Finance Bill

– in the House of Commons at 12:00 am on 3 July 1962.

Alert me about debates like this

As amended (in Committee and on recommittal), again considered.

6.25 p.m.

Photo of Mr James Callaghan Mr James Callaghan Shadow Chancellor of the Exchequer, Member, Labour Party National Executive Committee

The P.A.Y.E. taxpayers have undoubtedly had an instinct that too much was being demanded from them, and I think they are right. In ratio to what is being paid by other groups, there is no doubt that the P.A.Y.E. men and women have not had a fair share of the taxation reliefs that have been going.

I was challenged on this in a not very detailed way by the Financial Secretary on 31st May. I must not refer to past debates and so I will not go into the details, except to say that he told me that to make a comparison between what was being paid by various groups ten years ago and now was not my most powerful comparison, because everybody knew that there was an excess profits levy then and, clearly, that was meant to be short-term. I was not about when he said this or I should have challenged him straightaway.

So that there shall be no dubiety and doubt about it. I have obtained for my own great edification and better information some details of tax paid by companies and groups of individuals since 1949– 50. This information makes very interesting reading. I think I ought to publish the tables as an addition to the Government White Paper next year. It might lose them a few votes,

I cannot go into all the figures, but I ask the Financial Secretary to take from me the broad position if I put it in percentage terms, for it is only in this way that one can see whether the P.A.Y.E, taxpayer should have had more relief or not. I have extracted all my figures from the Report of the Commissioners of Inland Revenue.

The gross true income of companies during the decade 1950– 60 increased by 90 per cent. The actual income— I am using the technical terms which are to he found in the Report, and the Financial Secretary will know better than most hon. Members that a particular meaning is attached to them— of P.A.Y.E. taxpayers increased during that decade by 100 per cent. The amount of tax paid by companies on the increase of 90 per cent. in their gross true incomes is 16 per cent. The amount of tax paid by the whole group of P.A.Y.E. taxpayers is 106 per cent. How does the Financial Secretary explain this? What shape has progressive Conservatism taken to itself that the companies of the country have had an increase in their gross true income so much larger than the increase in the amount of tax which they have paid whereas the total income of the P.A.Y.E. taxpayers as a group has gone up by much the same amount but the amount of tax they have paid has gone up six times as much? We know it is a deliberate act of policy. I accuse the Government of being deliberately unfair to the P.A.Y.E. taxpayer in the course of their fiscal policies over the last ten years.

6.30 p.m.

I have the figures here and I will give three or four of them to illustrate my point, since I have been challenged by the Financial Secretary. The gross true income of companies in 1949– 50 was £ 2,816 million and in 1959– 60 it was £ 5,318 million. Capital allowances and depreciation have increased substantially. The total amount of Income Tax plus Profits Tax, or Excess Profits Tax or Excess Profits Levy— I do not mind which comparisons the Financial Secretary cares to choose— paid on the gross income of £ 2,816 million was £ 1,111 million in 1950. Today the total amount of Income Tax and Profits Tax paid on a gross true income of £ 5,318 million is only £ 1,281 million. Surely that strikes hon. Members as astonishing in itself— the fact that the income of these companies has gone up by £ 2,500 million and the amount of tax they have paid has gone up by £ 170 million.

When we come to the P.A.Y.E. taxpayer it is a very different story. The total product of tax on his side, which ten years ago was £ 488 million, is now £ 1,008 million. The P.A.Y.E. taxpayers are paying more than twice as much tax, as a group, as they were paying ten years ago. Larger incomes, certainly; therefore larger tax, certainly. But if we are going to try to keep a balance— or does the Financial Secretary not think it necessary to keep a balance? — between the taxation yielded by companies and the taxation yielded by individuals, there can be no doubt that the scales have swung, as I have said time after time and will go on saying until it is put right, heavily against the P.A.Y.E. taxpayer.

This accounts for the substantial increase in Stock Exchange shares and prices of shares over the last decade. This accounts for the hundreds of millions of pounds which have been distributed in ordinary share dividends since 1950. Perhaps I may give the Committee some figures. According to the Stock Exchange table which has been supplied to hon. Members, ordinary dividends in 1950 were £302 million, and in 1960 £902 million. Ordinary dividends have increased by three times as much in the decade. Where have they got the money from? They have got the money from the Chancellor. He has paid these dividends because he has remitted the taxation on companies' profits so as to leave them with a much larger share for distribution to their shareholders.

When the Chancellor talks to us about an incomes policy, I am bound to say that he would get more assent from this side of the Committee and from the ordinary people if he had not shown such partiality in favour of shareholders and companies profits and such gross discrimination against the P.A.Y.E. taxpayers generally. It is this simple fact which I believe has got to be understood by the country; and then when it is, the country will force the Chancellor to do for the P.A.Y.E. taxpayer generally what he has undertaken to do for the Schedule A taxpayer.

I read with great profit the "Bulletin for Industry" prepared by the Information Division of the Treasury for May, 1962. In it there is an article on "Income from profits". Generally speaking these articles are prepared very impartially and contain a great deal of useful information. This article on "Income from profits" does not strike me as attaining the same level, and I shall be glad if this can be looked into.

This article seems to me to be designed to support the Chancellor's policy on incomes, about which I do not complain, by presenting a picture of incomes from profits that neglects these facts which I have been bringing out and, indeed, gives a picture that is by no means complete. I regret this because this ought to be regarded by everyone as being beyond matters of party dispute. It ought to be a document, as indeed it normally is, that is concerned with factual material which all Members find useful. But this article "Income from profits" might well have been written by the Chancellor— I am sure it was not — in order to support his own point of view about the relationship between profits and wages.

I hope that when further articles are produced on the question of the relationship between profits and wages, questions of taxation will be taken into account so that the public are told by this impartial bulletin— as, indeed, it is impartial; I assume that this is a defect in the knowledge of the compilers of the bulletin— that the change in the incidence of taxation over the last ten years has resulted in a substantial distortion of the amounts paid by the P.A.Y.E. taxpayers as a group.

I do not think I have gone wide of my Clause. I am demonstrating that where relief is due, it is long overdue for the P.A.Y.E. taxpayer. This is undoubtedly where the shoe has pinched. It is these groups of people who have felt that they are paying too much in taxation and who are at this moment being hard hit by the unprecedented rise in the cost of living. I use the word "unprecedented" advisedly. The increase in the cost of living during the last twelve months has been higher than at any time since the present index was introduced— this at a time when the pay pause has been partially successful, if we are to believe the Chancellor of the Exchequer. At times he seems to boast of how successful it has been.

At a time that he boasts that he has succeeded in keeping wages down, the cost of living in this country has gone up to a record level. There is no other period when the level was higher since the present index was prepared. The Financial Secretary will be able to produce the period of the Korean war. I have no doubt that we shall hear about that, but if he wants to contrast the period of a war in which this country was engaged with a post-war election period, in which we have "never had it so good," I can only say that I do not think much of the propaganda that the Conservative Government put out in order to win the last Election.

Clearly these two things are not corn-parable. However, the Financial Secretary can have his comparison, if he wishes to make the point here this afternoon. It does not bring much comfort to those who are suffering from it at present. Those who are suffering from it are the very people who have been hit either by the Government's neglect or the Government's failure to serve the interests of the P.A.Y.E. taxpayer. It is this group about whom I am concerned and whose position I am determined to get the Chancellor to put right. I hope we shall continue to press him until we get some amelioration in the allowances which are given.

This afternoon I proposed the reduced rate. If I had any responsibility for it I would try to adjust the burden of taxation so that the first relief was given not on the reduced rate but on the personal allowances. That is where it should come. I am moving this Clause in the profound belief that if the British public understand what the Chancellor has done for them over the last seven or eight years, Members will be bombarded with correspondence and the Chancellor will be forced to put the matter right in due course.

Photo of Mr Bruce Millan Mr Bruce Millan , Glasgow Craigton

I am very glad that my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) has placed such a tremendous amount of importance on this new Clause, because it is a very important new Clause indeed. It is important also that we should place the very modest proposals made in both these new Clauses in the general context of what has been happening to the taxation paid by P.A.Y.E. wage and salary earners over The last few years. My hon. Friend gave a number of comparisons between the taxes paid by the P.A.Y.E. taxpayer and the taxes paid by companies and other profit earners.

I want to put this whole question in the simplest possible terms by taking the illustration of what happens from the Revenue point of view when there is a rise in incomes over a period of years. If we look at the rise in incomes which we have had over the last few years we see that the rise is made up of two factors. First of all, there is simply the fall in the value of money, and so the rise is really a rise in money incomes, not in real terms. Secondly there is the rise in incomes in real terms. Let us just look at each from the point of view of the taxation position.

It is pretty obvious that if over a period of years money incomes rise and there is no corresponding rise in personal allowances or in the reduced rate relief then the amount of real taxation Which the taxpayer pays in fact increases. It is the case that there are three particular allowances which are made in this respect. There is the earned income relief, there is the personal allowance, and there is the additional reduced rate relief. The earned income relief goes up automatically. It is applied as a percentage of income and goes up automatically if the income rises, but this does not, of course, apply either to personal allowance or to the bands at which the reduced rate relief operates, and the result is that if there is a rise in money incomes and there is no corresponding change in either the personal allowance or the bands of reduced rate relief the amount of tax paid, I repeat, in real terms by the taxpayer increases.

Look at it from the point of view of a rise in real incomes over a period of years. It may be argued, of course, that if there is a rise in real incomes it is perfectly legitimate that there should be a rise in the taxation paid, but again, looking at it simply from that point of view, unless there are corresponding rises not only in the personal allowance but also in the reduced rate relief bands then the percentage of income which the taxpayer pays to the Revenue again increases. Therefore, of that additional income, which is accumulating because of rises in real incomes, the percentage taken by the Revenue in taxation is not the same percentage as was taken previously but a considerably higher percentage. That is simply because as real incomes rise more and more people get up to higher marginal rates of taxation and unless there are adjustments the real burden in percentage terms on the taxpayer continues to increase.

When we have, as we have had over the last few years, a combination of a fall in the value of money and a rise of incomes in money terms there is a tremendous uncovenanted benefit to the Revenue, unless corresponding adjustments are made in personal allowances and in the bands at which reduced rate relief operates. The Chancellor does not have to reduce the personal allowances. He does not have to make any downward adjustments. By doing nothing at all precisely the same thing happens, and that is precisely what has been happening over the last few years.

The innocent taxpayer, who can be excused for not understanding all the intricacies of this, is actually paying over a higher percentage of his income to the Revenue, and again I say that this has happened because there is no adjustment in the personal allowance or in the bands at which reduced rate relief operates. There is a tremendous amount of additional revenue which the Government have been gaining.

6.45 p.m.

It is really a matter of simple arithmetic. The ordinary personal allowance and the married allowance, for example, have not been altered since 1955. They are still at £ 145 and £ 240. There has been some increase in child allowances. The ordinary child allowance which applies to children under the age of 11 is being continued, but for children from the age of 11 to 16 there has been some increase in the allowance, but When one comes to the bands of reduced rate relief, which are precisely the subject of these new Clauses, one finds that these bands have not been changed since 1955.

I admit right away that there has been a change in the actual rate of taxation. That happened in 1959, in the pre-election Budget, with regard both to the standard rate and with regard to the reduced rate relief, but those reductions, particularly in the standard rate, benefited to a very large extent— not exclusively, but to a preponderating extent— people with, on the whole, the larger incomes, and the ordinary taxpayer who is just on the border line of paying tax, the taxpayer who pays tax on a comparatively small part of his income, gained very little indeed from the concessions which were made in 1959, and certainly gained nothing which can possibly compensate for the fall in the value of personal allowances since 1955. That is the effect of making for him no change at all since 1955 in the bands at which reduced rate relief operates.

The change in the bands of reduced rate relief in 1955 was a change in the adverse direction, because previous to that, from 1953 to 1955, a total income of £ 400 was subject in one respect or another to reduced rate relief and that was actually reduced in 1955 to £ 360, and it has stayed at £ 360 right up to the present day.

There is an obvious injustice here. Naturally, the Chancellor does not want to argue the case— and I have not heard the Government argue the case— in these terms, and I hope the Financial Secretary, who will answer this debate, will not argue in these terms. It is really quite easy to take average incomes from 1955 to 1962 and, by suitable manipulation of the figures, say people are paying less tax now than they would have been paying had the rates operative in 1951 been continued; but, of course, we on this side of the House have never argued that at all. To argue that is simply to substantiate our case.

The argument we are making is that as money incomes rise, and even as real incomes rise, there must be adjustments in these personal allowances and in the reduced rate relief bands for ordinary taxpayers, if they are not going to suffer. If one looks at the whole pattern over the last ten years there is no doubt at all that the Government have been able to extract considerable sums of additional revenue by this simple device of making no adjustments at all. By not making adjustments in money terms, there is a reduction in real terms in personal allowances and in the rates of reduced rate relief.

These proposals we are making tonight I consider to be unduly modest. The first simply substitutes £ 100 for the £ 60 in the reduced rate relief band at which tax is payable at 1s. 9d., and the second new Clause is also a very modest proposal. I can, perhaps, anticipate what the Financial Secretary will say in his speech. I am sure he will say that, apart from all other considerations— the reduction in the standard rate, and so on, of which I have no doubt we shall hear— to grant this very modest proposal would be a prohibitive cost. I do not know what the actual figure is going to be, but the argument that this very modest proposal is going to be a prohibitive cost gives some idea of the tremendous amount of additional revenue which the Government have been getting— as it were, by a subterfuge — all these years. This is exactly the argument which applies when we discuss a modest increase of, say, £ 10 in personal allowances. The Government say that they cannot do it because it will cost, say, £ 20 million. This means that by subterfuge— that is not too strong a term— they are taking £ 20 million extra from the taxpayer by this simple device.

I think that the case for making these changes this year is unanswerable. This is a modest proposal. Even if the Government do not accept it, I hope that the ordinary taxpayer, who can be excused not understanding the intricacies of the tax provisions, will come increasingly to realise the unfair way in which the Government have been treating him over the past few years and propose to continue to treat him under this Bill.

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

The hon. Member for Cardiff, South-East (Mr. Callaghan) said that he might have gone a shade wide in his speech, but he said practically nothing about the details of the new Clauses which we are discussing. I will not answer him at length tonight on the points which he made. It is true that I referred to him when replying at rather short notice to an Adjournment debate some weeks ago, and it is fair that he should take the opportunity of replying, in turn, to me. I am sorry that I was not able to give him notice on that occasion.

Photo of Mr James Callaghan Mr James Callaghan Shadow Chancellor of the Exchequer, Member, Labour Party National Executive Committee

I have been making this case ever since the Budget. I first put it on the day after Budget day, and I have been making it at every stage of the Finance Bill. Never have I had a reply. The hon. Gentleman says that he will not be able to reply this evening.

When will he give me a reply, and when will the Government state their case on what I regard as the indisputable facts which I have been producing whenever I have had the opportunity?

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

If the hon. Member looks again at the speeches which I made in the Budget debate and in Committee on the Bill he will find that I have said a lot about the consequences of taxation policy during the last ten years. I will study his figures on the subject of industrial taxation, but he must admit that industrial taxation has not come down in this Parliament. Profits Tax has twice been increased. I will look at the article in the "Bulletin for Industry" which he mentioned, but it was in the Economic Survey that the Government first pointed out that industrial profits had fallen by £ 200 million in 1961 compared with 1960.

Photo of Mr James Callaghan Mr James Callaghan Shadow Chancellor of the Exchequer, Member, Labour Party National Executive Committee

Will the hon. Member take it from me that in 1958– 59, about the time of the election, companies were paying £ 1,458 million in Income Tax and Profits Tax and that in the following year, the last year for which the Inland Revenue have given figures, they paid £ 1,281 million, a substantial reduction, although their income had risen by £ 200 million?

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

The hon. Member knows that when Profits Tax is raised the effect is not felt in that financial year. We are therefore not in a position to see the effect on company taxation. I am aware that the standard rate was reduced in the last Parliament, but I am talking about the present Parliament, and in the present Parliament industrial taxation has risen.

When we are discussing indirect taxation hon. Members apposite accuse the Government of being engaged in a plot to transfer taxation from direct to indirect taxation. This evening the hon. Member far Glasgow, Craigton (Mr. Millan) pointed out that when prices and incomes bath rise the yield of direct taxation is bound almost at once to rise. I have made this point often enough when answering hon. Members on the proportions of tax borne by direct and indirect taxation. When we are discussing Income Tax, hon. Members opposite say, "I know that direct taxation is very high, but far too high a proportion of it falls on the shoulders of the P.A.Y.E. taxpayer". Hon. Members opposite— and I entirely accept their sincerity— say that they are concerned about economic growth and about this country putting up a first-class economic performance. But there is a point beyond which one simply cannot penalise success in the taxation either of companies or of individuals if this country is to put up a first-class economic performance, and hon. Members should bear that point in mind rather more than they do.

The first new Clause which we are discussing extends the band of taxable income chargeable at the lowest rate— the 1s. 9d. rate— from £ 60 to £ 100. There is a corresponding cut of £ 40, from £ 150 to £ 110, in the width of the second band chargeable at 4s. 3d. The third reduced band, chargeable at 6s. 3d., is left unchanged. The cost of this proposal would be £ 97 million in a full year. It is therefore substantially higher than the cost of the proposal for altering the personal allowances which hon. Members have put forward. It is appreciably more than the total sum of the Surtax reductions.

I will give reasons for suggesting that this proposal is not in line with what hon. Members opposite have said about taxation, including the hon. Member for Cardiff, South-East. Let us consider what the effect of the Clause would be if it were accepted. The upward extension of the lowest reduced band would give no relief to any taxpayer whose taxable income was £ 60 or less. It would not benefit a single man or woman with a total income of less than £ 4 19s. a week or a married man without dependants with less than £ 7 8s. a week, nor would it benefit a married man with two children under 11 who was earning less than £ 12 7s. a week. People with taxable incomes exceeding £ 60 would benefit, and this benefit would rise until it reached £ 5 for a taxable income of £ 100. For taxable incomes greater than £ 100 it would be a fixed benefit of £ 5.

Under the existing law a taxable income of £ 60 attracts tax liability of £ 5 5s. This Clause would do nothing for those people whose incomes are so small that their present tax bill is £ 5 5s. a year or less, but it would give a tax remission to all the better-off taxpayers and a great majority would benefit to the extent of £ 5. I am pointing out that in my view this is a very wasteful proposal. When one is considering the question of direct taxation, it seems that the Clause is totally inconsistent with the attitude adopted by hon. Members opposite during Second Reading and in Committee. They said on that occasion that priority ought to be given to the claims of those with the smallest incomes of all, and neither this Clause nor the Clause which we are discussing with it accords that priority.

7.0 p.m.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

The hon. Gentleman will bear in mind that earlier we were proposing to increase the personal allowances. That would have taken care of many taxpayers whose present tax burden is relatively small, but the Committee rejected our proposals in that respect so that we are now left with discussing proposals with which we can still proceed. It is a little hard to be accused of trying to do something which the hon. Gentleman suggests is inconsistent with our philosophy on taxation when we have already tried to achieve the very purpose which he now criticises us for not seeking to do.

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

I cannot see that that point is either fair or valid. We discussed a proposal to increase allowances in Committee. I said some words on that occasion which I shall repeat to the House I made it quite plain that the economic circumstances did not permit the acceptance of that proposal this year but, I hope, I also made it plain to the Committee on that occasion that my right hon. and learned Friend realised clearly the severe burden of direct taxation today and the desirability of cutting it down.

I am entitled to point out that the proposal which we are now considering on Report, taken by itself, is very much less desirable than the proposal which we discussed in Committee When we debated these matters in Committee I based myself primarily on arguments of cost On this occasion I do not think that even considered on its merits this proposal would be a good way of reducing direct taxation to the extent of nearly £ 100 million. If we take the other Clause which we are discussing and to which not a great deal of reference has been made its cost would be as much as £ 157 million in a full year.

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

As the hon. Gentleman has now become such an extreme radical and does not like this proposal from that point of view, may I ask if he is now willing to accept on behalf of the Government the proposal which we made in Committee? As for cost, is the hon. Gentleman aware that economic conditions have changed so much since April that it is now plain that the Budget was much too deflationary and therefore he can well afford to do this?

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

No doubt when we discuss the Finance Bill on Third Reading on Friday we can discuss again the economic background against which the Bill is presented. I cannot on economic grounds reverse the advice which I gave to the Committee on allowances, but the proposals before us are not only much more expensive but are less justified on merit. I think that it is permissible on Report to point out that a proposal put forward at this stage is on many grounds even less desirable than that which was brought forward in Committee.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

At this stage these proposals are the only ones left to us. What is the hon. Gentleman complaining about? We tried earlier to do something and we failed, and now we are driven to a second line.

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

The second line is still a good deal worse than the first line. The hon. Gentleman is perfectly fair in saying that this was the one means left to him and his hon. Friends of raising this matter.

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

It is perfectly legitimate for anyone who is replying to a debate to address himself to the particular new Clause or Amendment which is being moved. In the House we are sometimes too ready to assume that the Minister is off-side when he addresses himself to the proposals before us.

Photo of Mr James Callaghan Mr James Callaghan Shadow Chancellor of the Exchequer, Member, Labour Party National Executive Committee

The hon. Gentleman is entitled to destroy the new Clause but he has been a long time doing it and I destroyed it myself before I developed the argument which has now arisen. I shall soon cease to have the respect I have for the hon. Gentleman. He has failed consistently to face the real argument. Will he address himself to it? The P.A.Y.E. taxpayer has been unfairly dealt with in comparison with other groups. Will the hon. Gentleman address himself to that and will he set out to put it right?

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

I was intending to complete my speech by addressing myself again to what we were discussing in Committee when my former noble Friend the then Member for Dorset, South asked whether the Government still put a high priority on reducing direct taxation. I leave the House in no doubt about this. The Government certainly do. I was sympathetic in Committee to much that was said then and again today by the hon. Member for Craigton about the effect of rising incomes and rising prices on the incidence of our tax system.

I can say to the House, as I have said before, that the Government intend to reduce taxation when economic circumstances permit. I would not like to commit myself today as to the priority which the Government will adopt— whether they prefer first and foremost to reduce the standard rate or to increase allowances.

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

The hon. Member may think it shocking and scandalous, but it is directly relevant to the Clause, and I say it again, that when one is considering priorities for the reduction of direct taxation, in my view, standard rates and tax allowances are both, as the economic circumstances permit, a preferable way of approaching this matter than the suggestion made in the two new Clauses.

Photo of Mr James Callaghan Mr James Callaghan Shadow Chancellor of the Exchequer, Member, Labour Party National Executive Committee

I should like to have the leave of the House to speak for one minute, as we are not in Committee. I shall regard it as an absolute outrage if in the next Budget the Chancellor puts forward a proposal to reduce the standard rate of company taxation if he does not take the opportunity, if he has it, of increasing personal allowances. It will be one of the biggest scandals perpetrated by any Chancellor. Already the position has gone too far. The Financial Secretary knows it, and that is why he has spent so much time on the technicalities and the nature of the Clause instead of facing the argument.

The hon. Gentleman, with his intellectual honesty, knows that he cannot face it. It is a first priority for the House, and hon. Members opposite should have joined in the debate, to insist that the Government relieve the P.A.Y.E. tax-

payer by increasing personal allowances. There is nothing that stands ahead of that today in the consideration of taxation matters. Whatever the technical deficiencies of the Clause— which I acknowledged long before the Financial Secretary spoke— we shall vote in the Lobby.

Question put,That the Clause be read a Second time:—

The House divided:Ayes 186, Noes 236.

Division No. 231.]AYES[7.8 p.m.
Abse, LeoGrimond, Rt. Hon. J.Oliver, C. H.
Alnsley, WilliamHale, Leslie (Oldham, W.)Owen, Will
Albu, AustenHall, Rt. Hn. Glenvil (Colne Valley)Padley, W. E.
Allaun, Frank (Salford, E.)Hamilton, William (West Fife)Pannell, Charles (Leeds, W.)
Allen, Scholefield (Crewe)Hannan, WilliamPargiter, G. A.
Awbery, StanHarper, JosephPaton, John
Bacon, Miss AliceHayman, F. H.Pavitt, Laurence
Baxter, William (Stirlingshire, W.)Henderson, Rt. Hn. Arthur(Rwly Regis)Pearson, Arthur (Pontypridd)
Bence, CyrilHerbison, Miss MargaretPentland, Norman
Bennett, J. (Glasgow, Bridgeton)Hilton, A. V.Popplewell, Ernest
Benson, Sir GeorgeHolman, PercyPrentice, R. E.
Blackburn, F.Houghton, DouglasPrice, J. T. (Westhoughton)
Blyton, WilliamHowell, Charles A. (Perry Barr)Proctor, W. T.
Boardman, H.Howell, Denis (Small Heath)Pursey, Cmdr. Harry
Bowden, Rt. Hn. H. W. (Leics. S.W.)Hoy, James H.Randall, Harry
Bowen, Roderic (Cardigan)Hughes, Emrys (S. Ayrshire)Rankin, John
Boyden, JamesHunter, A. E.Reid, William
Braddock, Mrs. E. M.Hynd, H. (Accrington)Rhodes, H.
Bray, J. W.Hynd, John (Attercliffe)Roberts, Albert (Normanton)
Brockway, A. FennerIrvine, A. J. (Edge Hill)Robertson, John (Paisley)
Broughton, Dr. A. D. D.Irving, Sydney (Dartford)Ross, William
Brown, Rt. Hon. George (Belper)Janner, Sir BarnettRoyle, Charles (Salford, West)
Brown, Thomas (Ince)Jay, Rt. Hon. DouglasShinwell, Rt. Hon. E.
Butler, Herbert (Hackney, C.)Jeger, GeorgeShort, Edward
Butler, Mrs. Joyce (Wood Creen)Jenkins, Roy (Stechford)Silverman, Julius (Aston)
Callaghan, JamesJohnson, Carol (Lewisham, S.)Silverman, Sydney (Nelson)
Chapman, DonaldJones, Dan (Burnley)Skeffington, Arthur
Cliffe, MichaelJones, Elwyn (West Ham, S.)Slater, Mrs. Harriet (Stoke, N.)
Collick, PercyJones, jack (Rotherham)Slater, Joseph (Sedgefield)
Craddock, George (Bradford, S.)Jones, J. Idwal (Wrexham)Small, William
Cronln, JohnJones, T. W. (Merioneth)Smith, Ellis (Stoke, S.)
Crosland, AnthonyKelley, RichardSnow, Julian
Cullen, Mrs. AliceKey, Rt. Hon. C. W.Sorensen, R. W.
Dalyell, TarnLawson, GeorgeSpriggs, Leslie
Darling, GeorgeLedger, RonStewart, Michael (Fulham)
Davies, G. Elfed (Rhondda, E.)Lee, Frederick (Newton)Stones, William
Davies, Ifor (Gower)Lee, Miss Jennie (Cannock)Stross, Dr.Barnett(Stoke-on-Trent, C.)
Deer, GeorgeLever, L. M. (Ardwick)Swingler, Stephen
Delargy, HughLewis, Arthur (West Ham, N.)Taveme, D.
Dempsey, JamesLipton, MarcusTaylor, Bernard (Mansfield)
Diamond, JohnLoughlin, CharlesThompson, Dr. Alan (Dunfermline)
Dodds, NormanLubbock, EricThornton, Ernest
Donnelly, DesmondMabon, Dr. J. DicksonTomney, Frank
Driberg, TomMcCann, JohnWade, Donald
Dugdale, Rt. Hon. JohnMacCoil, JamesWarbey, William
Ede, Rt. Hon. C.Mclnnes, JamesWatkins, Tudor
Edeiman, MauriceMcKay, John (Wallsend)Weitzman, David
Edwards, Rt. Hon. Ness (Caerphilly)Mackie, John (Enfield, East)Wells, Percy (Faversham)
Edwards, Walter (Stepney)McLeavy, FrankWells, William (Walsall, N.)
Evans, AlbertMacMillan, Malcolm (Western Isles)White, Mrs. Eirene
Fernyhough, E.MacPherson, Malcolm (Stirling)Wilkins, W. A.
Fitch, AlanManuel, ArchieWilley, Frederick
Fletcher, EricMapp, CharlesWilliams, D. J. (Neath)
Foot, Dingle (Ipswich)Mason, RoyWilliams, LI. (Abertillery)
Foot, Michael (Ebbw Vale)Mendelson, J. J.Williams, W. R. (Openshaw)
Forman, J. C.Millan, BruceWillis, E. G. (Edinburgh, E.)
Fraser, Thomas (Hamilton)Milne, EdwardWinterbottom, R. E.
Gaitskell, Rt. Hon. HughMitchison, G. R.Woof, Robert
Galpern, Sir MyerMonslow, WalterWyatt, Woodrow
Ginsburg, DavidMoody, A. S.Zllliacus, K.
Gordon Walker, Rt. Hon. P. C.Moyle, Arthur
Griffiths, David (Rother Valley)Mulley, FrederickTELLERS FOR THE AYES:
Griffiths, Rt. Hon. James (Llanelly)Neal, HaroldMr. Redhead and Mr.J Grey.
Agnew, Sit PeterGresham Cooke, R.Mott-Radclyffe, Sir Charles
Allason, JamesGrosvenor, Lt.-Col. R. G.Nabarro, Gerald
Amery, fit Hon. JulianGurden, HaroldNicholls, Sir Harmar
Arbuthnot, JohnHall, John (Wycombe)Nicholson, Sir Godfrey
Atkins, HumphreyHamilton, Michael (Wellingborough)Noble, Michael
Balniel, LordHarris, Frederic (Croydon, N.W.)Nugent, Rt. Hon. Sir Richard
Barber, AnthonyHarris, Reader (Heston)Oakshott, Sir Hendrie
Barlow, Sir JohnHarrison, Brian (Maldon)Orr, Capt. L. P. S.
Batsford, BrianHarrison, Col. Sir Harwood (Eye)Osborn, John (Hallam)
Baxter, Sir Beverley (Southgate)Harvey, John (Walthamstow, E.)Page, Graham (Crosby)
Beamish, Col. Sir TuftonHarvie Anderson, MissPage, John (Harrow, West)
Bell, RonaldHastings, StephenPanned, Norman (Kirkdale)
Bennett, F. M. (Torquay)Hay, JohnPearson, Frank (Clitheroe)
Bennett, Dr. Reginald (Cos & Fhm)Heald, Rt. Hon. Sir LionelPeyton, John
Berkeley, HumphryHenderson, John (Cathcart)Pickthorn, Sir Kenneth
Bevins, Rt. Hon. ReginaldHendry, ForbesPitman, Sir James
Bidgood, John C.Hicks Beach, Maj. W.Pitt, Miss Edith
Biffen, JohnHiley, JosephPott, Percivall
Biggs-Davison, JohnHill, Mrs. Eveline (Wythenshawe)Price, David (Eastleigh)
Birch, Rt. Hon. NigelHill, J. E. B. (S. Norfolk)Proudfoot, Wilfred
Bishop, F. P.Hirst, GeoffreyPym, Francis
Black, Sir CyrilHobson, Sir JohnRamsden, James
Bossom, CliveHocking, Philip N.Redmayne, Rt. Hon. Martin
Bourne-Arton, A.Ridley, Hon. NicholasHolland, Philip
Box, DonaldHornby, R. P.Robinson, Rt. Hn. Sir R. (B'pool, S.)
Boyd-Carpenter, Rt. Hon. JohnHornsby-Smith, Rt. Hon. Dame P.Roots, William
Boyle, Sir EdwardHoward, Hon. G. R. (St. Ives)Russell, Ronald
Brewls, JohnHoward, John (Southampton, Test)Sandys, Rt. Hon. Duncan
Brooke, Rt. Hon. HenryHughes-Young, MichaelSeymour, Leslie
Brown, Alan (Tottenham)Hulbert, Sir NormanShaw, M.
Browne, Percy (Torrington)Iremonger, T. L.Shepherd, William
Bryan, PaulIrvine, Bryant Godman (Rye)Skeet, T. H. H.
Buck, AntonyJackson, JohnSmith, Dudley (Br'ntf'd & Chiswick)
Bullard, DenysJames, DavidSmithers, Peter
Bull us, Wing Commander EricJohnson, Dr. Donald (Carlisle)Spearman, Sir Alexander
Burden, F. A.Johnson, Eric (Blackley)Stanley, Hon. Richard
Butcher, Sir HerbertJones, Rt. Hn. Aubrey (Hall Green)Stevens, Geoffrey
Campbell, Sir David (Belfast, S.)Joseph, Sir KeithStodart, J. A.
Campbell, Gordon (Moray & Nairn)Kerans, Cdr. J. S.Stoddart-Scott, Col. Sir Malcolm
Carr, Comnton (Barons Court)Kerby, Capt. HenryStorey, Sir Samuel
Carr, Robert (Mitcham)Kerr, Sir HamiltonStudholme, Sir Henry
Channon, H. P. C.Kershaw, AnthonySummers, air spencer
Chataway, ChristopherKimball, MarcusTalbot, John E.
Chichester-Clark, R.Kirk, PeterTaylor, Sir Charles (Eastbourne)
Clark, William (Nottingham, S.)Lagden, GodfreyTaylor, Edwin (Bolton, E.)
Cleaver, LeonardLangford-Holt, Sir JohnTaylor, Frank (M'ch'st'r, Moss Side)
Cole, NormanLeather, Sir EdwinTaylor, W. J. (Bradford, N.)
Cordeaux, Lt.-Col. J. K.Legge-Bourke, Sir HarryTeeling, Sir William
Cordle, JohnLewis, Kenneth (Rutland)Thomas, Leslie (Canterbury)
Costain, A. P.Lilley, F. J. P.Thomas, Peter (Conway)
Coulson, MichaelLinstead, Sir HughThompson, Kenneth (Walton)
Craddock, Sir BcresfordLitchfield, Capt. JohnThompson, Richard (Croydon, S.)
Critchley, JulianLloyd, Rt. Hon. Selwyn (Wirral)Tiley, Arthur (Bradford, W.)
Cunningham, KnoxLoveys, Walter H.Touche, Rt. Hon. Sir Gordon
Currie, G. B. H.Lucas, Sir JocelynTurner, Colin
Dance, JamesLucas-Tooth, Sir HughTurton, Rt. Hon. R. H.
d'Avigdor-Goidsmid, Sir HenryMcAdden, Sir StephenTweedsmuir, Lady
Deedes, W. F.McLaren, Martinvan Straubenzee, W. R,
Donaldson, Cmdr. C. E. M.Maclean, SirFltzroy(Bute& N.Ayrs.)Vaughan-Morgan, Rt. Hon. Sir John
Doughty, CharlesMacleod, Rt. Hn. lain (Enfield, W.)Vickers, Miss Joan
du Cann, EdwardMacLeod, John (Ross & Cromarty)Wakefield, Sir Waved
Duncan, sir JamesMcMaster, Stanley R.walder, David
Elliot, Capt. Walter (Carshalton)Macmillan, Maurice (Halifax)Walker, Peter
Emery, PeterMacpherson, Niall (Dumfries)Walker-Smith, Rt. Hon. Sir Derek
Errington, Sir EricMaddan, MartinWall, Patrick
Farey-Jones, F. W.Maginnis, John E.Ward, Dame Irene
Farr, JohnMaitland Sir JohnWebster, David
Fell, AnthonyManningham-Buller, Rt. Hn. Sir R.Wells, John (Maidstone)
Finlay, GraemeMarkham, Major Sir FrankWilliams, Dudley (Exeter)
Fisher, NigelMarshall, DouglasWilliams, Paul (Sunderland, S.)
Fietcher-Cooke, CharlesMarten, NeilWills, Sir Gerald (Bridgwater)
Foster, JohnMathew, Robert (Honiton)Wilson, Geoffrey (Truro)
Fraser, Ian (Plymouth, Sutton)Matthews, Gordon (Meriden)Wise, A. R.
Gammans, LadyMawby, RayWolrige-Gordon, Patrick
Gardner, EdwardMaxwell-Hyslop, R. J.Woollam, John
Gllmour, Sir JohnMaydon, Lt.-Cmdr. S. L. C.Yates, William (The Wrekln)
Glover, Sir DouglasMills, Stratton
Glyn, Dr. Alan (Clapham)Miscampbell, NormanTELLERS FOR THE NOES:
Gower, RaymondMontgomery, FergusMr. Whitelaw and Mr. Rees.
Green, AlanMorgan, William

Photo of Sir Harry Hylton-Foster Sir Harry Hylton-Foster , Cities of London and Westminster

The next new Clause is one which we discussed in the small hours of this morning.


The following section shall be added to Part VIII of the Income Tax Act, 1952:— 228A. If the claimant proves that during the whole of the year of assessment—

  1. (a) he has been in receipt of a war disablement pension or an industrial injury pension granted by the Ministry of Pensions and National Insurance and determined by reference to one hundred per cent. disablement; or
  2. (b) though not in receipt of a one hundred per cent. disablement pension or

industrial injury pension he nevertheless is disabled in manner and degree equivalent to one hundred per cent. disablement

he shall be entitled to a deduction from the amount of income tax with which he is chargeable equal to tax at the standard rate on one hundred pounds".— [Mr. Callaghan.]

Brought up, and read the First time.

I move this Motion formally.

Question put,That the Clause be read a Second time:—

The House divided:Ayes 185, Noes 237.

Division No. 232.]AYES[7.18 p.m.
Abse, LeoGinsburg, DavidMapp, Charles
Ainsley, WilliamCordon-Walker, Rt. Hon. P. C.Mason, Roy
Albu, AustenGriffiths, David (Rother Valley)Mendelson, J. J.
Allaun, Frank (Salford, E.)Griffiths, Rt. Hon. James (Llanelly)Millan, Bruce
Allen, Scholefield (Crewe)Grimond, Rt. Hon. J.Milne, Edward
Awbery, StanHale, Leslie (Oldham, W.)Mitchison, G. R.
Bacon, Miss AliceHall, Rt. Hn. Glenvil (Colne Valley)Monslow, Walter
Baxter, William (Stirlingshire, W.)Hamilton, William (West Fife)Moody, A. S.
Bence, CyrilHannan, WilliamMoyle Arthur
Bennett, J. (Glasgow, Bridgston)Harper, JosephMulley, Frederick
Benson, Sir GeorgeHayman, F. H.Neal, Harold
Blackburn, F.Henderson, Rt. Hn. Arthur(RwlyRegis)Oliver, G. H.
Blyton, WilliamHerbison, Miss MargaretOwen, Will
Boardman, H.Hilton, A. V.Padley, W. E.
Bowden, Rt. Hn. H, W. (Leics. S.W.)Holman, PercyPannell, Charles (Leeds, W.)
Bowen, Roderic (Cardigan)Hoosen, H. E.Pargiter, G. A.
Boyden, JamesHoughton, DouglasPaton, John
Braddock, Mrs. E. M.Howell, Charles A. (Perry Barr)Pavitt, Laurence
Bray, Dr. JeremyHowell, Denis (Small Heath)Pearson, Arthur (Pontypridd)
Brockway, A. FennerHoy, James H.Pentland, Norman
Broughton, Dr. A. D. D.Popplewell, ErnestHughes, Emrys (S. Ayrshire)
Brown, Rt. Hon. George (Belper)Hunter, A. E.Prentice, R. E.
Brown, Thomas (Ince)Hynd, H. (Accrington)Price, J. T. (Westhoughton)
Butler, Herbert (Hackney, C.)Hynd, John (Attercliffe)Proctor, W. T.
Butler, Mrs. Joyce (Wood Green)Irvine, A. J. (Edge Hill)Pursey, Cmdr. Harry
Callaghan, JamesIrving, Sydney (Dartford)Randall, Harry
Chapman, DonaldJanner, Sir BarnettRankin, John
Cliffe, MichaelJay, Rt. Hon. DouglasReid, William
Collick, PercyJeger, GeorgeRhodes, H.
Craddock, George (Bradford, S.)Jenkins, Roy (Stechford)Roberts, Albert (Normanton)
Cronin, JohnJohnson, Carol (Lewisham, S.)Robertson, John (Paisley)
Crosland, AnthonyJones, Dan (Burnley)Ross, William
Cullen, Mrs. AliceJones, Elwyn (West Ham, S.)Royle, Charles (Salford, West)
Dalyell, TarnJones, Jack (Rotherham)Shinwell, Rt. Hon. E.
Davies, c. Elfed (Rhondda, E.)Jones, J. Idwal (Wrexham)Short, Edward
Davies, Ifor (Cower)Jones, T. W. (Merioneth)Silverman, Julius (Aston)
Deer, GeorgeKelley, RichardSilverman, Sydney (Nelson)
Delargy, HughKey, Rt. Hon. C. W.Skeffington, Arthur
Dempsey, JamesLawson, GeorgeSlater, Mrs. Harriet(Stoke, N.)
Diamond, JohnLedger, RonSlater, Joseph (Sedgefield)
Dodds, NormanLee, Frederick (Newton)Small, William
Donnelly, DesmondLee, Miss Jennie (Cannock)Smith, Ellis (Stoke, S.)
Snow, Julian
Dugdale, Rt. Hon. JohnLever, L. M. (Ardwlck)Sorensen, R. W.
Ede, Rt. Hon. C.Lewis, Arthur (West Ham, N.)Spriggs, Leslie
Edelman, MauriceLipton, MarcusStewart, Michael (Fulham)
Edwards, Rt. Hon. Ness (Caerphilly)Loughlin, CharlesStones, William
Edwards, Walter (Stepney)Lubbock, EricStross,Dr.Barnett(Stoke-on-Trent,C.)
Evans, AlbertMabon, Dr. J. DicksonSwingler, Stephen
Fernyhough, E.McCann, JohnTaverne, D.
Fitch, AlanMacColl, JametTaylor, Bernard (Mansfield)
Fletcher, EricMclnnes, JamesThompson, Dr. Alan (Dunfermline)
Foot, Dingle (Ipswich)McKay, John (walleend)Thornton, Ernest
Foot, Michael (Ebhw Vale)Mackie, John (Enfield, East)Tomney, Frank
Forman, J. C.McLeavy, FrankWade, Donald
Fraser, Thomas (Hamilton)MacMillan, Malcolm (Western Isles)Warbey, William
Gaitskell, Rt. Hon. HughMacPherson, Malcolm (Stirling)Watkins, Tudor
Galpern, Sir MyerManuel, ArchieWeitzman, David
Wells, Percy (Faversham)Williams, D. J. (Neath)Woof, Robert
Wells, William (Walsall, N.)Williams, LI. (Abertillery)Wyatt, Woodrow
White, Mrs. EireneWilliams, W. R. (Openshaw)Zilliacus, K.
Wilkins, W. A.Willis, E. G. (Edinburgh, E.)
Willey, FrederickWinterbottom, R. E.TELLERS FOR THE AYES:
Mr. Redhead and Mr. Grey.
Agnew, Sir PeterGlyn, Dr. Alan (Clapham)Maxwell-Hystop, R. J.
Allason, JamesGower, RaymondMaydon, Lt.-Cmdr. S. L. C.
Amery, Rt. Hon. JulianGreen, AlanMills, Stratton
Arbuthnot, JohnGresham Cooke, R.Miscampbeil, Norman
Atkins, HumphreyGrosvenor, Lt.-Col. R. C.Montgomery, Fergus
Balniel, LordGurden, HaroldMorgan, William
Barber, AnthonyHall, John (Wycombe)Mott-Radclyffe, Sir Charles
Barlow, Sir JohnHamilton, Michael (Wellingborough)Nabarro, Gerald
Batsford, BrianHarris, Frederic (Croydon, N.W.)Nicholls, Sir Harmar
Baxter, William (Stirlingshire, W.)Harris, Reader (Heston)Nicholson, Sir Godfrey
Beamish, col. Sir TuftonHarrison, Brian (Maldon)Noble, Michael
Bell, RonaldHarrison, Col. Sir Harwood (Eye)Nugent, Rt. Hon. Sir Richard
Bennett, F. M. (Torquay)Harvey, John (Walthamstow, E.)Oakshott, Sir Hendrle
Bennett, Dr. Reginald (Goe & Fhm)Harvie Anderson, MissOrr, Capt. L. P. S.
Berkeley, HumphryHastings, StephenOsborn, John (Hallam)
Bevins, Rt. Hon. ReginaldHay, JohnPage, Graham (Crosby)
Bidgood, John C.Heald, Rt. Hon. Sir LionelPage, John (Harrow, West)
Biffen, JohnHenderson, John (Cathcart)Panned, Norman (Kirkdate)
Biggs-Davison, JohnHendry, ForbesPearson, Frank (Clitheroe)
Birch, Rt. Hon. NigelHicks Beach, Maj. W.Peyton, John
Bishop, F. P.Hiley, JosephPickthorn, Sir Kenneth
Black, Sir CyrilHill, Mrs. Eveline (Wythenshawe)Pitman, Sir James
Bossom, CliveHill, J. E. B. (S. Norfolk)Pitt, Miss Edith
Bourne-Arton, A.Hirst, GeoffreyPott, Percivall
Box, DonaldHobson, Sir JohnPrice, David (Eastleigh)
Boyd-Carpenter, Rt. Hon. JohnHocking, Philip N.Proudfoot, Wilfred
Boyle, Sir Edward
Brewis, JohnHolland, PhilipPym, Francies
Brooke, Rt. Hon. HenryHornby, R. P.Ramsden, James
Brown, Alan (Tottenham)Hornsby-Smith, Rt. Hon. Dame P.Redmayne, Rt Hon Martin
Browne, Percy (Torrington)Howard, Hon. C. R. (St. Ives)Rees, Hugh
Bryan, PaulHoward, John (Southampton, Test)Ridley, Hon. Nicholas
Buck, AntonyHughes-Young, MichaelRobinson, Rt. Hn. Sir R. (B'pool, S.)
Bullard, DenysHulbert, Sir NormanRoots William
Bullus, Wing Commander EricIremonger, T. L.Russell, Ronald
Burden, F. A.Irvine, Bryane Godman (Rye)Sandys, Rt. Hon. Duncan
Butcher, Sir HerbertJackson, JohnSeymour, Leslie
Campbell, Sir David (Belfast, S.)James, DavidSharples, Richerd
Campbell, Gordon (Moray & Nairn)Johnson, Dr. Donald (Carlisle)Shaw, M.
Shepherd William
Carr, Compton (Barons Court)Johnson, Eric (Blackley)Skeet T H M
Carr, Robert (Mitcham)Jones, Rt. Hn. Aubrey (Hall Green)Smith Dudley (Br'ntf'd & Chiswick)
Channon, H. P. G.Joseph, Sir KeithSmithers, Peter
Chataway, ChristopherKerans, Cdr. J. S.Spearman, Sir Alexander
Kerby, Capt. Henry
Chichester-Clark, R.Kerr, Sir HamiltonStanley, Hon. Richerd
Clark, William (Nottingham, S.)Kershaw, AnthonyStevens, Geoffrey
Cleaver, LeonardKimball, MarcusStodart, J. A.
Cole, NormanKirk, PeterStoddart-Scott, Col. Sir Malcolm
Cooke, RobertLagden, GodfreyStorey, Sir Samuel
Cordeaux, Lt-Col. J. K.Langford-Holt, Sir JohnStudholme, Sir Henry
Cordle, JohnLeather, Sir EdwinSummers, Sir Spencer
Costain, A. P.Legge-Bourke, Sir HarryTalbot, John E.
Coulson, MichaelLewis, Kenneth (Rutland)Taylor, Sir Charles (Eastbourne)
Craddock, Sir BeresfordLilley, F. J. P.Taylor, Edwin (Bolton, E.)
Critchley, JulianLinstead, Sir HughTaylor,Frank(M'ch'st'r, Moss side)
Cunningham, KnoxLitchfield, Capt. JohnTaylor, W. J. (Bradford, N.)
Currie, G. B. H.Lloyd, Rt. Hon. Selwyn (Wirral)Teeling, Sir William
Dance, JamesLoveye, Walter H.Thomas, Leslie (Canterbury)
d'Avigdor-Goldsmid, Sir HenryLucas, Sir JocelynThomas, Peter (Conway)
Deedes, W. E.Lucas-Tooth, Sir HughThompson, Kenneth (Walton)
de Ferrantl, BasilMcAdden, Sir StephenThompson, Richard (Croydon, 8.)
Donaldson, Cmdr. C. E. M.MacleanSrrFitzroy(Bute&N.Ayrs.)Tlley, Arthur (Bradford, W.)
Doughty, CharlesMacleod, Rt. Hn. lain (Enfield, W.)Touche, Rt. Hon. Sir Gordon
du Cann, EdwardMacLeod, John (Ross & Cromarty)Turner, Colin
Duncan, Sir JamesMcMaster, Stanley R.Turton, Rt. Hon. R. H.
Elliot, Capt. Walter (Carshalton)Macmiltan, Maurice (Halifax)Tweedsmulr, Lady
Emery, PeterMacpherson, Niall (Dumfries)van Straubenzee, W. R.
Errlngton, Sir EricMaddan, MartinVaughan-Morgan, Rt. Hon. Sir John
Farey-Jones, F. W.Maginnis, John E.Vickers, Miss Joan
Fell, AnthonyMaitland, Sir JohnWakefield, Sir Wavell
Fisher, NigelManningham-Buller, Rt. Hn. Sir R.Walder, David
Fietcher-Cooke, CharlesMarkham, Major Sir FrankWalker, Peter
Fraser, Ian (Plymouth, Sutton)Marshall, DouglasWalker-Smith, Rt. Hon. Sir Derek
Gammans, LadyMarten, NeilWall, Patrick
Gardner, EdwardMathew, Robert (Honiton)Ward, Dame Irene
Gilmour, Sir JohnMatthews, Gordon (Merlden)Webster, David
Glover, Sir DouglasMawby, RayWells, John (Maidstone)
Whitelaw, WilliamWilson, Geoffrey (Truro)
Williams, Dudley (Exeter)Wise, A. R.TELLERS FOR THE NOES:
Williams, Paul (Sunderland, S.)Wolrige-Gordon, PatrickMr. Finlay and Mr. McLaren.
Wills, Sir Gerald (Bridgwater)Woollam, John


There shall be an increase of investment allowances in respect of scientific research expenditure; and accordingly subsection (6) of section sixteen of the Finance Act. 1954 (which provides for such allowances to the amount of one-fifth of the expenditure on the construction of buildings or works or the provision of new machinery or plant), shall have effect with the substitution of the word "three-tenths" for the word "one-fifth".[Mr. Mitchison.],

Brought up, and read the First time.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

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

There is already an investment allowance in respect of expenditure on scientific research which relates to expenditure of a capital character in the construction of buildings or works or the provision of new machinery or plant for the purposes of scientific research. By reference to the Income Tax Act, 1952, one has a definition of scientific research and a relation of it to the trade or business being carried on by the taxpayer.

This is the subject which we are now discussing, and the object of the new Clause is simply to increase the present investment allowance by one-half. The point of the new Clause is the importance of scientific research expenditure and the question is whether this ought to be recognised and such expenditure fostered by a tax concession at this stage.

In comparison with what is happening in other countries, production in this country has been moving forward remarkably slowly, or, as is the case at present, staying put, and we are losing ground in the international production race, if it can be so called. There is a general feeling in the country, I think, that the application of modern discoveries is neglected at present. It is not that the discoveries are not made, but that there is a continuing gap between research work and its application.

7.30 p.m.

The object of an allowance of this sort, or of an increase in it, is to induce private industry to take steps to apply research and to conduct research on its account. On that, and I am still talking about capital research, there are some interesting figures and conclusions. The first document to which I should like to refer is the Report of the Advisory Council on Scientific Policy for 1959– 60. That Report came out in October, 1960. There has been a more recent one, but this happens to contain the information that I want to mention.

The Advisory Council sought to compare the progress of research and the amount of the gross national product spent on it in this and some other country, and the only country which it was able to find and which it regarded as comparable was the United States. The figures are given on page 6 of the Report (Cmnd. 1167), and, without going into them in detail, they show that, roughly speaking, the percentage of the gross national product employed on research and development in this country and in the United States was not very different.

A slightly larger percentage was employed in the United States, but what is striking is that when we come to compare the percentage of the contribution by industry to that expenditure we find that the United States contributes a very considerably larger proportion. If we take it in terms of percentages, it is 28½ per cent. in this country and 36½ per cent. in the United States, a quite startling difference when one remembers that this is the only comparison that the Advisory Council has been able to make.

The same thing appears in other ways, too. In a later Report, one which came out fairly recently, in January, 1962, and which relates to the period 1960– 61, there is a certain amount on the same lines, always, I think— I hope I am summarising it fairly— pointing to the conclusion that, while there is some progress, the real difficulty is to get it over, so to put it, to private industry and to make private industry take its own share in the development that ought to be going on.

That is a very broad generalisation, and there is no doubt that it differs very considerably, not only between one industry and another, for in some industries a very great deal is done by the industry, even in a collective form or by large individual firms in it, while in other industries very little appears to be done. There is a similar difference, again, and this is particularly relevant to this new Clause, between the position of large firms which, by and large, are very much better about this sort of thing, and medium and small firms, which in many, if not in most, industries are not doing anything like as much as they should.

It may be said, of course, that that is all very well, but that is exactly what is to be expected. That may be, but it is also true that in the case of the one available comparison, that with the United States, the effort made by industry in this matter appears to be considerably larger, not merely in absolute terms but also in relation to the effort as a whole and to the gross national product. That being so, there seems to be a distinct case for fostering research and the application of research in industry.

I should like to take one instance. The Federation of British Industries, a short time ago, produced a report on industrial research in manufacturing industry which is a little older. It relates to the period 1959– 60, and it came out in December of last year. Again, without going into details, it came to the conclusion which I have just put— that there are very serious deficiencies, partly in some industries and partly in the case of medium and small firms rather than large firms in a good many industries. For the subject which we are discussing tonight, we need not go much further than that. It represents a great deal of careful sampling and a large number of answers to questions, and it shows clearly that the Federation itself is distinctly conscious that there is something lacking in the effort that is being made.

I suppose that the next question one has to put is this. That may be so, but is this the right way of fostering research in industry? I should be the first to acknowledge that, while on the whole I still regard the contributions made by the Government in this direction as insufficient, there has been a very considerable increase in recent years in the amounts which in one form or another the Government have contributed towards this end. For instance, that appears in the recent Report of the D.S.I.R., and that Report indicates a number of ways, many of them new ways, in which attempts are being made to foster the same thing— the development and the application of research in private industry.

It is rather interesting to see in that last Report that recently the Department held a conference. It mentions this conference particularly, and it occupies some space in the Report. It was held in April, 1961, and it was to discuss the gap between research results and their industrial application. I have inquired about the conference, and it apparently was of a confidential character, and the discussions and conclusions are not generally available. I could hardly quote them, even if I knew what they were, but the choice of subject is very significant and very relevant to what we are trying to urge upon the Government now— that there is a case for a special effort here.

I would simply say that it is no answer, when we are discussing a taxation question of this sort, to say that quite a lot is being done in other fields towards the same end. The question we have to consider today is whether an investment allowance which was fixed in 1954, and which, I believe, in this case, has not been altered since, is still sufficient, in view of the difficulties which have arisen since then— difficulties in increasing production, and it is generally recognised by all these bodies that they are rather difficult to quantify, difficulties in the application of research in aid of industry, and therefore in aid of production itself.

I have a feeling that we are slipping back in this respect particularly badly, and that the efforts which are being made in this country, though I recognise that these efforts are considerably greater than they were a little time ago, are still insufficient by comparison with other countries. I have quoted the one available comparison, and it would waste the time of the House if I tried to draw any others, but I believe that it is possible to make broadly similar comparisons with a number of countries in Western Europe; for instance, both France and Western Germany.

When we are considering the question of taxation in this field, we should remember that this investment allowance was fixed before the nature and size of this problem was fully apparent. It has become apparent. It is now recognised both by the scientists advising the Government and by such bodies as the Federation of British Industries, and I hope that it is recognised by the Government. In these circumstances it would be right to give this measure of fiscal encouragement.

If we are to be told that it will cost this or that much, my answer is simply that it may look like that on paper but we shall more than get it back in meeting the major difficulties of the country and in making a contribution not only towards increased production, but towards what I hope we all want at the end of it, that is, the application for the benefit of the ordinary man, his standard of living, his safety, his health and his general advancement, of the scientific discoveries which we know are being made in increasing numbers and which are of increasing importance in this changing world.

Photo of Sir Austen Albu Sir Austen Albu , Edmonton

I want, briefly, to support my hon. and learned Friend the Member for Kettering (Mr. Mitchison). Perhaps one of the most extraordinary things in recent years has been the movement of the Tory Party towards the recognition of the part the Government have to play in the development of industry and the encouragement of industrial change. Speeches are heard from the benches opposite, even from Ministers, advocating Government intervention to make industry more scientific, advocating Government financial support and, even in reply to a recent Question, advocating Government participation, if necessary, in private industry.

We all know the reason for this. It is because of the very substantially changed position of this country in the industrial world, a change which ought to have been recognised long ago and which was recognised by somebody rather remotely related to my hon. and learned Friend the Member for Kettering at the beginning of the century, but of which we have to be continually reminded almost every ten or fifteen years. The change which has been taking place in the position of the British economy and industry is not a new one. Now we are up against it in its full force. The only real hope for the economic future of this country is if we have an industry subject to continuous change to meet the changing economic and technological development in the world.

We frequently hear demands in this Chamber from both sides for a greater degree of investment. We on this side are very much in favour of an expanding economy and much greater industrial investment, but I have for long felt that we must not always assume that all investment is necessarily good investment. We on this side have always stood for a measure of direction or control of investment, and certainly a measure of selective incentives to investment. We have moved Amendments or new Clauses to Finance Bills year after year to encourage investment in particular fields.

7.45 p.m.

What this country mainly needs at present is investment in innovation. We have continually to be producing, as I have frequently said over the last ten years, goods which, on the whole, other countries cannot make. That is a gross exaggeration, I know, but it is roughly the way we have to go. Therefore, the Government should certainly employ every method they can to encourage industries in industrial innovation, both in products and in processes. This applies, first, in the technically advanced industries. We certainly want them, even though it may not appear at the moment to be particularly profitable, to develop methods and processes the profitability of which may be very far in the future.

It applies, secondly, to the traditional old craft industries which, if they are to continue to survive in the modern world, will have to change their methods from those of the craftsman to those of the scientist. It applies, thirdly, as was brought out in the Report of the F.B.I., to what I might call the intermediate industries, mostly the engineering industries. They sprang up out of the crafts, and I regret to say that some of them never got past the crafts.

This is to be seen in many branches of the engineering industry, particularly in mechanical engineering. We have already had a number of D.S.I.R. reports on, for instance, machine tools and ship- building. I believe that the D.S.I.R. is now studying textile machinery. There are several other branches of mechanical engineering which certainly remain, I regret to say, in the George Stephenson age.

I regret to say that the railways have remained there. If one wants to see what can happen when industries get them-selves bogged down in traditional methods, one only has to look at the railways. I am being quite impartial. Whether it is a nationalised industry or a private industry, the same thing can happen if it remains steeped in tradition.

One of the great advantages of encouraging research and development in industry is not only for the sake of the research itself. It is not only that it will encourage the development of new products and new processes. What it can also do— perhaps this is even more important in many branches of British industry— is to encourage, if it is properly developed, if the research and development are properly integrated, a scientific attitude in the industry itself.

Where there are good research and development departments which are not stuck away in a country house miles away so that the engineers and managers do not have any contact with them, and where there is close contact between the research and development departments and the management, there will be a scientific industry which is not only scientific in its products and processes, but also in things like market research, industrial relations, organisation, and so on.

This is badly needed in British industry. We need a far more professional attitude than we have at present in many branches of industry. This would be encouraged by the further encouragement of research and development departments. I come back, again being impartial, to the nationalised industries. If we compare the difference between the railways and what has been taking place, in recent years in the electricity industry, we can see what I mean. What- ever else Dr. Beeching may be doing, I hope that one thing he will do will be to bring some of this scientific attitude into the railway industry.

We must have close contact between the research and development people and those responsible for design, management and sales and everything else. If they are separate, and if the research and development people are looked upon as backroom boys not to be touched and who will not dirty their hands by coming into contact with those who are doing the immediately profitable side of the business— although I agree that research and development are profitable in the end— I do not think that the results will be very good. But the encouragement of research and development in industry, if properly done, is likely to make industry more scientific.

It is for that reason, as much for any other, that I support the Clause. As my hon. and learned Friend said, the Government have done a little more in recent years, forced by circumstances and also by Communism. I shall never forget how the Government woke up to the whole problem when their most distinguished figure got up one day on the Front Bench below the Gangway and pointed out what the Russians were doing. That set everybody going. There is nothing like the fear of what the Russians are doing to get Governments willing to spend a lot of money on science and on research and development. When the right hon. Member for Woodford (Sir W. Churchill) made that speech about what the Russians were doing, although some of us had been saying it for years, the Government acted as though somebody had stuck a pin into them. In particular, they got going in the field of technical education.

This is nothing to do with the Russians, the Americans or anybody else. It concerns what will happen to this country and whether it can keep its industry sufficiently ahead of the rest of the world to maintain a standard of living based not upon the sale of the products of semi-skilled workers, but upon the sale of the products of highly skilled technicians.

I do not know whether the Government are serious in this. They have not shown great signs of it yet, although some hon. Members on the Government back benches make very strong speeches. The right hon. Member for Birmingham, Hall Green (Mr. Aubrey Jones) is one such Member. I sometimes wonder why he is in the Conservative Party at all, because some of the speeches he makes show that he is a very enlightened man. Nevertheless, this attitude does not seem to have got to the Treasury Bench yet. This is not surprising, because there is hardly anybody in the Treasury who understands these things.

I know that the Financial Secretary, who is to reply, has some understanding of this problem. He has many craft industries in his own constituency. I hope that on this occasion we shall have a little more flexible reply. This is a problem of great importance. I hope that he can tell us something really helpful.

Photo of Mr James Ede Mr James Ede , South Shields

I thank my hon. and learned Friend the Member for Kettering (Mr. Mitchison) for the last few sentences of his speech, because they bring us back to the origin of the modern world, When Sir Francis Bacon defeated the school men in the universities and insisted on the discussion of real things in argument and their application to the daily lives of the people. That is the only real basis on which we can continue the kind of work which my hon. and learned Friend was advocating.

To regard this as a purely economic question which will enable a few manufacturers to make the sort of profits which they made in the latter part of the eighteenth century is to look at it in entirely the wrong way. This research should be directed at securing for the ordinary people the benefits of all the improvements which can be made in our methods of manufacture and at a wider utilisation of the skills of the community.

There has recently been on the Third Programme a series of talks by Mr. Christopher Hill, who is, apparently, a leading light in one of the major Oxford colleges, on the cause of the great intellectual movements of the seventeenth century which led to the Civil War in this country and to the establishment of a system of Government which had to pay attention to the needs of industry and of the advancing claims of craftsmen for recognition. There was a particularly interesting lecture in this series pointing out that Sir Walter Raleigh did not go to the mathematicians of the universities, such as they were in those days, but cal led on the navigators with whom he had been associated to build up the maritime life of the country.

Research is not an end in itself. It presents the opportunity for applying to the lives of ordinary people all the resources which science can provide to make Life more tolerable. Prior to the early seventeenth century education was devoted to the pessimism which came from a belief in the fall of man. The scientists who followed Bacon realised that man by himself could so improve his own surroundings that he could make something which had hope in it and which would enable people to realise that they had not been damned irretrievably by something Which was alleged to have happened in the Garden of Eden.

As my hon. and learned Friend the Member for Kettering put it, let us recognise that we have a greater opportunity today than ever before and that the new scientific urge in the universities should be used not merely for the working out of high falutin' theories, but for the application of discoveries to the lives of ordinary men and women.

One of the chief joys which I have in life is in recollecting what the universities used to say about Government money in the early years of this century and the way in which they now lap it up, turn round and ask for more. We live in a revolutionary age, and the best of it is that the school men are again being defeated by the practical needs of our age.

Photo of Mr Ellis Smith Mr Ellis Smith , Stoke-on-Trent South

I support strongly the new Clause. The large industrial establishment in which I served my time and spent a great deal of my life spent more on research prior to the last war than almost all British industry put together. I cannot thank enough the men in that large industrial establishment with whom I was associated for the encouragement which they gave me. It produced Sir John Cockroft and Dr. Alibone, who, in the early days, worked with Professor Rutherford and others at Manchester University and at the Manchester College of Technology. Men who manage large industrial establishments of that character, particularly in those difficult days, grow with experience and become big men. It is that type of man Which is now required to handle the affairs of this country if it is to hold its own in the new world, with its new alignment of forces.

I derive great satisfaction from that industrial background and I should like to make a few observations on the experience which I have derived from the privilege of working with those men. Because of business management of the most efficient character and because they embarked on large expenditure on research they were able to hold their own in keen competition throughout the world and to provide the Russians with the technical knowledge, drawings, and experience of management from which they derived a great income. This country benefited to the extent of thousands of pounds from the turbine factory in Leningrad, which is there to this day.

They have been engaged in the export trade since the end of the war to a very great extent, and, as a result, have made an enormous contribution to Britain's economy. There are great 'lessons to be learned from the few observations which I am making because, as sure as I am standing here, if British industry had a modern outlook of that character, and was prepared to embark on expenditure to enable it to carry out research of that description, it would be in a much stronger position than it is.

I hope that the Government will note what my right hon. and hon. Friends have said tonight. If they cannot accept the new Clause, or something similar to it, then I hope that what has been said will be considered and appropriate action taken on it as soon as possible.

I do not wish to carry what I have to say too far, because I should be inclined to be critical and to let a touch of the bitterness which is contained within me assert itself. I come from one of the largest industrial areas not only in this country, but in the world. We have benefited from research and were in the forefront of the development of synthetic fibres, As a result of capital being sunk in Japan and other countries, they are exporting large quantities of synthetic fibres, but, had this country taken advantage of industrial research in the early days to the extent that it could have done, its export trade would have benefited even more. We were almost the first in the field in the development of nylon, terylene and other synthetic fabrics. I am not making our claim too high, because I know that du Pont, in America, and other similar firms, were also early in the field. But a number of firms which I could mention were early in the field of large-scale research expenditure which is being carried out in their establishments.

8.0 p.m.

The great lesson to be learned from this short debate is that it is now time that the Government took the initiative in stimulating expenditure of this kind by giving an incentive and stimulating large industrialists to embark on more financial expenditure on research. I am the first to give credit where it is due. I admit that the Board of Trade and a number of other Government Departments and committees have already made a contribution towards getting industrialists to do more in this way.

I think, however, that the time has come when the Treasury Ministers and those associated with them, should take the initiative by holding large-scale conferences to stimulate more interest in research so that we can play an even bigger part in the life of our country. We must encourage research more than we have done in the past. What my hon. and 'learned friend has said is a step in the right direction, and I hope that it will receive the sympathetic consideration of the Financial Secretary.

Photo of Mr Reginald Sorensen Mr Reginald Sorensen , Leyton

I do not intend to intervene for more than a few moments, but I do so to support the appeals which have been made on this side. Quite obviously, the suggested substitution of "three-tenths" for "one-fifth" will not make all that difference. I think that it is more in the nature of a symbol that my hon. Friends have supported this new Clause. Their speeches and the Clause have a very distinct value.

I have been pleasantly surprised at the latitude of the debate that has prompted a very characteristic and valuable dissertation from my right hon. Friend the Member for South Shields (Mr. Ede) which has brought us into theology and history. All his speeches in this House are, of course, informative as well as inspiring. I think that he will agree that whatever may be the value of historical research and our heretical theological opinions the great need of the world today is scientific, not in the abstract and academic sense, but in the applied sense.

While this country stands pre-eminent in the number of scientific inventions, nevertheless it falls far below the highest mark when it comes to applying those inventions. It has lagged behind constantly, but we must not in any way despise the credit which is ours, and rightly so, for discovering far more than perhaps the Russians seem to recognise. But there is this gap between, on the one hand, invention, and, on the other, application.

I recall Dean Swift's famous aphorism to the effect that the man who could make two blades of grass grow where one did before deserved more of posterity than the whole race of politicians put together. That may be a reflection on all of us here, but at the time that he said that it must have had a very startling effect. Yet how true it is. Although by legislation in this House and another place we have ameliorated the lot of the poor and secured the better distribution of wealth, in the end the real need in the world and for our own country is ever greaterper capitaproduction. We have been able by scientific application not only to make two blades of grass grow where one grew before, but many scores of blades of grass to appear.

Over the past one hundred years we have revolutionised economic life. Until scientific developments were applied to our industrial and agricultural production it was true to say that broadly speaking the physical lot of man was more or less the same; that is to say, it was a struggle to produce enough to eat and in many communities it was impossible to provide for most more than bare subsistence. This is not so today. Today, in a large way, by the application of scientific knowledge, we can potentially solve the problem of production. I say "potentially", because I do not want to exaggerate.

Although the purport of this Clause is its symbolic value, we must fully acknowledge what has been done both publicly and privately. Many firms are increasingly devoting a larger proportion of their income to research of an applied nature. I am glad to know that in the universities this research is also proceeding and that some colleges of our universities are becoming more absorbed in this very important aspect of our social life. This is also the case in America, where sometimes they reach extremes. Instead of decrying or despising this activity, we should welcome it as dealing with this basic human problem of production.

There is no hope for mankind anywhere unless greater production can be achieved. Although there may have been great exploitation of backward people, the real cause of their poverty was lack of real wealth. It is, therefore, necessary that we should concentrate on applied research so that we can increase the volume of wealth made available, although not neglecting the other aspect of it— that is, to see that the greater volume is more equitably distributed.

I have very great pleasure in supporting the pleas that have been made and although I have very little experience of industry myself I can say with my right hon. Friend that these are days when the most moral thing to do is to see that production increases for the benefit of all mankind. If the new Clause is accepted it will cause very little expense to the Treasury, but at least it will be another means of upholding a symbol and recognising that in applied science lies one hope of mankind.

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

This has been an extremely interesting debate and a well-informed visitor to our proceedings on the Finance Bill would very likely think, if he came into the House at this moment, "They are discussing something both interesting and important". and he would be perfectly right.

The object of the Clause is to increase the investment allowance in respect of scientific research expenditure on the construction of buildings or works or on the provision of new plant and machinery by one-half, from 20 per cent. to 30 per cent. If I deal tonight, as I shall do for most of the time, with facts and details about our capital allowances, it is not because I have not profited from the extremely interesting speeches which we have heard on the general subject.

No one underrates the importance of scientific research, not only to our economy but to our national life in general. I think that I agree with nearly all that was said by the hon. Member for Edmonton (Mr. Albu), but I did not quite agree with him when he said that I should have some interest in this subject because I represent a number of workers in craft industries. I welcome the work of craft industries in Birmingham as much as anyone— some very fine silver work is carried on. I am aware of what Birmingham contributes to the balance of payments by the exploitation of new inventions. But I am bound to say that occasionally the outlook on craft industries has led to a slightly backward-looking attitude in British industry.

It is somewhat depressing but true to realise how much the development of new inventions in the industrial Midlands has so far owed to the inspiration of the needs of the defence programme. It is, for example, true that no aeroengine for a number of years was ever sold for work in civil aircraft which had not first been tried out in military aircraft. It is extremely important that we should realise the importance of scientific progress for its own sake and not just in connection with defence.

I agree with much of the speech of the right hon. Member for South Shields (Mr. Ede), but I am not at all sure that some modern school men in pursuit of truth and learning for its own sake may not sometimes, as they did in the sixteenth century and earlier, make a bigger contribution to technical efficiency than we realise.

Photo of Mr James Ede Mr James Ede , South Shields

So long as they repudiate Aristotle as the source of all scientific knowledge.

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

I agree. I said yesterday that I thought that the essentialist theory of definitions was one of the worst human errors, but the hon. Member for Cardiff, South-East (Mr. Callaghan) rebuked me, saying that my remarks suggested that I did not know the Clause we were discussing. I did not think that that was quite fair, although I saw the force of the point he made.

I come now to this new Clause, and I would remind the House that scientific research expenditure is already treated very favourably from the tax point of view. There are three allowances for capital expenditure on scientific research. First, there is the investment allowance of 20 per cent. Secondly, there is the first year allowance of 60 per cent. given at the same time as the investment allowance. Thirdly, there are four further allowances, given in each one of the next four years, of 10 per cent. of the total expenditure.

This means that 80 per cent. of capital expenditure on scientific research is allowed in the first year— that is to say, under our normal preceding year basis of assessment, the first year means the year after that in which the expenditure was actually incurred. On that definition, 80 per cent. is allowed in the first year and a further 40 per cent. is allowed equally over the next four years, so that the total of 120 per cent. is allowed over five years.

There is no question that the capital allowances for scientific research expenditure compare very favourable, quite rightly, with allowances given generally for capital expenditure on industrial buildings, or ordinary capital expenditure on industrial buildings, plant or machinery. In the case of industrial buildings, the first year allowance for scientific research expenditure is, as I have already explained, 80 per cent., but the first year allowance given for ordinary capital expenditure on industrial buildings is only 17 per cent., so that there is a big difference. That 17 per cent. is made up of an investment allowance of 10 per cent., an initial allowance of 5 per cent., and a first annual allowance of 2 per cent.

8.15 p.m.

With plant and machinery, again the first year allowance for scientific research expenditure is 80 per cent., but the first year allowance of ordinary capital expenditure is 42½ per cent. and there is an investment allowance of 20 per cent. plus an initial allowance of 10 per cent. and a first annual allowance that normally averages 12½ per cent.

I have been dealing with the first year so far. If one considers the next two years, then taking the investment allowance into account— it is really a sort of bonus— the whole of any scientific research expenditure, both on buildings and on plant, will have been allowed. In other words, the figure is 100 per cent. if we take the next two years as well as the initial year. That compares with 26 per cent. for other industrial buildings and about 60 per cent. for other plant and machinery.

If one considers the position after five years, by then 120 per cent of scientific research expenditure will be for buildings and 74½ per cent. for other plant and machinery. I make that point to show that scientific research expenditure on industrial buildings, plant and machinery is very favourably treated in our tax system.

The only thing that at first sight is treated more favourably is capital expenditure on ships. It is true— if I may draw the comparison which is sometimes made— that ships get an investment allowance of 140 per cent., but as against this the 120 per cent. allowed for scientific research expenditure is given over five years, whereas the 140 per cent. for ships is given over 20 years.

Because this is, quite rightly, a subject which is in the minds of a good many people outside and inside this House, I have looked up the position in other O.E.C.D. countries, in order to see how our practices compare. It is true that a few countries allow some capital expenditures on scientific research to count as a trading expenditure, but the ultimate tax treatment, even in those countries, is less favourable than our own. Furthermore, in all these countries, with the possible exception of Norway, a fairly narrow view is taken of the expenditure which qualifies.

I hope that I shall not have to apologise for what I am about to say, but in Canada, where, I would have thought, expenditure of this kind is fully as important as it is to us, it is only expenditure on what is described as "draft research programmes" which qualify, and in Germany only expenditure on what is defined as "fundamental research." In the United States, capital expenditure may be deducted at once as a trading expense provided that the asset has no determinable useful life. I am bound to say that I think that that, from the administrative point of view, is not an easy system to work.

When scientific research expenditure is not allowed as a trading expense, a few countries, including Italy and the Benelux States, do grant investment allowances but the scope or availability of these allowances is considerably limited compared with our own, and in none of these cases is the first year treatment as favourable as in Britain.

Incidentally, Britain is the only O.E.C.D. country, apart from Germany, which writes off scientific research expenditure at specially accelerated rates. In Germany, there is a four year spread, but there are no investment or initial allowances there, so that the British system is more generous than the German system in the first year.

I have deliberately gone at length into this because it is important. My right hon. and learned Friend has considered this matter very carefully, but he does not think that he would be justified in asking the House to accept this Clause, for three reasons. The first is a reason which I have already implied— that the investment allowance for scientific research expenditure, taken with the special first year allowance and the annual allowance, already provides a very substantial inducement to expenditure on research buildings, plant and machinery. We treat this kind of capital expenditure more favourable in the short term than we treat expenditure on any other class of capital asset.

Secondly— and this is really the point made by the hon. Member for Leyton (Mr. Sorensen), whom I am sure we all warmly welcome to this debate, and it is a fair one— it is doubtful whether a special investment allowance of 30 per cent. compared with 20 per cent., which would mean simply that 90 per cent. of the expenditure rather than 80 per cent. was allowed in the first year, and 130 per cent. rather than 120 per cent. over five years, would really have any significant influence in inducing investment beyond what would in any case have been undertaken. I know that that is the view of my noble Friend the Minister for Science, whom we have naturally consulted.

Photo of Mr Reginald Sorensen Mr Reginald Sorensen , Leyton

What would it cost if the Amendment were accepted?

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

The cost would be £ 1½ million in a full year. I am not tonight arguing my case on grounds of cost, though, as one inevitably must, I find myself a little doubtful whether we could stop here; whether there might not be some increased pressure to increase this allowance in other spheres.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

If an extra 10 per cent, costs£1½ million, the total amount of this allowance would appear to be £ 15 million a year. Has it been increasing or decreasing in recent years?

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

I cannot offhand give the hon. and learned Gentleman the figure, but it certainly has been increasing. I propose to give some more figures about expenditure which I think will show that that must be so since the allowance came in in 1954 because, as hon. Gentlemen opposite have rightly said, this allowance was not suspended when the initial investment allowance in general was suspended in 1956. This allowance is costing more than it did when it was first brought in.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

I asked about the position in recent years.

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

I do not believe that the figures are available. I am coming to the survey which is now being made.

The third point that we have to remember is that, apart from the tax treatment of scientific research expenditure, the Government have tried to stimulate scientific research in industry by a number of means. I agree with hon. Gentlemen opposite. I think that there has been some change in the climate, and I very much welcome this. I forgot who first stated the doctrine, but it may have been Keynes who said that the proper job of Government was not to try to do those things which are already being done and to try to do them better, but to do those important things that otherwise do not get done at all.

There are two examples which I propose to give, and others could be quoted. The Government have encouraged the growth of the research association system. Over 50 co-operative research associations now belong to the Government scheme, with a combined expenditure of £ 8½ million last year compared with less than £ 5 million in 1955– 56. Again, the Government have encouraged firms to use the unique facilities of the D.S.I.R. stations. The hon. Member for Stoke-on-Trent, South (Mr. Ellis Smith) rightly mentioned the D.S.I.R. We have encouraged firms to use its facilities either by co-operating with the stations and sharing the cost, or by having work done by the stations at their expense.

We certainly should not rest content with the present level of scientific research and development in industry at a time of growing international competition and rapid technological change, but I think it is worth remembering that between 1955 and 1958 private industry in the United Kingdom doubled its expenditure on research and development financed from its own resources. The figures are, respectively, £ 68 million in 1955 and £ 136 million in 1958. An inquiry is now going on into the figures for 1961. The figures for 1958 are the latest available.

As I said, my right hon. and learned Friend, taking into account what is already being done to encourage capital expendiure on scientific research, feels that he could not advise the House to accept the new Clause, and, for the reasons which I have given, I doubt whether it would prove so effective in its operation as one might at first sight suppose. I doubt whether it would in fact make very much difference, but I give the House this assurance. The Government, rightly pressed from both sides of the House, clearly see the importance of capital expenditure on scientific research, and as and when we come to look again at the whole system of capital allowances in this country— and this is part of a very important field— we shall bear very specially in mind this kind of capital expenditure, and I think the very fact that this investment allowance has never been suspended is a sign of the importance which the Government attach to the subject which has rightly attracted the attention of the House this evening.

8.30 p.m.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

If I may with the leave of the House speak again, I would say the hon. Gentleman the Financial Secretary has made an excellent case for increasing the demand which we are making, and in these circumstances I feel sure that he will support us when we go into the Lobby to urge it on the Government.

Question put,That the Clause be read a Second time:—

The House proceeded to a Division

Photo of Dr Dickson Mabon Dr Dickson Mabon , Greenock

(seated and covered): On a point of order. I would point out, Mr. Deputy-Speaker, that at least seven hon. Members, including myself, have been trying with great difficulty to get through the doors into the Chamber. We have been trying to get through the milling throng in order to vote in the Lobby. Surely there is something wrong when hon. Members are impeded by the outflux of other hon. Members. Should not access to the Lobby be easier for hon. Members who wish to vote?

Photo of Dr Dickson Mabon Dr Dickson Mabon , Greenock

Might I point out, with respect, that I am in no way blaming you, Mr. Deputy-Speaker? I am pointing out that at least seven hon. Members were obstructed from getting through the doors. The order to lock the doors should have been given when it was clear that all hon. Members wishing to enter the Chamber had been able to do so.

Photo of Mr Robert Grimston Mr Robert Grimston , Westbury

The order to lock the doors was given after six minutes.

Photo of Dr Dickson Mabon Dr Dickson Mabon , Greenock

Yes, Mr. Deputy-Speaker, but surely something should be done to ensure the access of hon. Members into the Chamber, otherwise hon. Members may be deprived of the ability to vote. Several of my hon. Friends and I were in Committee upstairs and could not get here in time.

Photo of Mr Robert Grimston Mr Robert Grimston , Westbury

I cannot help the hon. Member. I have explained the rule; that in six minutes the doors are locked.

Photo of Dr Dickson Mabon Dr Dickson Mabon , Greenock

What about the free access of hon. Members into the Chamber? Something must be done to ensure their free access. As I have said, seven hon. Members who legitimately tried to get in could not do so in time.

Photo of Mr Robert Grimston Mr Robert Grimston , Westbury

Was the hon. Member impeded from getting into the Division Lobby?

Photo of Dr Dickson Mabon Dr Dickson Mabon , Greenock

Seven hon. Members— and I will testify to having been one of them— were impeded, not maliciously, but by the pressure of the throng. We were impeded from getting into the Chamber in time. I am raising this point in the hope that this sort of thing will not occur again, otherwise hon. Members will not be able properly to discharge their Parliamentary duty.

Photo of Mr Robert Grimston Mr Robert Grimston , Westbury

In view of what the hon. Gentleman tells me, I will call the Division again.

Photo of Mr James Callaghan Mr James Callaghan Shadow Chancellor of the Exchequer, Member, Labour Party National Executive Committee

Further to the point of Order, Mr. Deputy-Speaker. After you have called the Division again, will you have inquiries made to ascertain why there was such a crush at the entrance to the Chamber? Some of us got into the Division Lobby only by using physical force. I have never known such a crush, and I wondered why it was. I shall be grateful if inquiries can be made.

Photo of Mr Robert Grimston Mr Robert Grimston , Westbury

I will cause inquiries to be made.

Question put,"That the Clause be read a Second time:—

The House divided:Ayes 175, Noes 237.

Division No. 233.]AYES[8.37 p.m.
Abse, LeoBowen, Roderic (Cardigan)Collick, Percy
Ainsley, WiliamBoyden, damesCraddock, George (Bradford, S.)
Allaun, Frank (Salford, E.)Braddock, Mrs. E. M.Cronin, John
Allen, Scholefield (Crewe)Bray, J. W.Cullen, Mrs. Alice
Awbery, StanBrockway, A. FennerDalyell, T.
Bacon, Miss AliceBroughton, Dr. A. D. DDavies, G. Elfed (Rhondda, E.)
Baxter, William (Stirlingshire, W.)Brown, Rt. Hon. George (Belper)Deer, George
Bence, CyrilBrown, Thomas (Ince)Delargy, Hugh
Bennett, a. (Glasgow, Bridgeton)Butler, Herbert (Hackney, C.)Dempsey, James
Blackburn, F.Butler, Mrs. Joyce (Wood Green)Diamond, John
Blyton, WilliamCallaghan, JamesDodds, Norman
Boardman, H.Chapman, DonaldDonnelly, Desmond
Bowden, Rt. Hn. H. W. (Leics. S.W.)Cliffe, MichaelDugdale, Rt. Hon. John
Ede, Rt. Hon. C.Jones, Jack (Rotherham)Pursey, Cmdr. Harry
Edeiman, MauriceJones, J. Idwal (Wrexham)Randall, Harry
Edwards, Rt. Hon. New (Caerphilly)Kelley, RichardRankin, John
Edwards, Robert (Bilston)Key, Rt. Hon. C. W.Rhodes, H.
Fernyhough, E.Lawson, GeorgeRoberts, Albert (Normanton)
Fitch, AlanLedger, RonRobertson, John (Paisley)
Fletcher, EricLee, Frederick (Newton)Rodgers, W. T. (Stockton)
Foot, Michael (Ebbw vale)Lever, L. M. (Ardwick)Rogers, G. H. R. (Kensington, N.)
Forman, j. C.Lewis, Arthur (West Ham, N.)Ross, William
Fraser, Thomas (Hamilton)Lipton, MarcusRoyle, Charles (Salford, West)
Galpern, Sir MyerLoughlin, CharlesShort, Edward
Ginsburg, DavidLubbock, EricSilverman, Julius (Aston)
Gordon Walker, Rt. Hon. P. C.Mabon, Dr. J. DicksonSilverman, Sydney (Nelson)
Greenwood, AnthonyMcCann, JohnSherrington, Arthur
Grey, CharlesMacColl, JamesSlater, Mrs. Harriet (Stoke, N.)
Griffiths, David (Rother Valley)Mclnnes, JamesSlater, Joseph (Sedgefieici)
Griffiths, Rt. Hon. James (Llanelly)McLeavy, FrankSmall, William
Griffiths, W. (Exchange)MacMillan, Malcolm (Western Isles)Smith, Ellis (Stoke, S.)
Hale, Leslie (Oldham, W.)MacPherson, Malcolm (Stirling)Sorensen, R. W.
Hall, Rt. Hn. Glenvil (Colne Valley)Mallalieu, J. P. W.(Huddersfield, E.)Spriggs, Leslie
Hamilton, William (West Fife)Manuel, ArchieStewart, Michael (Fulham)
Hannan, WilliamMapp, CharlesStones, William
Harper, JosephMason, RoyStrachey, Rt. Hon. John
Hart, Mrs. JudithMayhew, ChristopherStrose, Dr. Barnett (Stoke-on-Trent,C.)
Hayman, F. H.Mendelson, J. J.Swingler, Stephen
Henderson,Rt.Hn.Arthur(Rwly Regis)Millan, BruceTaverne, D.
Herbison, Miss MargaretMilne, EdwardTaylor, Bernard (Mansfield)
Hilton, A. V.Mitchison, G. R.Thompson, Dr. Alan (Dunfermline)
Holman, PercyMonslow, WalterTimmons, John
Hooson, H. E.Moody, A. S.Tomney, Frank
Houghton, DouglasMorris, JohnWarbey, William
Howell, Charles A. (Perry Barr)Moyle, ArthurWatkins, Tudor
Howell, Denis (Small Heath)Mulley, FrederickWeitzman, David
Hoy, James H.Neal, HaroldWells, William (Walsall, N.)
Hughes, Emrys (S. Ayrshire)Noel-Baker, Rt.Hn. Philip(Derby,S.)Wilkins, W. A.
Hunter, A. E.Oliver, G. H.Willey, Frederick
Hynd, H. (Accrington)Owen, WillWilliams, D. J. (Neath)
Irvine, A. J. (Edge Hill)Padley, W. E.Williams, LI (Abertillery)
Irving, Sydney (Dartford)Pannell, Charles (Leeds, W.)Williams, W. R. (Openshaw)
Janner, Sir BarnettPargiter, G. A.Willis, E. G. (Edinburgh, E.)
Jay, Rt. Hon. DouglasPavitt, LaurenceWinterbottom, R. E.
Jeger, GeorgePearson, Arthur (Pontypridd)Woof, Robert
Jenkins, Roy (Stechtord)Pentland, NormanWyatt, Woodrow
Johnson, Carol (Lewisham, S.)Popplewell, Ernest
Jones, Dan (Burnley)Prentice, R. E.TELLERS FOR THE AYES:
Jones, Elwyn (West Ham, S.)Price, J. T. (Westhoughton)Mr. Redhead and Mr. Ifor Davies.
Agnew, Sir PeterChataway, ChristopherGlover, Sir Douglas
Allason, JamesChichester-Clark, R.Glyn, Dr. Alan (Clapham)
Atkins, HumphreyClark, William (Nottingham, S.)Gower, Raymond
Balniel, LordCleaver, LeonardGreen, Alan
Barber, AnthonyCole, NormanGrosvenor, Lt.-Col. R. G.
Barlow, Sir JohnCollard, RichardCurden, Harold
Batsford, BrianCooke, RobertHall, John (Wycombe)
Baxter, Sir Beverley (Southgate)Cooper, A. E.Hamilton, Michael (Wellingborough)
Bell, RonaldCordeaux, Lt.-Col. J. K.Harris, Reader (Heston)
Bennett, F. M. (Torquay)Costain, A. P.Harrison, Col. Sir Harwood (Eye)
Bennett, Dr. Reginald (Goe A Fhm)Coulson, MichaelHarvey, John (Walthamstow, E.)
Berkeley, HumphryCraddock, Sir BeresfordHarvie Anderson, Miss
Bevins, Rt. Hon. ReginaldCrawley, A. M.Hastings, Stephen
Bidgood, John C.Critchley, JulianHay, John
Biffen, JohnCunningham, KnoxHeald, Rt. Hon. Sir Lionel
Birch, Rt. Hon. NigelCurrie, G. B. H.Henderson, John (Cathcart)
Bishop, F. P.Dance, JamesHendry, Forbes
Black, Sir Cyrild'Avigdor-Goldsmld, Sir HenryHicks Beach, Maj. W.
Bourne-Arton, A.Deedes, W. F.Hlley, Joseph
Box, Donaldde Ferranti, BasilHill, Mrs. Eveline (Wythenshawe)
Boyd-Carpenter, Rt. Hon. JohnDonaldson, cmdr. C. E. M.Hill, J. E. B. (S. Norfolk)
Boyle, Sir EdwardDoughty, CharlesHirst, Geoffrey
Brawis, JohnDuncan, Sir JamesHooson, Sir John
Brooke, Rt. Hon. HenryElliot, Capt. Walter (Carshalton)Hocking, Philip N.
Brown, Alan (Tottenham)Emery, PeterHolland, Philip
Browne, Percy (Torrington)Errington, Sir EricHornby, R. P.
Bryan, PaulFarey-Jones, F. W.Hornsby-Smlth, Rt. Hon. Dame P.
Buck, AntonyFarr, JohnHoward, Hon. C. R. (St. Ives)
Bullard, DenysFinlay, GraemeHoward, John (Southampton, Test)
Bull us, Wing Commander EricFisher, NigelHughes-Young, Michael
Burden, F. A.Galbraith, Hon. T. G. D.Hulbert, Sir Norman
Butcher, Sir HerbertGammans, LadyIremonger, T. L.
Campbell, Gordon (Moray & Nairn)Gardner, EdwardIrvine, Bryant Godman (Rye)
Carr, Compton (Barons Court)Gibson-Watt, DavidJames, David
Carr, Rnbert (Mitcham)Grlmour, Sir JohnJohnson, Dr. Ronald (Carlisle)
Johnson, Eric (Buckley)Morgan, WilliamStodart, J. A.
Johnson Smith, GeoffreyMott-Radclyffe, Sir CharlesStoddart-Scott, Col. Sir Malcolm
Jones, Rt. Hn. Aubrey (Hall Green)Nabarro, GeraldStorey, Sir Samuel
Joseph, Sir KeithNeave, AireyStudholme, Sir Henry
Kerans, Cdr. J. S.Nicholls, Sir HarmarTalbot, John E.
Kerby, Capt. HenryNicholson, Sir GodfreyTapsell, Peter
Kershaw, AnthonyNugent, Rt. Hon. Sir RichardTaylor, Sir Charles (Eastbourne)
Kimball, MarcusOakshott, Sir HendrieTaylor, Edwin (Bolton, E.)
Kirk, PeterOrr, Capt. L. P. S.Taylor, Frank (M'ch'st'r, Moss Side)
Lagden, GodfreyOsborn, John (Hallam)Taylor, W. J. (Bradford, N.)
Langford-Holt, Sir JohnPage, John (Harrow, West)Teeling, Sir William
Leather, Sir EdwinPage, Graham (Crosby)Temple, John M.
Legge-Bourke, Sir HarryPannell, Norman (Kirkdale)Thomas, Leslie (Canterbury)
Lewis, Kenneth (Rutland)Pearson, Frank (Clitheroe)Thomas, Peter (Conway)
Lilley, F. J. P.Percival, IanThompson, Kenneth (Walton)
Linstead, Sir HughPeyton, JohnThompson, Richard (Croydon, S.)
Pickthom, Sir KennethTiley, Arthur (Bradford, W.)
Litchfield, Capt, JohnPike, Miss MervynTouche, Rt. Hon. Sir Gordon
Lloyd, Rt. Hon. selwyn (Wirral)Pitman, Sir JamesTurner, Colin
Longbottom, CharlesPitt, Miss EdithTurton, Rt. Hon. R. H.
Longden, GilbertPott, PercivallTweedsmuir, Lady
Loveys, Walter H.Price, David (Eastleigh)van Straubenzee, W. R.
Lucas, Sir JocelynPrior, J. M. L.Vaughan-Morgan, Rt. Hon. Sir John
Lucas-Tooth, Sir HughProfumo, Rt. Hon. JohnVickers, Miss Joan
McAdden, Sir StephenProudfoot, WilfredWakefield, Sir Wavell
McLaren, MartinPym, FrancisWalder, David
Maclean,Sir Fitzroy (Bute& N. Ayrs.)Ramsden, JamesWalker, Peter
MacLeod, John (Ross & Cromarty)Redmayne, Rt. Hon. MartinWalker-Smith, Rt. Hon. Sir Derek
McMaster, Stanley R.Rees, HughWall, Patrick
Macpherson, Niall (Dumfries)Ridley, Hon. NicholasWard, Dame Irene
Maddan, MartinRoberts, Sir Peter (Heeley)Webster, David
Maginnis, John E.Robinson, Rt. Hn. Sir R. (B'pool, S.)Wells, John (Maidstone)
Maltland, Sir JohnRodgers, John (Sevenoaks)Whitelaw, William
Manningham-Buller, Rt. Hn. Sir R.Roots, WilliiamWilliams, Dudley (Eieter)
Markham, Major Sir FrankRopner, Col. Sir LeonardWilliams, Paul (Sunderland, S.)
Marlowe, AnthonyRussell, RonaldWills, Sir Gerald (Bridgwater)
Marshall, DouglasSt. Clair, M.Wilson, Geoffrey, (Truro)
Marten, NeilSharpies, RichardWise, A. R.
Matthews, Gordon (Merlden)Shaw, M.Wolrige-Gordon, Patrick
Mawby, RayShepherd, WilliamWood, Rt. Hon. Richard
Maxwell Hyslop, R. J.Skeet, T. H. H.Woodnutt, Mark
Maydon, Lt.-Cmdr. S. L. C.Smith, Dudley (Br'ntf'd & Chiswick)Woollam, John
Mills, StrattonSmithers, Peter
Miscampbell, NormanSpearman, Sir AlexanderTELLERS FOR THE NOES:
Montgomery, FergusStanley, Hon. RichardMr. Noble and Mr. Ian Eraser.
More, Jasper (Ludlow)Stevens, Geoffrey


Where any shares falling to be valued in accordance with section fifty-five of the Finance Act, 1940, or in accordance with section thirty of the Finance Act, 1954, are sold within six years after the death by persons accountable far the duty payable on the death, then for the purposes of estate duty the value so determined shall be reduced by an appropriate proportion of any liability to income tax or surtax which may be assessed under section twenty-two of the Finance Act, 1960:

Provided that no person shall by virtue of this section be liable to pay more tax than he would have been liable to pay if this section had not been enacted.

For the purposes of this clause the appropriate proportion of the tax liability shall be an amount which is equivalent to the amount of income tax and surtax which would have been assessed had the said shares been sold alt a price equal to the value determined for Estate Duty purposes.— [Sir J. Barlow.]

Brought up, and read the First time.

8.45 p.m.

Photo of Sir John Barlow Sir John Barlow , Middleton and Prestwich

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

I move this new Clause in the absence of my hon. Friend the Member for Dover (Mr. Arbuthnot), owing to his being a Church Estates Commissioner. It seeks to relieve hardship which undoubtedly can exist in a certain combination of circumstances.

Under Section 55 of the Finance Act, 1940, and Section 22 of the Finance Act, 1960, for example, if a person dies owning 99 per cent. of the share capital of a company the value of those shares for Estate Duty purposes would, under Section 55 of the Finance Act, 1940, be based on the value of the assets at the time of death.

If the activities of that company by chance consisted of the erection of a building and the shares were sold after death but within six years of the completion of the building, then, under Section 22 of the Finance Act, 1960, the company would be treated as carrying on a trade with the building as stock. This, in effect, would give rise to a liability to tax on the profit arising out of the sale of the shares of the company.

As this liability arises after the death, as a direct result of actions taken after death, it is not, as the law stands at the moment, deemed to be a liability at the date of death. Consequently, it is possible in these circumstances for the estate to attract Estate Duty, Income Tax, and, possibly, Surtax as well, which, in certain circumstances, could mean taxing at the rate of over 100 per cent.

In my opinion, these circumstances are not what the Chancellor meant. It is possibly an oversight, and I bring this to his attention, and I hope that he will look kindly on this new Clause, which will put right an injustice which is likely to arise.

Photo of Mr Anthony Barber Mr Anthony Barber , Doncaster

My hon. Friend the Member for Dover (Mr. Arbuthnot) is nothing if not persistent. He first raised this point in correspondence with my hon. Friend the Financial Secretary last year, and he then, also in 1961, put down a new Clause which, unfortunately, was not called. Since then he has written to me, and we have discussed the matter together. Now he has arranged for my hon. Friend the Member for Middleton and Prestwich (Sir J. Barlow) to move this new Clause.

The purpose of the Clause, as my hon. Friend has pointed out, is to limit a possible double liability to tax, that is to say, to Estate Duty on the one hand, and Income Tax and Surtax, on the other, on shares in one-man companies which fall within Section 22 of the Finance Act, 1960, the Section which my hon. Friend explained.

Briefly, the situation with which the Clause is concerned arises in this way. Where a controlling shareholding in a one-man company passes on a death, the shares are valued for Estate Duty purposes under the Section which my hon. Friend mentioned, Section 55 of the Finance Act, 1940, which involves valuation of assets, or under Section 30 of the Finance Act, 1954, on the sale price of those shares if they are sold within three years of the death. But if the company is one of the kind dealt with in Section 22 of the Finance Act, 1960, the sale of the deceased's shares in the company, which may be necessary to find the funds with which to pay the Estate Duty, may attract liability to Income Tax and Surtax under Section 22. No deduction for the potential liability under Section 22 will be made in valuing the shares for Estate Duty, nor will a deduction for Estate Duty liability be made in arriving at the tax liability under Section 22 on the sale of the shares.

The solution which is proposed in the Clause is not quite satisfactory in certain respects, but there is a case for giving relief where a double charge to Estate Duty, on the one hand, and Income Tax and Surtax, on the other, arises in these circumstances. The cases in which this happens are likely to be very few, and the somewhat hypothetical case which my hon. Friend gave is unlikely to arise in practice. Nevertheless, the point which he has brought to our attention is obviously one with which we ought to deal, and we will introduce relieving legislation in due course. It cannot be in this Bill and it may take a rather different form from that proposed in the Clause.

I give the assurance that until legislation is introduced we shall by concessions meet any cases where a sale of shares by executors creates liability under Section 22, provided that the same person or persons bear the incidence of both the Income Tax and the Estate Duty; the Inland Revenue will in such cases repay an appropriate amount of the Estate Duty. I am sure that, in view of my explanation, the House will agree that it is only right that we should act in this way, and I hope that with that assurance my hon. Friend will not press the Motion.

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

Would the Economic Secretary make a little clearer what he is doing? I agree that as the case was put, somewhat briefly and inevitably somewhat technically, it soundedprima faciethat some case had been made out for some sort of adjustment of the charge. But will he explain exactly how the liability for Income Tax and Surtax arises? It is clear how the Estate Duty liability arises in the ordinary way, but what is the profit on which the Income Tax and Surtax have to be paid which gives this appearance of double taxation? Is it a capital profit on the sale of the shares? If so, it could be described as an exceptional form of double taxation. Or is it, in some cases, the current profits of the company? I am not clear why we have to have exceptional relief.

Photo of Mr Anthony Barber Mr Anthony Barber , Doncaster

The tax arises in this way, as far as my recollection goes— although I have not immediately to hand a copy of Section 22 of the 1960 Act: the right hon. Gentleman will recollect, as I do, that the Section was passed to deal with the type of tax avoidance which occurred where arrangements were made under which a person wishing to acquire the product of the company bought the shares in the company and thus obtained the use of the product through his control of the company instead of buying the product of the company direct in the ordinary way.

The effect of these arrangements was that the shareholders in the trading company transmuted what would have been a taxable profit in the hands of the company, if its property had been sold in the normal way, into a nontaxable gain in their hands. In general terms that answers the question.

Without this section it would have been a capital gain not liable to either Income Tax or Surtax. It was to stop up that loophole that this Section was passed, and to make it notionally at any rate, a taxable profit. Unfortunately, the point to which my hon. Friend the Member for Dover first drew our attention was overlooked.

I would add, in fairness to those who drew up this legislation, that as far as I know no single case of the actual double liability has yet arisen, although it is conceivable that it could do so in the future. For this reason I hope that the House will take the view that we might well deal with the matter by concession for the time being.

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

That is to say, we are concerned with capital profits which, but for this exceptional reason, would not have been liable to Income Tax or Surtax.

Photo of Mr Anthony Barber Mr Anthony Barber , Doncaster

We are dealing with capital profit which, by virtue of Section 22 of the 1960 Act, is made liable to Income Tax or Surtax. I am not sure whether this is by treating it as capital profit or deeming it to be income.

Photo of Sir John Barlow Sir John Barlow , Middleton and Prestwich

In view of the assurance give by my hon. Friend, I beg to ask leave to withdraw the Motion.

Motion, and Clause, by leave, withdrawn.


In relation to income tax on retirement pensions under the National Insurance Acts, 1946 to 1961 (including graduated retirement benefit and equivalent pensions benefit under the National Insurance Act, 1959), section forty-seven of the Income Tax Act, 1952 (time limit for assessments, additional assessments and surcharges), and section fifty-one of the Finance Act, 1960 (time limit for recovery from taxpayer of tax lost through his fault), shall have effect with the substitution of references to two years for references to six years.— [Mr. Houghton.]

Brought up, and read the First time.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

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

The Clause seeks to reduce from six years to two years the limit of time that the Inland Revenue may go back to collect under-assessed tax on retirement pensions payable under the National Insurance Acts. At present the Inland Revenue can go back six years to collect any tax which may have been under-assessed or under-paid in cases where arrear of tax is caused by non-assessment of retirement pension or any other circumstances which have led to underassessment of tax.

The Clause proposes to limit that period to two years where the tax is related to a retirement pension received under the National Insurance Scheme. I, and probably other hon. Members, have received complaints from time to time from retirement pensioners that they have had a demand for under-paid or under-assessed tax on their pensions. In some cases the demand has come to several pounds on pensions paid in previous years. I have had cases where under-assessment related to as far back as 1957, 1958 or 1959.

I have had correspondence with the Chief Inspector of Taxes about some of these cases because I have been concerned that they should arise and cause considerable financial embarrassment and annoyance to taxpayers who believed that they had discharged their tax to date and who have been very upset to find that they are in debt to the Inland Revenue. I have received from the Chief Inspector very courteous and full explanations of the circumstances of the cases about which I had written to him. I am not going to quote those cases because I have received full explanations and I have no desire to base my case on any of them. What I do is to take an actual case where things up to now have gone right, but which may still go wrong.

9.0 p.m.

Take the ease of a constituent of mine, a widow who reached the age of 60 five years ago and postponed her retirement for five years in order to earn increments on her pension. In April this year she reached the age of 65 and was thereupon entitled to her full retirement pension. Having reached the age of 65, she is no longer under the earnings rule and can therefore draw her pension in full and earn such wages as she can get. That means that as from a date in April that woman, who is still working, was able to draw retirement pension of £3 16s. a week, roughly £197 a year extra money.

Clearly, since retirement pensions are taxable, this will add to her Income Tax liability. I received a very sharp protest from the woman concerned that the retirement pension should be taxable at all. Many people feel that way, but it is taxable in common with all other vocational pensions. In this case there is a liability on an extra income from the retirement pension of £197 a year. The Inland Revenue would be perfectly entitled to say to that woman, "You are now receiving £197 a year extra. We propose to levy tax on that at the end of the year when you have received the money and to ask you for the tax in a single payment." It would impose hardship in many cases to ask for a lump sum of tax at the end of the year. So, to ease the payments of the additional tax in cases of this kind, the Inland Revenue uses a special system to show consideration to the taxpayer. It sets off reliefs against the amount of the retirement pension and concentrates the tax payable on her wages under Pay-as-you-earn. In such cases there is already a small arrear of tax on the retirement pension received in the period intervening between April and June when the tax adjustment was made. In order to ease even the payment of a small lump sum there is a special spread over of the tax on future earnings under Pay-as-you-earn. There is a special form, called P.83, which explains, as best the Inland Revenue can explain anything to the taxpayer, just what has happened.

Everything in this case has gone absolutely according to the book and is showing the taxpayer as much consideration as is possible by spreading the tax on the pension forward over the earnings that this woman will receive Where it may go wrong, and where in other cases matters have gone wrong, is if this woman gives up work in the near future before she has discharged all her obligations on the pension already received and by giving up work interrupts the sequence of Pay-as-you-earn deductions by which the tax on the pension would be collected.

If this woman gives up work she will have no wages from which tax can be deducted to take account of her liability on the pension or to recoup the revenue for the under-payment of tax on the small amount of pension already received,. Sometimes there is delay in informing the Inland Revenue that a per. son in such circumstances has given up work. The Inland Revenue allows things to go on in blissful ignorance of the fact that the person has given up work and tax which the office thought was being collected has ceased to be collected under Pay-as-you-earn. In other cases—we have to admit this frankly—there is some mischance in the tax office—pressure of work or other circumstance—as a result of which, although information is received, there is delay in dealing with the consequences.

Where a woman such as the one 1 have spoken of gives up work and has no further earnings but still remains liable to some amount of tax, as may be the case on a pension of £197 a year, possibly with income from some savings as well, the Inland Revenue has to ask the taxpayer for a lump sum payment of the tax due because she no longer has any earnings or income from which periodical deductions may be made under P. A. Y. E. She is, therefore, in the position of any taxpayer who is liable to pay tax in that way, and she has to pay over a lump sum to the collector.

The House will understand that it is very upsetting for people in such circumstances, believing that they have discharged their tax liability and not understanding all the jargon of this subject, to find months, or even in some cases years, after they have given up work and adjusted themselves to a modest life on a retirement pension that they have to pay £4, £5, £10, or even £23 as in a case I have seen. They ask, "However, has this come about? Why is there a demand for tax going back all this time?"

By the new Clause, we seek to limit the period over which the Inland Revenue may go back to two years so that exceptional hardship may be avoided whenever, from whatever cause, the Inland Revenue has not caught up with the recalculation of tax by the end of two years. We think that two years is long enough to go back in asking a retirement pensioner who thought he or she had discharged the tax liability to pay tax out of the slender enough resources which such a person may have, on the National Insurance pension in many cases, even to pay anything.

I give credit to the Inland Revenue that, in some of these cases, when a taxpayer is obviously of very slender resources indeed, the tax underpaid has been written off on the grounds of hardship. But no self-respecting retirement pensioner likes to feel that he is the subject of tax relief on grounds of hardship. People are proud even though they are poor, and they want to feel that they have paid their debts, even to the Inland Revenue, and will not be subject to demands long after the event and in circumstances where they find it difficult to pay.

We have no desire to be vexatious about the new Clause. To a large extent, it is a matter of administration. We have no desire for the terms of the Clause to be regarded as a reflection upon the administration of the Inland Revenue. The officers of the Inland Revenue are doing their best in very difficult circumstances. I ask the Financial Secretary to give the House an assurance that every effort will be made to avoid this kind of thing.

It is avoided if there is prompt action after the taxpayer stops work and there is a legacy of tax arrears due. It is desirable that the Inland Revenue should promptly step in and say, "Your position has changed. You realise that you have no earnings from which we can make these deductions. We should try to help by spreading the tax forward, but unfortunately this is not new possible, because you have given up work. There is something to pay, and we want to tell you promptly what it is and to make some arrangement with you, if necessary, for pay in instalments." There is never any difficulty about any person in these circumstances paying by instalments Where the circumstances justify it.

I must impress upon the Financial Secretary that there are two requirements here. One is that there should be prompt notification to the Inland Revenue by the employers, and, where necessary, by the taxpayers themselves, that they have changed their condition, that they have left their work and are not continuing to work, and that, therefore, their tax position should be adjusted.

In some cases, of course, the employer notifies the Inland Revenue quite promptly that the taxpayer has left work, and the Inland Revenue then has to assume either that the taxpayer will find another job, as does happen in some cases, or that he has given up work for good, and they must find out fairly quickly which it is to be. There is an obligation on the taxpayer, and I hope it will not be lost sight of, that he should tell the Inland Revenue, although many of these people do not understand it very well, and feel that when they have left work they have finished paying their tax.

There is also an obligation on the Inland Revenue officer to deal promptly with these cases when they arise. I know that many Inland Revenue officers are working under pressure. I know that they have heavy arrears of tax work on their desks. Something always comes out of the Budget, either re-coding or a change in administration, and there is overtime and all the worries in the world that can be thrown upon the Inland Revenue staff at particular seasons. It is the only Department in the Civil Service which is subject to the hazards of an annual Act of Parliament, with all its potential for extra work, the disturbance of the rhythm of its duties and so on. There is an obligation resting on the Inland Revenue to see that this sort of hardship does not arise if it can possibly help it, and it is that which I want to impress upon the Financial Secretary.

I conclude, therefore, by saying that there should, first, be arrangements made for a prompt notification to the Inland Revenue of the retirement pensions that come into payment. That is the first thing. The second thing is that, in cases where people are staying on at work, those arrangements which are considerate to the convenience of the taxpayer should be continued, and that prompt action should be taken when there is any interruption in the work of the taxpayer. That means finding out whether he is carrying on, in which case P A Y E. deductions can continue, or whether he has given up work, in which case they would cease, and an adjustment has to be made. Too often, these cases are left for six or nine months or even longer before the taxpayer is told about these arrangements I hope it may help by ventilating this matter, which I do not wish to exaggerate, because there are not millions of cases. I do not know how many there are, though there are enough to provide a source of discontent and difficulty for people for whose circumstances this House has always shown consideration.

I hope that the Financial Secretary will be able to relieve my anxiety, the anxieties of my hon. Friends and those of the House as a whole on this matter. I am sure that if he insists that the Inland Revenue shall see that these grievances shall be minimal in number and extent, there will be no need to have to ask the House to divide on the new Clause.

9.15 p.m.

Photo of Mr Bruce Millan Mr Bruce Millan , Glasgow Craigton

This is an important Clause. Even if the Financial Secretary is not able to accept it, I hope that this debate will do something to relieve circumstances of the kind described by my hon. Friend the Member for Sowerby (Mr. Houghton). There is nothing more irritating to a taxpayer who is going merrily along thinking that he is discharging all his obligations under P A Y E. than suddenly to be faced with a demand for arrears. He does not understand how the arrears have accumulated. Even after the Inland Revenue explains it to him, he feels a sense of grievance. This sense of grievance is particularly marked in the case of people who are rather old and whose earning capacity is extremely limited.

There are obviously two ways of tackling this. First, there is the way suggested in the Clause, which is to give relief if the circumstances become such that arrears have accumulated. There is also the second approach, to try to adopt methods in the Inland Revenue which would prevent many of these arrears ever accumulating in the first place. It is from this point of view that I want to put two points of view to the Financial Secretary.

The first point concerns a case which I had some considerable time ago, involving a constituent. I cannot remember the exact details. I have not refreshed my memory by looking at the correspondence. I think that it was something like this. In any case, the principle is the same. A retired policeman, a public service pensioner, was being paid a pension and also doing a small job, which meant that the pension and the wage together brought him within the tax provisions. He was paying tax under P A Y E. There was an increase in the public service pension. The increase was not notified to the Inland Revenue. There was no adjustment of his code number. The public service pension was adjusted, but no adjustment was made to the code number to take account of the increase.

This was not discovered for a considerable time. Then there was a bill for the arrears amounting to about £25 or £30, which is a substantial sum to a semi-retired person. In this case it was especially unfortunate, because the person concerned wanted to give up work altogether. Provided that he continued to work there was an opportunity to pay off the arrears, but if he stopped work and the arrears were still there it was obviously a large bill. The Inland Revenue was very reasonable about it, allowing the arrears to be paid off over two years. I do not think that anyone would complain about its practice in this respect.

This is the point I want to put to the Financial Secretary. That increase in pension was made under one of the Pensions (Increase) Acts. I forget which one it was. Is it beyond the capacity of the Inland Revenue, when a pensions increase of this sort takes place, to look through the records and see which taxpayers will be affected so that adjustments can be made to their code numbers? I realise that this may be a formidable operation. Every tax office obviously deals with many thousands of taxpayers, and a comparatively small number of them will be in circumstances which I have mentioned.

If the Inland Revenue could devise a simple way, without a too formidable workload being involved, of carrying out such a checking operation when something happened absolutely publicly, namely, an increase in pensions because of an Act of Parliament, many cases of the kind I have just mentioned and similar to the kind mentioned by my hon. Friend the Member for Sowerby could be avoided and the necessity for this Clause, and for going through the operation of spreading tax arrears over a number of years, would not arise.

If that were a practicable proposition for public service pensioners, it might also be a practicable proposition for retirement pensioners who are being paid retirement pensions and who are still working and are, therefore, taxable on their retirement pensions as well as on their wages and salaries. When there is an increase in retirement pensions—that is something which happens by a public Aot—the Inland Revenue has immediate knowledge of it.

I know that in all these cases there is a responsibility on the taxpayer. Fundamentally, the responsibility is on him to report the increased income to the Inland Revenue. But, in practice, many taxpayers do not understand that they have to do that. They do not understand that they will accumulate arrears if they do not do it.

Will the Inland Revenue consider taking the initiative in this matter? There may be administrative difficulties which cannot be overcome, but I hope that the Financial Secretary will get the Inland Revenue to consider whether it can prevent these cases taking place which must affect many thousands of people every year and which cause irritation far beyond the sums of money concerned, particularly since many of the taxpayers do not understand how they got into difficulties in the first place. They are paying P A Y E. and think that, being on the P A Y E. system, this cannot happen to them.

As I say, it is extremely irritating if it 'happens. Perhaps the Inland Revenue will apply its mind to seeing whether a system can be adopted to prevent it from happening.

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

I can give the hon. Member for Sowerby (Mr. Houghton) the assurance for which he has asked. It is true that difficulties arise in recovering tax on National Insurance retirement pensions. I think that they arise in a number of ways. We try to collect tax in respect of the National Insurance pension under P A Y E. whenever possible. Nowadays, a good many pensioners have part-time work and many also have pensions from their employers as well as the National Insurance pension. Fairly substantial arrears of tax can accumulate if anything goes wrong with the arrangements for assessment and recovery of tax.

This problem can arise in various ways; it falls into a number of parts. The first and most important is to ensure that the Revenue knows as soon as possible that a National Insurance pension is being paid. In many cases the P A Y E. machinery ensures that the inspector is told by the employer. But I agree that there are cases in which the machinery does not work as it should and in which the inspector does not become aware of the facts for some time.

I particularly agree with a very good point made by the hon. Member for Sowerby. It is that when a person of that age changes his position in life—either comes into work or ceases the work which he has been doing—it is obviously extremely important that there should be the closest possible cooperation between employers and the Revenue machinery. Certainly, I would not wish to underrate the social aspect of this matter. After all, a number of retired people have a little money put by. It makes a very great deal of difference to them when they suddenly find that that amount of money has to be reduced as a result of an unexpected claim for the recovery of tax, and it can be quite serious for them.

I therefore assure the hon. Members for Sowerby and Glasgow, Craigton (Mr. Millan) that what they have said will be taken into account and that we shall do all be can to see whether we can improve the administrative machine. But I am bound to say that it is just as much a matter of the employer notifying the Revenue as quickly as possible as it is of the Revenue making time to consider these cases.

There are difficulties about the new Clause, which I think the hon. Member for Sowerby realises. What he wants to do is to limit the period during which recovery can be made. The new Clause prescribes a time limit to assessment, which is a slightly different thing. I can see a number of objections to the Clause. It would be an undesirable innovation to have different time limits for assessing the income of different classes of taxpayer. It would be difficult and undesirable for this purpose to discriminate between different kinds of income of the pensioner. Incidentally, the Clause would be of particular benefit to those who fail to declare their pensions to the inspector, and it could be open to abuse.

The hon. Member for Sowerby has, rightly, raised an administrative matter of some importance. If my right hon. Friend the Home Secretary were with us he would, rightly, call this a very human question. We should look at the machinery, and I can give the hon. Member for Sowerby the assurance for which he has asked. However, I ask hon. Members not to press the new Clause.

Photo of Sir Harwood Harrison Sir Harwood Harrison , Eye

I am sure that many people will be very grateful to my hon. Friend for that reply. I have had these cases. If he finds it too expensive on the machinery to get it quicker, would he give rather greater latitude of write-off to his officials, so that these people do not have nights of worry about finding the money before possibly writing to their Member of Parliament, who then, through the Chancellor, gets the write-off? Is may be too expensive to get it by better administration and cheaper to write off these amounts.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

In view of the assurance given by the hon. Gentleman, I beg to ask leave to withdraw the new Clause. I accept his assurance that every effort will be made to improve the machinery. We will see how it will go and, if necessary, return to the matter another time.

Motion and Clause, by leave, withdrawn.


  1. (1) The Board of Trade with the consent of the Treasury may from time to time by order declare that it is in the national interest that stocks of prescribed goods, held by persons whose business it is to produce such goods, shall be increased; and any such order may be revoked or varied by a subsequent order.
  2. (2) As from the date when such an order is made, a person whose business it is to produce prescribed goods and who increases the stock of such goods which he held at that date, shall be entitled in the assessment of his liability to income tax to an annual allowance in respect of the cost of making and holding the stock comprising that increase; and for the purposes of this section each such increase shall be treated separately and any disposals of stock shall be deemed to be effected from such part of the available stock as was last made.
  3. (3) The rate of an annual allowance under this section shall be for the first complete year fifteen per cent. of the cost and for suceeding years ten per cent. of the original cost:
  4. Provided that no annual allowance shall be made except in relation to a complete year of assessment during which the stock in question is held by the person claiming the allowance.
  5. (4) On the revocation of an order made under subsection (1) of this section all annual allowances made by virtue of that order shall cease.—[Dr. Bray.]

Brought up, and read the First Time.

Photo of Dr Jeremy Bray Dr Jeremy Bray , Middlesbrough West

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

I must ask the indulgence of the House for my maiden speech. I hope, too, that I shall have the understanding of the House for seeking what I imagine is the relative obscurity of this debate.

My purpose in moving the new Clause is to draw attention to a type of economic regulator which would be of the greatest value in my constituency and which, I think, would also be of value to the economy as a whole. I should be failing to follow the example of my predecessor if I were not moved by the interests of my constituents. Sir Jocelyn Simon brought unfailing diligence, courtesy and charm to the service of his constituency, which will long be remembered in Middlesbrough and Thornaby. The good wishes of his constituents go with him in his new work.

There is today considerable and quite genuine unemployment on Teesside. Were this not my maiden speech, I should content myself with blaming the Government, and I shall no doubt do so on future occasions, but, as it is, I must try to go further and, in the full knowledge of the real hardship on Teesside, seek to point to at least one cause and one possible cure not only of the immediate difficulty, but of this type of difficulty in general.

The principal cause of the unemployment on Tees-side at the moment is the recession in the demand for steel, particularly at the heavy end of the steel industry. It is not only the direct unemployment and redundancies which have occurred, but also the consequential reduction in overtime, short-time working, and the general loss of trade in the area from which people are suffering.

Our national accounts, let alone our regional accounts, do not enable anyone to give an estimate of the effect of this loss of income. The nearest parallel that I have been able to find in the way of serious studies is in the State of Utah, which, I understand, our American friends describe as the beehive State, and which, no doubt, has an identical economy with that of Tees-side. In Utah, a 100 dollar drop in steel sales has the effect of reducing the earnings of the employees of the steel industry by about 27 dollars, but when the consequential effect on other trades and industries in Utah are allowed for the personal income of people in the region drops by 102 dollars.

This means that the income of the region drops by no less than four times that of direct employees in the industry.

This would confirm my own observation in Tees-side and the experience of people like travel agents and the shops which report a general reduction in trade.

9.30 p.m.

The main cause of this recession is a reduction in steel stocks which has greatly amplified the reduction in the genuine demand for steel by the consumers. I quoted from the Special Report on Development by the Iron and Steel Board in 1961. This says: Comparatively mild fluctuations in the output of the engineering and allied trades…seem to have been exaggerated three or four times in their impact on steelmakers. The House might like to bear in mind, when I read the next paragraph, that this no doubt bears the touch of Sir Robert Shone, now the Director-General of N. E. D. C. No doubt such fluctuations in steel demand are partly explained by credit restrictions at one time and by a desire not to be caught short of steel at another. Similar exaggerations are familiar in the United States, and elsewhere. But they are most undesirable, particularly from the point of view of the steel industry. During the exaggerated peaks of demand steel was imported that, with better timing, could well have been supplied more economically by home producers. The underemployment of those producers during recession was thus aggravated. Improved techniques in the management of the national economy, growing confidence by consumers in the ability of the steel industry to deliver steel quickly, and possibly the adoption of a stocking policy by producers "— I ask the House to note this point— and others, aimed at assisting stability, would help to reduce such wasteful vagaries. But the threat of them must not be overlooked in providing for the future. A year after the publication of that Report, we are in precisely the same position. There have been continuing complaints from the Iron and Steel Board, from individual steel manufacturers, from the Iron and Steel Federation and from the trade unions representing employees in the steel industry. We have whole areas plunged into recession for precisely the reasons which were described in that Report.

This is not only a problem in steel—. my own experience does not lie in that industry—it is also a great difficulty in textiles and in chemicals, to mention only two. In these industries, stock cycles in particular products cause variations of 10 to 20 per cent. in output from year to year. These variations are lost in the figures for stocks for the country as a whole. They are lost even in the aggregate figures for individual companies and industries, and it is only when one looks at the output of a particular plant that one realises how serious this problem of stock fluctuations is.

The House perhaps realises that, with these enormous fluctuations going on, industrialists find some difficulty in seeing just what the implications of this 4 per cent. per annum growth in gross domestic product mean. It is like looking for a needle in a rather rapidly moving haystack. This is a difficult technical question certainly, but it has the most dire human significance, and any hon. Member who would like to refresh his memory about the meaning and hardship of unemployment I would invite to visit my own constituency.

Only this week the House was expressing concern about the difficulties at Fylingdales, but perhaps hon. Members do not know that the underlying reason for these difficulties is that the men on the job do not see the prospect of another contract coming along when this one expires. It is no accident that we find these difficulties in our most modern industries. There are technological factors behind it. There is the increasing scale of manufacture. There is the increasing, size of individual plants. There is the increased capital intensity, and the increasing capital per man employed. All these factors tend to increase the difficulty of this problem.

I turn now to the general problem of the control of stocks. The cause is often a lack of knowledge and understanding of the broad pattern of demand at any time. We make a great mistake if we assume that people are perfect in their knowledge and perfect in their pursuit of their interests. This does not correspond with the daily experience of people in industry. We are very short of understanding and knowledge, and I am afraid that industry does not always do as much as it could to spread knowledge about its true position.

Where a real effort is made to spread information, it has desirable results. I mention only the example of Courtaulds. In one product, rayon staple, the firm has succeeded in reducing the stock changes as a percentage of consumption from 15 to 20 per cent. up to 1954, to less than 5 per cent. in recent years. and it has done this simply by spreading information throughout the textile industry about the real position of production at each stage, and giving full information about its own stocks. It is not always as easy to do this in other industries. We do not have firms which occupy the position occupied by Courtaulds in the rayon industry, but we would, nevertheless, benefit from an improved flow of information.

Is it enough for the Government simply to exhort people to think, to exhort people to spread their knowledge? I do not think that it is, and the Government's experience of exhortation has perhaps not been too happy in recent years. In any case, looking at the problem from the paint of view of the economy, action has to go further. We have not only to avoid amplifying the cycles of the economy, but we should try to smooth them out.

The new Clause proposes one type of general economic regulator aimed specifically at this problem. The intention is to encourage manufacturers to build up stocks to compensate for a recession in demand for their products, and so maintain full employment and avoid redundancy. It proposes to do this by going some way towards meeting the interest charges which manufacturers would have to bear by holding stock.

Roughly speaking, the manufacturer would benefit for whatever period he held the stock in question, but this help would not be available from the Government except at times when that manufacturer was threatened by recession, and when, in the opinion of the Board of Trade, the recession was temporary. It is, of course, vital that the Board of Trade should act on the right products and at the right time, and the success or failure of this proposal would depend on the dexterity of the Board of Trade.

Suppose a manufacturer increased his stock from 10,000 tons to 11,000 tons. He would receive the sort of allowance I have suggested. It might be in the form of an Income Tax allowance on the cost of that extra 1,000 tons for such time as elapsed until the stock again fell below 11,000 tons. If hon. Members were able to use a blackboard in the House it would be a little easier to understand this, but I trust that there is no great obscurity involved.

It is important for manufacturers to continue to bear risks to solve the technical problems involved in stocking dif- ferent products. These problems are serious and the new Clause suggests that manufacturers should be left to find the money to finance their stocks. Naturally, the stocks would be held in the normal trade channels.

There is also the question of the definition of what is "the cost". If one could get economists and accountants to agree as to whether or not there was such a thing as a "marginal cost" it would be rather easier to define. As it is, just some broad suggestion might be given by the phrase "the cost incurred in making stock which would not other- wise have been incurred had the stock not been made."

"Subsidy" is not a popular word and I understand that regulators which are specific to a particular industry are hardly more popular with hon. Gentle- men opposite. However, we should distinguish between subsidising particular industries all the time and stimulating any industry at appropriate times. This regulator does not act on the whole volume of production in any industry, but only on the margin that goes into stock, and, therefore, is much cheaper.

How non-specific this regulator would be would depend on the way it was administered. Would it work from an economic point of view? There is in industry a tremendous built-in pressure to reduce stocks. A firm can lose £1 million worth of orders every four years due to not having sufficient stocks, but when the time comes in the trade cycle when it should be building up its stocks again in anticipation of a future rise in demand it is almost invariably argued that the same thing will not happen again, that this time the labour will be available, that new plant will be ready and that there will be no difficulty in the supply of raw materials. How- ever, the firm, for the saving of £10,000 to £20,000 in interest charges, will again lose this £1 million worth of orders.

The events I have described represent the hard experience of industry. They are going on today—at a time when stocks should be being built up in anticipation of the demand we can expect in due course for reasons one should not touch upon in a maiden speech.

As for the cost of such a scheme, the accumulation of stocks in the steel industry seems to depart from the trend by about £40 million and the interest charges to meet this would probably be not more than £2 million a year. In textiles, the departure from the trend seems to be about £30 million. Here, the cost would be only million. For the whole of manufacturing industry it is difficult to estimate the figure, but I would have thought that the departure would be about £400 million, for which the total interest charges might amount to £20 million.

This is an extremely cheap regulator if it would enable us to operate at about £400 million a year nearer the limit of capacity. I think that there is a factor of about 10:20 between the cost of such an anti-cyclical policy and the rewards from it to the economy as a whole, and surely out of that increased production it would be possible for the State to recoup the cost of the regulators either directly from the industries or indirectly from general taxation.

9.45 p.m.

There are, of course, real administrative difficulties in this scheme. I am sure that hon. Members who are not lawyers from time to time take refuge in the remarks made by Lord Keynes at the closing session of the Bretton Woods Conference in the United States. Lord Keynes wrote: When I first visited Mr. Morgenthau in Washington some three years ago accompanied only by my secretary, the boys in your Treasury curiously inquired of him—where is your lawyer? When it was explained that I had none, 'Who then does your thinking for you?' was the rejoinder. That is not my idea of a lawyer. I want him to tell me to do what I think sensible, and, above all, to devise means by which it will be lawful for me to go on being sensible in unforeseen conditions some years hence. Having sat through the final embellishments of the speculative gains tax in this Chamber in the last two days, I am filled with marvel at the ingenuity of the Government draftsmen, and I have not the least doubt that they would find such a Clause as this comic relief after their labours of recent months. I do not defend the particular details of the Clause, and, indeed I do not intend to press it. But there is the broader question of how this fits in with the general pattern of development of economic planning. "Neddy" has been asked to consider the relation of production and capacity, and this will, of course, involve a consideration of stocks; but I am not sure that the Government can really afford to wait for "Neddy" or that this House would wish to do so.

We must, surely, see the economy not just as a black box or, to translate this into non-engineering language, a system of levers to be cunningly manipulated from outside. The economy is men, and it must be the intention of any economic regulator to make men think, and I think that the regulators to which we have been treated, which have simply had the effect of increasing costs and prices, have failed in their function of making men think.

If we are to encourage innovation in industry, we must surely seek innovation in our own approach to industry. We must be willing to experiment. I am sure that the standing of this House will not suffer if we start that process of experimentation in our discussions here.

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

It is always a very great pleasure—though anyone as young as myself in the House performs the function with diffidence—to congratulate an hon. Member on his maiden speech. I can say with absolute truth that I congratulate the hon. Member for Middlesbrough, West (Dr. Bray) upon his maiden speech with more pleasure than I have ever known during the ten or eleven years that I have been a Member of this House.

We hear maiden speeches in a number of different kinds of debate. I cannot ever remember a maiden speech by an hon. Member who has treated us to a new idea for a new Clause in a Finance Bill, and those of us who have sat through a number of Finance Bills will know more than anyone else what a particular pleasure it is to hear a speech on those lines. The hon. Gentleman paid a graceful tribute to his predecessor, which I am sure we were all glad to hear. It is fair to say that Sir Jocelyn Simon was greatly esteemed. admired and liked in all parts of the House for his courtesy and abilities.

The hon. Member has raised tonight a subject of very great importance. I am in a slight difficulty because it is not the custom of the House to debate a maiden speech, but I hope I shall not offend if I make a few comments on the hon. Member's theme and say a few words on the proposed Clause that he has moved.

He has rightly brought up this point about the importance of stock movements to the economy. I am sure that those of us who have tried to follow economic affairs since the war will not need to be persuaded about that. It cannot be stressed too often. It is worth remembering—I put this in a non-controversial way—whatever one thinks of 1949 and the devaluation of the £, that there can be no doubt that stock movements in the United States played a very important part in the events of that year. If one takes the situation of this country in 1955, as I remember, stock movements went the other way. If I have any criticism of the hon. Member's speech, it is that naturally enough he is now concerned with unemployment, but of course an inflationary movement in stock building can be just as important to the economy. It was a supporter of the hon. Member's party, Mr. Robin Marris, of King's College, Cambridge, who said that a stock boom can have an even bigger multiplier effect on the economy than a move in fixed investment. That may well be true.

The hon. Member in this new Clause suggested an idea for a new kind of regulator. What the new Clause amounts to can be put shortly as a system of annual allowances on increases in stocks. More precisely, one might say that the Clause would give allowances for Income Tax purposes of a fraction of the cost of providing and holding stocks of goods, to add to the stocks held at the date of an order from the Board of Trade declaring that it is in the national interest that producers of certain kinds of goods should increase their stocks.

The idea of a regulator based on annual allowances on increases in stocks has real difficulties, but we certainly should not dismiss it out of hand. After all, twenty years ago when we were, as it were, planning the post-war world, everyone was concerned to even out fluctuations in fixed investment. That was the idea at that time. More recently we have had the regulator to affect consumer expenditure, and now the hon. Member has suggested a regulator to affect stock building. I must say that I think there are difficulties about this, attractive though the idea is at first sight. I will not go through a long list of objections, but I will mention one or two difficulties—first, one or two economic difficulties and then one or two fiscal difficulties.

On the economic side we have to remember that movements even in aggregate stocks are very difficult to identify when they are actually happening. They are difficult to identify until some months after the event. Very few of us—in fact, I think, none of us—no matter which side we were on at the last election, realised that stock building was rising rapidly along with the increase in fixed investment and consumer spending. It is not easy to identify these movements at the time.

Movements in stocks in particular industries, as I am sure the hon. Member will agree, are even less easy to identify. The 'behaviour of what one might call the stock cycle is extremely capricious, and really accurate forecasting is almost impossible, as any one who has seen the work of the Treasury will know well. The reason I mention these points is that it would not be possible to employ a regulator of this kind with very easy or effective timing. That is the difficulty that I see.

The hon. Member made a critical re- mark about the customs regulator. There is one point in its favour, with which I hope he might agree, because it is a point which has been made from the other side of the House as well as from this side. At least, from the point of view of timing one can clap on that regulator and it has a pretty immediate effect on demand. One of the difficulties of a regulator affecting stocks is getting the timing effective.

A second economic point which occurs to me is that there would be no certainty about the objective to aim for in par- ticular industries in terms of the ratio of stocks to output, and no easy means of knowing in advance whether a given trend in stocks was desirable or not. But that is a complicated point and one which I should be most interested to discuss with the hon. Gentleman at greater length.

10.0 p.m.

Then on the tax side the hon. Member himself realised, I think, the difficulties on general grounds in avoiding discrimination in the use of tax relief on these lines. One obviously could not. The essence of the scheme is that there would have to be discrimination. There really would be. Because even if the general objections could be overcome, since stocks of goods of different kinds frequently move in different directions at the same time, I think the proposal would clearly, if it were to be effective at all, involve discrimination. I am the last person to say we should never have taxation for planning purposes. We have just been discussing, on an earlier Clause, a case where we did have discrimination for planning purposes, but this would be a rather more complicated scheme of discrimination than we have ever had before. I am not saying that that is a conclusive argument against it. I am merely saying it is one of the difficulties one would have to consider.

There are a number of points on the fiscal side I could make, but I do not want to continue further on these lines because, as I say, it is not in this House customary to argue and debate a maiden speech. Therefore, I would conclude by saying that the hon. Member has given us a great deal to think about. He has started in this House with a question closely related to the problems of his constituency. When I read his new Clause I found it interesting. As I listened to his speech tonight I found it even more interesting.

Photo of Mr James Callaghan Mr James Callaghan Shadow Chancellor of the Exchequer, Member, Labour Party National Executive Committee

It is certainly true that we have had discussions about regulators in connection with consumption and in connection with investment, but I cannot myself recall our having discussed the use of a regulator in connection with stocks, and I, too, would like to thank my hon. Friend the Member for Middlesbrough, West (Dr. Bray) for bringing up this idea, which, I think, we shall undoubtedly want to take further. I do not know what thinking there has been in the Treasury or in "Neddie" about this. I doubt Whether there has been a great deal so far. However, I think that undoubtedly the House will return to this question from time to time, and we may, indeed, even eventually find something done by way of taxation relief. I would not find taxation discrimination in a matter like this too appalling. We have it in a number of ways now. I think the Treasury could develop much mare than it has so far the use of the instrument of taxation for planning purposes.

However, I rise principally to say that I felt that this was an occasion in the House tonight. I regard my hon. Friend —perhaps he should not listen to this—as of the group of other hon. Members who have entered this House recently —I do not particularise—and whom I regard as the harbingers of a new era. Those of us who are jealous about the future prestige of the House—and having been here 17 years, and being now in the second half of the time towards my century, perhaps I may begin to pontificate—want to feel that the House attracts the best men. We cannot do with second-rate men in this House. We want first-rate men, and we want them to be representative of every phase of our national life.

If, in this House, we have been short in any particular way it seems to me we have been short in this—of young managers with technological experience and scientific skill Who literally came here from the jobs they are doing and are able to tell us about their practical problems. I think that my hon. Friend, in company with a number of others who have arrived in this House recently, is a harbinger of a new era.

It is in some ways a solemn thought that they may still be here when the twenty-first century dawns. I do not know what changes they will see if they survive the electorate so long, but I think that the changes which will overtake Britain (luring the next thirty or forty years will demand men of the calibre of the youthful entry we have been getting in the House in the last two or three years. I am thankful to think that the House of Commons can still command the attention and service of men of first-class ability, and I congratulate my hon. Friend on his speech in the sense that he speaks as the representative of a new generation which has much to offer the House in carrying Britain forward in the second half of the twentieth century.

If I may be so bold, I suggest to him that on a noncontroversial occasion he could hardly expect to carry us into the Division Lobby and that he might therefore consider whether it is not appropriate to withdraw the new Clause, if the House gives him permission to do so.

Photo of Dr Jeremy Bray Dr Jeremy Bray , Middlesbrough West

I beg to ask leave to withdraw the Motion.

Motion and Clause, by leave, withdrawn.


Where a person has retired from a business which he has carried on by himself or as a partner with others, a pension or annual payment made to him out of the profits of that business shall be treated as earned income for the purposes of income tax.—[Mrs. Butler]

Brought up, and read the First time.

Photo of Mrs Joyce Butler Mrs Joyce Butler , Wood Green

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

When it was decided that pensioners should be entitled to earned income relief, most people assumed that this meant all pensioners, but I understand that the Inland Revenue do not allow it to retired partners and self-employed people. Section 525 (2, b) of the Income Tax Act, 1952, states that earned income includes any annuity, pension or annual payment to which Section three hundred and seventy-six applies and the definition in Section 376 is (1) Where a person has ceased to hold any office or employment and any pension or annual payment is paid to him‥by the person under whom he held office or by whom he was employed or by the successors of that person… In subsection (2), voluntary pensions or annuities are also included. However, the Inland Revenue argued that a partner or self-employed person did not hold office or employment, so that if, instead of taking a lump sum which would normally be tax-free, a pension is accepted, this becomes taxable as unearned income. The Inland Revenue regard it in effect as an annuity.

The Clause largely concerns two groups of people. The first—and it was one of these who drew the difficulties to my attention in my constituency—are professional men who are in partnership, or others who are in partnership, but who are not limited companies or companies of any kind. It is true that some of them could form themselves into a limited company, and they would then, as directors, be regarded as employees of the company and would get round the difficulty in this way, but some of these people have professional regulations which prevent them from doing that.

It is, I understand, the practice in some cases where they have these professional regulations and difficulties for them to form themselves into what are known as service companies. Several of them can get together and pool their office resources and staff. Again, they are employees of the company for tax purposes, and when they retire their pensions are regarded as pensions paid to employees and as earned income for the purposes of tax.

Another group of people affected by this are the small traders, business men, often with family businesses, who never have got round to or even thought of forming themselves into companies. Very often they are people who have lived for a very long time in a district. They are engrossed in their business, they are quite successful as small traders and business people, but it does not occur to them, because of their absorption in their work, that they should form a limited company, and probably if it occurred to them they would have no desire to do so. They may be father and son or brothers, or a number of members of a family carrying on business in this way. These difficulties mean that when the head of a business comes to retire he finds, unless he has formed the business into a company, that when he wants to draw his pension he is discriminated against by the tax procedure in that the pension is treated as unearned income.

In addition to the points which I have made on the reasons why people find themselves in this difficulty, it should be borne in mind that, particularly in an old-established family business, it might not have occurred to the owner that he would face this difficulty. As I seldom intervene in debates on a Finance Bill, perhaps I am in a better position than many of my right hon. and hon. Friends, who are experts in these matters, to appreciate the lack of knowledge of the ordinary person about the workings of Income Tax procedure. It is a shock to many of these people when they come to retire to find that they are treated in this way. They have not realised that there was anything that they could have or should have done about it and they think it unfair when other people receive benefits, because of arrangements they have made, in advance, which they cannot receive.

It should also be borne in mind that in many of these cases the retirement might come about quite suddenly if a man is running his own business with members of his family helping him. I can think of three generations of qualified chemists in my constituency, grandfather, father and son, working in a business very amicably. The grandfather carried on working for many years and for probably much later in life than the ordinary employee would have done.

In these case very often there comes a time when illness suddenly strikes, or there may be some other reason for retirement, such as developments going on in the area or increasing competition when the old man feels that he has had enough and it is time to leave the business to his son who is young enough to stand up to changed conditions. He gets out and it may be a decision taken quite suddenly. He may not have made any special arrangements for his retirement and the son who is left in charge of the business—for under the new Clause it is necessary that there should be no sale of the business—makes some pension arrangement to keep the father in his retirement. It may be quite an informal arrangement nevertheless I submit that it is the kind of arrangement which is often made in these cases.

It should be borne in mind that some of the "top hat" pension schemes are extremely generous in the provision they make for people who retire. The principle of this new Clause, which applies to people not in that elevated class, is exactly the same. People have been carrying on a job because they are self-employed and because they are not a company. There is no reason why they should be penalised as they are at present. It seems important that the same principle as applies to the "top hat" pension schemes should apply to informal pension arrangements from the profits of the business. It is not a matter of using capital; it is the profits of the business continuing after the owner has retired. People caught in this way have a legitimate grievance against the tax regulations in this sense.

If the Commissioners of Inland Revenue felt that they could not extend Section 376 of the Income Tax Act, 1952, to include persons who had been employed in their own business as their main occupation, the only hope would be for a provision to be passed in this House to include persons who have been actively employed in their own business on similar conditions as if they had been employed by another instead of by themselves. Most business is now carried on by limited companies, so the numbers of retiring self-employed people cannot be very great. I cannot believe that it would be very onerous on the Treasury if this change were made. I suspect that the numbers are dwindling. The numbers of these family businesses are diminishing and they are gradually becoming very small. I do not know what they are, but I suspect that that is so.

In my innocence, I have no doubt that I have overlooked a very important point which makes it impossible for the Government to accept this new Clause, but at this stage I cannot see what that important point is. If the Government are afraid that this might be abused, I should have thought it quite possible to make certain conditions appertain to the application of this Clause which would prevent that abuse. To me, this is a patent injustice which merits legal change. At present, it seems that people who can manoeuvre and behave in a slick way in these matters can get away with something which people who have less knowledge and less expert advice are not able to do.

I do not want to exaggerate this, but it is a point to bear in mind that many of the people concerned have been in business in their area for a very long time. Many of them have very firmly stood on their own feet. They have desired to be beholden to no one and they have made a contribution to the local community. Very often they are extremely well known and well liked and have done a great deal for their fellow citizens. Although this is a small point it seems to be one which has been overlooked by the Treasury. I hope that the Government will consider it sympathetically.

10.15 p.m.

Photo of Mr Barnett Janner Mr Barnett Janner , Leicester North West

I support the plea made by my hon. Friend the Member for Wood Green (Mrs. Butler). It may well be that the Minister will be able to offer an explanation or some advice to those who retire from a business as to how they can retire in a way which will enable them to have the benefit as earned income of whatever sums are paid to them. As I see it, a person who retires from a business and who is given some sort of pension or allowance is being given a payment for the goodwill which he has built up during his connection with the business. Therefore, in a sense, he could remain a partner or an adviser and still continue to draw an income from the business as a person entitled to receive for his services a payment taxable as earned income.

I gather that my hon. Friend is worried about the many people who go out of a business and who do not make such provision, who do not remain in the partnership, who do not remain as consultants or in some such position which would entitle them to have any income they receive regarded as earned income. They go out not realising that, by retiring in that way, they will be deprived of a benefit which might accrue to them if they retained some sort of loose connection with the business and drew moneys due to them. I use the words "due to them" advisedly, because I regard such money as a payment received, although in a sense it is retrospective, for something for which they have worked and which has been of benefit to the business. The income which comes to a business is derived from goodwill built up in past years and, consequently, it cannot be assessed as something attaching to the particular year in which the income is, in fact, taken.

Here is another point. If a person wants to have the income regarded as earned income, he has to remain attached to the business. This is not always desirable from the point of view of the business itself because it may sometimes act as a sort of a dead hand on the business. The individual concerned has to participate in some way in the business. While he is a partner or cconsultant,die is entitled to exercise a measure of control over the management. This may sound petty, if one is thinking in terms of large limited liability companies, but it is not petty to the small business man and his family. Sons or daughters carrying on the business may have ideas entirely different from their father. Those ideas may be considerably checked if one of the original partners remains connected and, perforce, interferes in some way with the management.

In my view, the purpose of the new Clause is reasonable. If it is true, as I believe it to be, that a person going out of a business without taking advice which might have enabled him to make provision to have his income regarded as earned income finds himself in an unfortunate position just for that reason, it is only fair that we should provide that what comes to him from the business is regarded as earned income.

Photo of Mr Anthony Barber Mr Anthony Barber , Doncaster

The hon. Lady the Member for Wood Green (Mrs. Butler) made clear that what she is seeking to do is to provide for earned income relief to annual payments made out of the pro- fits of a business to a former proprietor who has retired. There are two points which I should like to make in preliminary fashion before I deal with the principle involved in her new Clause.

The first is that I agree with her that this is a very important point. It may not be a matter which affects a large number of people, but they are, in the main, I certainly agree with her, a section of society which is worthy of our most careful consideration, because it contributes a great deal to our well-being. The second point is that the hon. Lady spoke, I thought, at one moment, as though the decision not to allow earned income relief in respect of the payments which she was discussing was in some way a decision of the Commissioners of Inland Revenue.

I ought, therefore, to make it clear that the decision not to allow earned income relief in respect of these payments arises from what, in the view of the Commissioners of Inland Revenue, as they are advised, is a clear provision of the law. It follows, therefore, as she admitted later in her speech, that if we were to do what she wishes it would inevitably mean a change in the law.

The employee's pension, which represents deferred remuneration for services, qualifies for earned income relief under the Section of the Income Tax Act to which she referred, but the payments mentioned in this Clause are not pensions, but annual payments made out of the profits of the business to a former proprietor. They generally represent payments for goodwill, such as the hon. Member for Leicester, North-West (Sir B. James) referred to, or for loss of rights as a partner. It has never been thought proper that they should rank for earned income relief. In substance, they are closely akin to the remuneration of a sleeping partner, who does not do any work, but merely has a right to a share of the profits, and they are distinguishable from an employee's pension, which is, in fact, deferred remuneration for services.

Photo of Mr Barnett Janner Mr Barnett Janner , Leicester North West

The hon. Gentleman is drawing an analogy with a sleeping partner, who, after all, has nothing to do with the business, whereas such a partner as we are talking about is a partner in it who has taken part in the business and created goodwill.

Photo of Mr Anthony Barber Mr Anthony Barber , Doncaster

I was only drawing that analogy to point out to the House that at the time when the individual concerned is receiving these annual payments, he is, at that time, at any rate, in the nature of a sleeping partner.

The employee's contract of service with his employer may entitle him either to a salary or to a salary followed by a pension. In the latter case, the pension is essentially part of the remuneration for his services, and it is awarded to him solely because he has rendered those services, but a person in business on his own account or as a member of a partnership receives his earnings in full during his business life.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

I notice that the pro. visions about earned income relief included voluntary pensions, and, sure enough, if we turn to Section 376 of the Act, we find that it is about tax in respect of voluntary pensions. How can they affect remuneration, when they are voluntary?

Photo of Mr Anthony Barber Mr Anthony Barber , Doncaster

I can only say that, so far as I know, the view of the Commissioners of Inland Revenue, as they have been advised, has never been challenged on this matter. If, of course, the view of the taxpayer was shown to be right, there would be no need for consideration of this new Clause. I do not think that the hon. and learned Gentleman would expect me, on an occasion like this, to go through the Income Tax Act to justify what has already been accepted by the taxpayer.

I will proceed with the principle involved in the proposal. A person who is in business on his own account or who is a member of a partnership receives his earnings in full during his business life without any deferment of part of them until he retires. If he enters into an arrangement under which, instead of receiving capital rights on retirement, he draws annual payments, those payments derive from the arrangement and are not a pension. Nor would I have thought that in any normal sense of the term they would be considered to be earned income. If he drew his capital in full and invested it, the income in retirement from his investment would not be earned income, either.

On the question of equity, because, after all, we should not consider this simply as a legal matter, I should like to mention this to the House. Since 1956, the self-employed have been allowed tax

relief on premiums paid to buy retirement annuities which attract earned income relief. The self-employed are, therefore, not now at any disadvantage in providing for their old age. If earned income relief were to be allowed in respect of the payments described in the Clause, it would enable any trader to sell his business, to accept annual payments instead of capital, and to have those payments treated as earned income.

I doubt very much whether that would be justifiable, because the payments are not earned income, and it could confer a very valuable benefit in many cases. We would not be concerned only with Income Tax, but in many cases we should also be considering relief from Surtax.

I am sorry, in view of the moderate way in which the hon. Lady moved the Clause, that for the reasons which I have given I cannot accede to her request. I hope that she will agree that the arguments which I have advanced are compelling ones and I therefore hope that she will not seek to press the Clause.

Photo of Mrs Joyce Butler Mrs Joyce Butler , Wood Green

I am sorry that the Economic Secretary has not felt able to be more helpful. He suggested that I was rather confused about what the Commissioners of Inland Revenue could do, but it seemed to me that he went on to add to the confusion. This is an important matter and, since the hon. Gentleman has not been able to make any concession, I feel that the matter should be pressed to a Division.

Question put,That the Clause be read a Second time:—

The House divided:Ayes 149, Noes 209.