cmdr. R.||Webbe, Sir H.|
|Nugent, Richard||Sharpies, R. C.||Webster, David|
|Oakshott, H. D.||Simon, J. E. S. (Middlesbrough, W.)||Williams, Paul (Sunderland, S.)|
|O'Neill, Hn. Phelim (Co. Antrim, N.)||Smithers, Peter (Winchester)||Williams, R. Dudley (Exeter)|
|Orr-Ewing, C. Ian (Hendon, N.)||Spearman, Sir Alexander||Wills, Sir Gerald (Bridgwater)|
|Osborne, C.||Speir, R. M.||Wolrige-Gordon, Patrick|
|Page, R. G.||Spene, Rt. Hn. Sir P. (Kens'gt'n, S.)||Woollam, John Victor|
|Pannell, N. A. (Kirkdale)||Stanley, Capt. Hon. Richard|
|Partridge, E.||Stevens, Geoffrey||TELLERS FOR THE AYES:|
|Peel, W. J.||Steward, Harold (Stockport, S.)||Colonel J. H. Harrison and|
|Abse, Leo||Edelman, M.||Jones, J. Idwal (Wrexham)|
|Ainsley, J. W.||Edwards, Rt. Hon. Ness (Caerphilly)||Jones, T. W. (Merioneth)|
|Albu, A. H.||Edwards, Robert (Bilston)||Kenyon, C.|
|Allaun, Frank (Salford, E.)||Edwards, W. J. (Stepney)||Key, Rt. Hon. C. W.|
|Allen, Scholefield (Crewe)||Evans, Albert (Islington, S.W.)||King, Dr. H. M.|
|Awbery, S. S.||Finch, H. J. (Bedwellty)||Lawson, G. M.|
|Bacon, Miss Alice||Fitch, A. E. (Wigan)||Lee, Frederick (Newton)|
|Baird, J.||Fletcher, Eric||Lindgren, G. S.|
|Balfour, A.||Foot, D. M.||Lipton, Marcus|
|Bellenger, Rt. Hon. F. J.||Forman, J. C.||Logan, D. G.|
|Benoe, C. R. (Dunbartonshire, E.)||Fraser, Thomas (Hamilton)||Mabon, Dr. J. Dickson|
|Benson, Sir George||Gaitskell, Rt. Hon. H. T. N.||McAlister, Mrs. Mary|
|Beswick, Frank||George Lady Megan Lloyd (Car'then)||McCann, J.|
|Bevan, Rt. Hon. A. (Ebbw Vale)||Gibson, C. W.||MacColl, J. E.|
|Blenkinsop, A.||Gordon Walker, Rt. Hon. P. C.||MacDermot, Niall|
|Blyton, W. R.||Greenwood, Anthony||McInnes, J.|
|Boardman, H.||Grenfell, Rt. Hon. D. R.||McKay, John (Wallsend)|
|Bowden, H. W. (Leicester, S.W)||Grey, C. F.||McLeavy, Frank|
|Bowles, F. G.||Griffiths, David (Rother Valley)||MacMillan, M. K. (Western Isles)|
|Boyd, T. C.||Griffiths, Rt. Hon. James (Llanelly)||MacPherson, Malcolm (Stirling)|
|Braddock, Mrs. Elizabeth||Griffiths, William (Exchange)||Mahon, Simon|
|Brockway, A. F.||Hale, Leslie||Mallalieu, E. L. (Brigg)|
|Broughton, Dr. A. D. D.||Hall, Rt. Hon. Glenvil (Colne Valley)||Mallalieu, J. P. W. (Huddersfd, E.)|
|Brown, Thomas (Ince)||Hamilton, W. W.||Mann, Mrs. Jean|
|Burke, W. A.||Hannan, W.||Mayhew, C. P.|
|Burton, Miss F. E.||Hastings, S.||Mellish, R. J.|
|Butler, Herbert (Hackney, C.)||Hayman, F. H.||Mitchison, G. R.|
|Butler, Mrs. Joyce (Wood Green)||Healey, Denis||Moody, A. S.|
|Callaghan, L. J.||Henderson, Rt. Hn. A. (Rwly Regis)||Morris, Percy (Swansea, W.)|
|Carmichael, J.||Herbison, Miss M.||Morrison, Rt. Hn. Herbert (Lewis'm, S.)|
|Champion, A. J.||Hilton, A. V.||Mort, D. L.|
|Chapman, W. D.||Hobson, C. R. (Keighley)||Moss, R.|
|Chetwynd, G. R.||Holman, P.||Moyle, A.|
|Clunie, J.||Holmes, Horace||Mulley, F. W.|
|Coldrick, W.||Houghton, Douglas||Neal, Harold (Bolsover)|
|Collick, P. H. (Birkenhead)||Hoy, J. H.||Noel-Baker, Francis (Swindon)|
|Corbet, Mrs. Freda||Hughes, Cledwyn (Anglesey)||Noel-Baker, Rt. Hon. P. (Derby, S.)|
|Cronin, J. D.||Hughes, Emrys (S. Ayrshire)||Oliver, G. H.|
|Cullen, Mrs. A.||Hunter, A. E.||Oram, A. E.|
|Darling, George (Hillsborough)||Hynd, H. (Accrington)||Oswald, T.|
|Davies, Ernest (Enfield, E.)||Hynd, J. B. (Attercliffe)||Owen, W. J.|
|Davies, Harold (Leek)||Irvine, A. J. (Edge Hill)||Paling, Rt. Hon. W. (Dearne Valley)|
|Davies, Stephen (Merthyr)||Irving, Sydney (Dartford)||Paling, Will T. (Dewsbury)|
|Deer, G.||Isaacs, Rt. Hon. G. A.||Palmer, A. M. F.|
|Delargy, H. J.||Jay, Rt. Hon. D. P. T.||Pannell, Charles (Leeds, W.)|
|Diamond, John||Jeger, George (Goole)||Parker, J.|
|Dodds, N. N.||Jenkins, Roy (Stechford)||Parkin, B. T.|
|Donnelly, D. L.||Jones, Rt. Hon. A. Creech (Wakefield)||Paton, John|
|Ede, Rt. Hon. J. C.||Jones, Elwyn (W. Ham, S.)||Pearson, A.|
|Popplewell, E.||Slater, J. (Sedgefield)||Viant, S. P.|
|Prentice, R. E.||Smith, Ellis (Stoke, S.)||Warbey, W. N.|
|Price, J. T. (Westhoughton)||Sorensen, R. W.||Watkins, T. E.|
|Price, Philips (Gloucestershire, W.)||Soskice, Rt. Hon. Sir Frank||Weitzman, D.|
|Probert, A. R.||Sparks, J. A.||Wheeldon, W. E.|
|Proctor, W. T.||Spriggs, Leslie||White, Mrs. Eirene (E. Flint)|
|Pursey, Cmdr. H.||Steele, T.||White, Henry (Derbyshire, N.E.)|
|Rankin, John||Stewart, Michael (Fulham)||Wilkins, W. A.|
|Redhead, E. C.||Stones, W. (Consett)||Willey, Frederick|
|Reeves, J.||Strachey, Rt. Hon. J.||Williams, David (Neath)|
|Reid, William||Strauss, Rt. Hon. George (Vauxhall)||Williams, Rev, Llywelyn (Ab'tillery)|
|Reynolds, C. W.||Stross, Dr. Barnett (Stoke-on-Trent, C.)||Williams, Rt. Hon. T. (Don Valley)|
|Rhodes, H.||Summerskill, Rt. Hon. E.||Williams, W. R. (Openshaw)|
|Robens, Rt. Hon. A.||Swingler, S. T.||Willis, Eustace (Edinburgh, E.)|
|Roberts, Albert (Normanton)||Sylvester, G. O.||Wilson, Rt. Hon. Harold (Huyton)|
|Ross, William||Taylor, Bernard (Mansfield)||Woof, R. E.|
|Shinwell, Rt. Hon. E.||Thomas, Iorwerth (Rhondda, W.)||Yates, V. (Ladywood)|
|Short, E. W.||Thomson, George (Dundee, E.)||Zilliacus, K.|
|Silverman, Julius (Aston)||Timmons, J.|
|Simmons, C. J. (Brierley Hill)||Tomney, F.||TELLERS FOR THE NOES:|
|Skeffington, A. M.||Ungoed-Thomas, Sir Lynn||Mr. John Taylor and Mr. Rogers.|
|Slater, Mrs. H. (Stoke, N.)||Usborne, H. C.|
It will have been noted by all who have listened to this debate that nowhere in this Clause have the words "bond washing" been inserted. Those words have been used from time to time by the hon. and learned Gentleman the Financial Secretary, but this, apparently, is his method of explaining to us what the Clause is about. In fact, bond washing was first of all dealt with in Section 203 of the 1952 Income Tax Act where the main kind of bond washing is described. That Section is headed "Sale and repurchase of securities", and it makes it quite clear that it is dealing with a situation where one person sells to another and where the interest is receivable otherwise than by the owner. That is what bond washing is about.
Under Clause 18, and the following two or three Clauses, we are dealing with a situation which is totally different from bond washing—in fact, precisely the opposite. Fairly enough the draftsmen have been perfectly straightforward and clear and have described the Clause as dealing with the "Purchase and sale of securities", which is the very opposite to the sale and repurchase of securities by which the bond washing Sections in the previous Act are described. Moreover, Clause 18 makes it clear that we are now dealing with transactions under which the interest is receivable by the other person in the transaction, which was not the case in bond washing.
In short, although the Financial Secretary has been talking to us about bond washing, both in his opening remarks on the Second Reading of the Finance Bill and during the course of this afternoon's discussion, I suggest to him that he has been misleading the Committee. I want to inquire for a second or two why he has been misleading the Committee. There is no question about how the transaction is described by the draftsmen, but let us turn for a second to the common sense English of the Clause.
A bond-washing transaction is obviously one where a person has a bond which has a dirty interest which he wants to wash. He wants to wash the bond clean of interest, so he retains the bond by artificial methods and washes it clean of the interest. Dividend stripping, on the other hand, a phrase which might provoke certain reactions on the Front Bench opposite and which the Committee was tired to death of discussing a year ago and before that, is precisely the opposite transaction where, in commonsense parlance, a person has a bond, wants the dividend, strips the dividend, retains the dividend and gets rid of the bond. Bond washing, therefore, is a transaction in which a person keeps the bond and gets rid of the dirty dividend, and dividend stripping is a transaction where a person strips and keeps the dividend and gets rid of the bond. These two things are precisely opposite, and for that reason are described in opposite ways and dealt with by precisely opposite methods in the drafting of these respective Clauses.
I am wondering why it was necessary for an inaccurate phrase to be used—it does not matter a great deal; no one is going to deny that there is some relationship between bond washing and dividend stripping—and why it was necessary for us to be diverted from the reconsideration of precisely the same matter that we were considering on precisely the same Clause on precisely the same stage in the debate last year on the 1958 Finance Bill.
Of course, it is unpleasant for Government spokesmen, having made all the declaration which they did a year ago, first that dividend stripping was fully protected against and then having brought in some further Amendments in the latter stage of the Bill and said that it was finally and fully protected against, to have to come forward with a Bill which devotes three or four Clauses to dealing with a development of the same problem of dividend stripping, which is merely one of the old-established methods of tax dodging. That is very unpleasant, and it is even more unpleasant when someone opposite gets up and says, "I told you so." That is something which is unforgiveable, and I will not attempt to do so. But I will, if I may, quote to the Solicitor-General the words of Humpty-Dumpty, I believe it was, who said:
I told them once, I told them twice,
They would not listen to advice.
I said it very loud and clear,
I went and shouted in his ear.
The Solicitor was very stiff and proud,
He said 'You needn't shout so loud'.'
In fact, what the hon. and learned Gentleman said last year was that the hon. Member for Gloucester had made his usual speech. Which is to be preferred, that the hon. Member for Gloucester should make his usual speech accusing the Government of not being really intent to stop tax dodging or that the Financial Secretary should make his usual speech year after year explaining why the Government have to bring in a new Clause filling in a further loophole in the previous year's Finance Act, and so ad infinitum? I should have thought that it was far preferable to get down to the problem of tax dodging and face up to it. The reason why I am boring the Committee with this distinction between bond washing and dividend stripping is that, to my mind, it is significant of the fact that the Government are still not prepared to face up
to the problem fully. We know that last year the Chancellor ran away from retrospection. We know that because, of course, he brought it in at one stage and then decided, on further consideration, that he had made an unwise statement.
That was, as we on this side have said many times, most unfortunate. We put it as nicely as we can by saying that it is far worse to have loved righteousness and to have run away from retrospection than never to have loved at all—if I may, as a much-married man, suggest that to a bachelor. The serious side is that the one thing that stops tax dodging is the making it not worth while, and it is not worth while if one has not the certainty that one can carry the transaction through to its conclusion and obtain the artificial tax benefit. The possibility of retrospection, even if it never takes place, is, at all events, a very considerable curb on taking action of the kind dealt with in Clause 18.
A further reason that I have for putting this point of view is that I cannot understand why it has taken so long to bring this Clause to the attention of the Committee. I must now be very careful what I say, but I have here a document, which I understood to have been passed to the Front Bench opposite last July, dealing with stripping gilts—and, let us be frank about it, this Clause does deal with the old pre-war problem of stripping gilts.
I understood that this memorandum was to be passed to the Treasury Bench. It may not have been received, but that is what I understood. It certainly circulated amongst several of us on this side. That memorandum drew attention not only to this old pre-war tax-dodging device of stripping gilts but suggested for it the precise remedy that has been adopted in this and the following Clauses. It would be interesting to know, therefore, whether the Government received it; if they received it, what they did about it, and why it was necessary to take all this time to give effect to the recommendations made in that document.
The difficulty we are up against on this side is in knowing whether the Government really do want to stop all this or whether they are so anxious not to tread on anyone's corns in any way at all that they must allow each year a number of persons to enter into wholly artificial transactions and get tax benefit at the expense of the rest of the community. Why should certain members of the community pay more than their fair share of tax so that others can pay less? That is a simple question.
A further point—it is, in effect, a further question—is this. Subsection (6) of the original Section which dealt with bond washing deals with the powers of the Inland Revenue to get information. In short, it was thought necessary when the bond-washing provisions were introduced that the Commissioners of Inland Revenue should be given powers to get such further information as they considered necessary for "discovering" the situation.
There is nothing in any of these subsections or in the Schedule that goes with them that gives those same powers. Why have t he Government thought it unnecessary to arm, by this Clause, the Inland Revenue with the same powers as those with which it was armed by the 1952 Act? I am driven to the conclusion that there is no real intention to stop this evil. The evil arises out of the practice of the courts of regarding an artificial transaction as a real transaction. Provided that it is supported by documents which give enforceable rights, an artificial transaction is construed by the courts as a real transaction, giving rise to these benefits, although, behind it all, it was a purely artificial transaction all the time.
I do not suppose that the hon. and learned Gentleman would support an arrangement by which the courts were given power to decide on the substance of a transaction as opposed to its artificial appearance. If he is not prepared to support an arrangement like that, we must surely have some arrangement by which the tax-paying public can be protected.
I do not think that the tax-paying public can be protected by anything short of the introduction of provisions such as these in Clause 18, and subsequent provisions, the mischief aimed at quite clearly described, and the authoritative spokesman of the Government of the day—the Chancellor, or whoever it may be—says, "These are our clear intentions, and if we are not successful, if loopholes are found, we shall bring in legislation to stop up those loopholes so as to carry out the intentions of Parliament as they are today". I cannot see why that should be regarded as being in any way reprehensible, or why it should be regarded as penal to ask people to pay the taxes that Parliament has said they should pay but which they are merely putting on to their less fortunate neighbours to pay.
I must bring in a further example to show how the philosophy behind Clause 18 is supported by another action of the Government. I shall refer to it very shortly indeed. There was a short debate on the National Film Finance Corporation, from which it emerged that the Board of Trade had to be pressed very hard indeed before it would undertake not to sell a trading loss, which would go against the Revenue. I say no more. I realise that it is not a matter for discussion now.
It is, however, relevant to point the case, both under the provisions of this Clause and from what has gone before in dealing with previous Sections 18. It is, incidentally, very much easier for a practitioner to know that by the time we come to Section or Clause 18 we are dealing with dividend stripping or something like that. This Clause is introduced this year, a similar Clause was introduced last year, and, no doubt, a similar Clause will be introduced again next year, to deal with a mischief that arises only because the Government are not really determined to deal with it fully.
The hon. Member for Gloucester (Mr. Diamond) will not, I am sure, expect me to follow him altogether into the difference between dividend stripping and bond washing. I am reminded, however, that the late Professor Einstein, who regarded himself as an intelligent man, said he thought that he could understand almost anything except popular explanations of the Einstein Theory. We all know the transaction at which the Clause is aimed, and some of our difficulty in defining it is probably because of the length of the Clause and, I would say, to some of the not altogether relevant arguments introduced in discussing it.
Bond washing is a bad description for a transaction that is self-condemnatory, but I am surprised that the hon. Gentleman should suggest that this Government have really made no attempt to deal with it. He said that the first Act that dealt with it was the Finance Act, 1952. He also referred to the "pre-war practice of stripping gilts", but when the Government which he supported were in power from 1945 to 1951 they did not deal with the pre-war practice of stripping gilts.
It is perfectly clear that, during those years, the profits to those who practised this activity were very much greater, because the level of the standard rate of taxation was higher. There was, therefore, a larger margin for practitioners. If the position were as odious and disquieting as he indicates, it is a little surprising that at the time when it was worse it escaped his own Government's attention.
Having said that, I think that it is perfectly clear that in dealing with this very intricate matter, the danger that is run all the time is, if the Committee will allow me, the danger of throwing the baby out with the bath water. The bath water in this case is the loss to the Revenue. The baby is the benefit to the country of having a financial centre unrivalled in the world. We have to measure these two things against each other. Many entirely legitimate institutions in the City have grumbled that they are not benefiting from the exemption being granted to stock jobbers and to discount houses, but the general consensus of opinion which I have been able to obtain is that these transactions, which are themselves undesirable must, in the national interest, be dealt with so as to be controlled in the most limited number of cases. In view of this particularly difficult position, I feel that the Clause is an honest attempt to deal with what must be a progressive and continuous difficulty.
The suggestion which we have heard more than once that these matters should be the subject of regulations must be the greatest possible deterrent to anybody not domiciled in this country from leaving his money here. We benefit from the amount of foreign money which comes here. When "hot" money comes here it tends to cool off and to be diverted to the uses of this country, and hon. Members on both sides of the Committee should regret action which would tend to discourage foreign money from coming here.
I can think of no greater discouragement than to cast any doubt on the tax position of what are, in fact, banking deposits, where security is the main consideration and where a bank deposit might unwittingly lay itself open, in following a Government regulation, to taxation which would entirely remove any interest earned. I suggest for that reason that this slow process of dealing with it Budget by Budget and Clause 18 by Clause 18 is probably the best way of dealing with what we all admit to be a major problem.
I should like to pursue the line of argument used by my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) about throwing the baby out with the bath water. I do this not so much because I believe myself to be an expert on the subject of this country remaining a financial centre of the world, but because it seems to me essential, unless we are to have to raise every year enough money by compulsory taxation to cover the Budget both above and below the line, that there should be a healthy gilt-edged market in order that the Government may pursue their funding operations. In this very year the Government will have to raise about £400 million in fresh money on the Stock Exchange.
It therefore seems to me that one of the aspects of the matter which the Government have to weigh very carefully is the way in which they discourage people from investing in Government securities—in other words, the amount by which they may discourage activity on the Stock Exchange, which discouragement they know will be to their own disadvantage.
I do not want to make any plea for those who dodge paying the taxes which they should pay or those who operate dividend stripping or bond washing on borrowed money. I merely say to the hon. Member for Gloucester (Mr. Diamond) that I am perfectly certain that my right hon. and hon. Friends on the Treasury Bench are capable of facing any bond or dividend, whether stripped or washed, and of dealing with the situation.
My plea is for the pension funds. Pension funds do not have to invest in Government securities. Indeed, pension fund after pension fund all over the country is building up the proportion of its securities which is invested outside the gilt-edged market. All sound pension funds know that they may have to meet in future years claims which are based on the retiring salaries of people who have worked for many years during periods of inflation rather than on retiring salaries which have remained the same over long periods. In such circumstances pension funds tend to wish to invest in equity shares. This movement has been going on for ten or twelve years.
In this Clause we are taking a definite step to make the gilt-edged market less attractive for pension funds, because if gilts are to be attractive to them it is essential that they shall from time to time, in accordance with the ratios between differing stocks, switch from one gilt-edged stock to another. Of course, it is a great help to them to be able to buy their stocks cum-dividend and to sell their stocks ex-dividend. I do not believe that it was necessary to stop them from doing this in order to stop tax dodging, and I think that the effects of subsection (4) go a little further than was necessary. One effect will be that if a pension fund has a switch open which it may wish to reverse in the near future, it will be unable to buy a stock which is likely to go ex-dividend within at any rate one month, and possibly six months, depending on how the courts interpret subsection (2).
That may well mean that they will be discouraged from buying Government stocks and thereby helping the Government with their funding programme. I therefore think that we should issue a slight warning to this Government and any Government that in their efforts to prevent tax dodging—efforts which are highly laudable—they should also take care that they do not ruin their own gilt-edged market, which, let us face it, since prices began to rise at the beginning of the last war has become progressively less attractive for large numbers of investors.
The plea made by the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) seemed to be, "Do not shoot the pianist. He is doing his best." I am sure he is doing his best, but it does not seem to be quite good enough. Evidence of that is the time which we have to spend on this complicated Clause year by year.
I do not wish to detain the Committee for more than a moment, but I should deal with the point made by the hon. Member about doing nothing to discourage foreign money, hot money or any other sort of money from coming here. He suggested that we had to weigh the requirements of the protection of the Revenue against the preservation of our financial institutions in the interests of our national wealth and of our preeminent position in some branches of financial and monetary activity. We fully accept that. The difference between us is that the Government are content to avail themselves of the annual opportunity which the Finance Bill gives of stopping these matters, whereas we on this side of the Committee think that without any serious damage to Parliament or to the position of the taxpayer we could take the same measures sooner if we had the means for doing so. I think that that is the issue.
I think that the Financial Secretary will admit that tax dodgers always get a start on the Revenue. They are always well away before any steps can be taken to stop them. A few of them get far away. It is only when they become more numerous that they are noticed. The Inland Revenue authorities are not able to keep track of these activities until the extent and the nature of them are reported. The intelligence services of the Inland Revenue obviously have to be sensitive to new forms of tax avoidance. They can then see what it is that is being done. Is it likely to become serious? Is it a gross abuse of our taxation code? As these points have to be considered, the tax dodgers will always get away before Parliament can stop them.
For one reason or another, either because the Finance Bill is full of other things or because there is a General Election which results in the Finance Bill being severely curtailed, or because the Chancellor of the Exchequer is not convinced that he ought to launch complicated Clauses on the House and the Committee, these tax dodgers sometimes have several years' start. One can think of all sorts of reasons why we do not catch up with them rapidly enough.
No one can dispute what my hon. Friend the Member for Gloucester, (Mr. Diamond) said, and there was no dissent from the other side of the Committee. We agree with what he described as undesirable. He asked why these people should get away with it at the expense of other taxpayers. No one could see any reason why they should, but the problem is how to stop them.
There could be degrees of perseverance and determination in stopping these practices, but I am not going to suggest for a moment that hon. Gentlemen opposite are less zealous than we are in dealing with tax dodgers. All I am complaining about is that, apparently, the Government do not consider that we ought to provide ourselves with more rapid means of overtaking tax dodgers and stopping them. If we could make provisional orders which would at least freeze the position until Parliament could finally dispose of the matter, that would be one way of doing it. It is solely the difference of whether it is a month or a year.
I am convinced that the time will come when we shall have to overcome many of our traditional prejudices against the way in which we make these attempts on tax dodgers. If we do not, public opinion will become heavily weighted against the integrity of Governments and the power of Parliament. Permanent tax dodging is bad. It is bad for morale. I ought not to say it is bad for morals because we are told that there are no morals in tax dodging. "If it is lawful, do not moralise; take it as it is. If you do not like it, stop it, but for heaven's sake do not pontificate or preach." So I am not going to do that.
There is no doubt that it affects people, especially those who cannot dodge tax, even if it is only on the simple grounds of envy. Not only in this connection, but in others, too, I feel that with the increasing ingenuity on the part of those concerned and the large sums that are at stake the community will have to protect itself against these practices in a more determined and speedier manner than seems available to us in the recurring opportunities of a Finance Bill.
The debate has turned on two main themes. The first is the general theme of tax avoidance and of what measures Parliament should take to deal with them. The second theme is concerned with the specific provisions of the Clause.
So far as the first theme is concerned, I ventured to point on one of the earlier Amendments the disadvantages of proceeding by Statutory Instrument, and the Committee would not expect, or, indeed, welcome, my repeating what I said. I should like to remind the Committee what the Royal Commission said about the complaint that year after year so much time has to be taken up in Committee in dealing with these antiavoidance measures.
The Royal Commission summed up its conclusions in this way:
We do not favour a departure from the present system of detailed legislative control of the various forms of tax avoidance that are thought to be obnoxious.
It then expatiates on that. The Report continues:
We envisage accordingly that it may be necessary to add to this legislation in the future by new enactments specifically designed to counter specific devices.
Finally, the Report says:
Whether new legislation is called for in any case is a practical question that depends primarily on the amount of revenue effected and the administrative cost of corrective measures.
I know that the hon. Gentleman the Member of Gloucester (Mr. Diamond) firmly believes that retrospection is the only way of dealing with this, but, as I said earlier, I do not believe that that commends itself generally to either side of the Committee. I pointed out the disadvantages of the alternative method which I find more attractive and which the hon. Gentleman the Member for Sowerby (Mr. Houghton) mentioned. I welcomed his statement that the Government and we on this side of the Committee deplore these practices. We are determined, so far as we are able, to ensure that the tax burden is fairly and evenly spread over the great body of taxpayers.
We deplore these practices whereby a fiction of the tax code is used to claw back from the Revenue tax that has been paid by other taxpayers. My hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) was quite right when he said that one has only to examine the Statute Book to see how false the charge is that the Government are not serious in this matter.
The hon. Member for Gloucester accused me of misleading the Committee by using the phrase "bond washing". We have all used that phrase because we believe that this is no more than a variation of what we had before. What we had prior to 1937 was the position of a Surtax payer selling his security cum-dividend under a collusive agreement to buy it back ex-dividend. He thereby lost income and made a capital gain. This practice is the reverse. There is no collusive agreement, but, as we know to our painful cost by now, it is the purchase of a security cum-dividend by a dealing concern, the sale ex-dividend, and the charging against taxable income of what is an apparent loss that is, in fact, bridged by the dividend. That is quite a different thing from the dividend stripping which we were discussing last year. We are right to differentiate about that and there is no question of our misleading the Committee.
The hon. Gentleman asked why we had not acted earlier against these particular forms of bond washing. The answer is that in 1957 the Stock Exchange Committee altered its rules to deal with the new forms of bond washing which then became apparent. We all thought that that was sufficient. It was only when it became apparent that new forms were being devised which circumvented not only the earlier legislation, but also the Stock Exchange rules that we were prompt to strike against those operations.
The hon. Member also asked me about the information provision. That provision was needed under the 1952 Act, which re-enacted the earlier bond-washing legislation, because that dealt with a sale cum-dividend followed by a repurchase ex-dividend, so that the Surtax payer did not receive the dividend, and in the ordinary way there was nothing to show on his return for Income Tax purposes. The Inland Revenue therefore required the power to go behind the return and gain the necessary information. On the present occasion we are dealing with people such as pension fund managers, who reclaim tax for invested income. As I have just said, they buy "cum" and sell "ex", so that there is no need for an information provision. What they are doing is to thrust the dividend claimed under the nose of the Inland Revenue.
The hon. and learned Gentleman was very good in answering all the questions, but what he has just said has reminded me of a further question that I wanted to put to him but did not. He said that the Treasury knows to its cost what has happened. Can he give us any idea how much tax has been lost through bond washing?
I find it impossible to answer that, because many of the claims will come in only when the returns are made next year.
I am sure that my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) was right in saying that we must consider the fact that London is unrivalled in the world as a financial centre, and that my hon. Friend the Member for Basingstoke (Mr. Denzil Freeth) was also right in saying that pension funds do not have to invest in Government securities. For that reason we have sought not to strike at legitimate dealing,—and I believe we are right in so deciding. We have sought to preserve the position of the discount houses and the jobbers on the London Stock Exchange who make the market in giltedged, but we do not think that we have gone too far, as my hon. Friend suggested.
The normal practice of a pension fund is to have a portfolio with maturities spread according to the actuarial expectation of the falling in of their obligations. I do not believe that the practice that some pension fund managers have been adopting, of playing the market and buying up dividends, is the proper function of a pension fund, nor do I believe that a regulation of this sort very much impairs the efficiency of the market. We believe that the balance we have struck leaves the market substantially unimpaired, and that such impairment as is caused is justified for the protection of the Revenue—in other words the general body of taxpayers. Under those circumstances I commend the Clause to the Committee.