Where any part of the hire-purchase price payable under a hire-purchase agreement has been paid to the owner pursuant to a contract of loan made between the hirer and any third party and the hire-purchase agreement contains a covenant by the owner to guarantee the hirer's liability under such contract, then for the purpose of calculating the hirer's liability to the owner on termination of the agreement whether by the owner or by the hirer any sum paid by the owner or for which the owner is liable under such covenant at the date of such termination shall be deemed not to have been paid by the hirer under the hire-purchase agreement.—[Mr. Darling.]

Brought up, and read the First time.

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

Mr. Deputy-Speaker:

It will be possible to discuss at the same time Amendment No. 40, in Clause 26, page 27, line 32, to leave out "and 23" and to insert: 23 and (Special provision for tax saving schemes)".

I am much obliged, Mr. Deputy-Speaker.

This new Clause makes an entirely new proposal which was not mentioned in Another place, on Second Reading in this House or in Standing Committee. We are putting it forward for incorporation in the Bill at this late stage because the finance companies are now arranging certain hire-purchase agreements in such a way as to bring them within the ambit of tax relief on loans, but they did not start these new arrangements until after we had completed our proceedings in Committee.

The arrangements which have been made to give tax relief on the loan part of hire-purchase arrangements, if I may for brevity so describe it, are operated, of course, under our existing legislation, not under the terms of the Bill. We are asking the Government to accept this new Clause because it is very doubtful whether the tax relief arrangements can continue when the Bill is enacted. The doubt arises because of the provisions in the Bill dealing with termination of contracts before all the payments have been completed, a problem on which we have spent a very great deal of time, as the House knows. We are not concerned here with whether or not tax reliefs on loan interest are good or bad or whether they should be permitted or not. The point is that the law governing tax reliefs is not the hire-purchase law; it is the fiscal law under the Finance Acts, and the Finance Acts permit tax relief on loan interest in certain circumstances.

As we have often said in previous debates, hire purchase is a form of money lending, a perfectly respectable form of money lending when the transactions are honestly and properly conducted, as most are. What happens in ordinary hire-purchase transactions is that the customer, in effect, borrows the money to pay for the goods he wants, he pledges the goods as security for the loan, accepting a condition that the goods do not belong to him until he has settled the final repayment of the debt.

If the customer borrowed the money from a bank, he could claim tax relief on the interest charged. One or two respectable finance houses have found a way to provide for similar tax relief on hire-purchase transactions. Therefore, we have a duty here, now that we can do something about it before the Bill leaves us, to recognise these arrangements, which are clearly within our fiscal law, and provide for them suitably in this Bill, because, otherwise, we shall be discriminating between one form of money lending and another. As we have said, hire purchase is the ordinary man's bank loan. If we discriminate by failing to adjust our hire-purchase law to what is now an accepted practice, we shall be discriminating against the less well-off sections of our community. We shall put them at a disadvantage as against those who, because of their substantial bank accounts, can get personal bank loans which they use to buy the goods they need.

If hon. Members have read the new Clause, they will not want me to explain in detail how the arrangement works. If it is necessary to put anything on the record, I would say that, in order to make a hire-purchase transaction a personal loan for the purpose of attracting tax relief on the interest, one has to bring in a third party who goes through the motions of lending the money, the third party being a subsidiary of the finance company which has been set up quite legally and respectably for this purpose. The purpose of this new arrangement, which, as I have said, has come into being since we finished the Committee stage, is to give to the ordinary householder who goes in for hire purchase instead of borrowing money from the bank the same kind of tax relief as he would have if he were to borrow from the bank in order to purchase the things he wanted.

The arrangements which have been made for this purpose have been accepted by the City, by the Bank of England and by the Treasury as being well within our fiscal Laws. If we discriminate against these arrangements by refusing to adapt our hire-purchase law so that they can continue, we shall discriminate in general against the poorer sections of the community. I say "in general" because, of course, the benefit would go to someone who wanted to buy a Jaguar at something less than £2,000 on hire purchase, but, of course, hire purchase is, in the ordinary way, the poor man's money lending arrangement.

I plead with the Parliamentary Secretary, therefore, to accept this new Clause. If he refuses to do so, he will be denying tax relief on interest to poorer people while continuing to allow a similar facility on the personal loans arranged by those who have substantial bank accounts.

First, I make the general point that we have to be rather careful in dealing with the finance houses because they suffer a little from schizophrenia in these matters. They are not altogether certain whether they are basically moneylenders or hirers of goods, and there is apt to be something of a split personality in their approach.

I hope that the hon. Gentleman is not putting that forward as a criticism of the finance houses. Incidentally, I am getting rather embarrassed at being so much in the position of having to defend them. The reason why finance companies have to behave like this is, surely, that they have to operate under rather silly legislation.

With respect, I was merely observing this fact. One has to be careful and not accept that finance companies should have all the benefits of a hiring company and all the benefits of a money-lending company.

As the hon. Gentleman very fairly observed, this new Clause raises a subject which we have not discussed before and which has not even seen the light of day on the Notice Paper hitherto. Nevertheless, I am always happy to consider any new matters.

As we see it, the new Clause is designed to deal with the situation which could arise under a scheme of hire purchase recently announced by some finance houses. As I understand it, the scheme is to offer transactions where the hire-purchase price exceeds £300, and it is thus not within the scope of the Hire Purchase Acts at present. This will, of course, change when the Bill comes into force and the monetary limit is raised to £2,000. As I understood it, the particular schemes which have given birth to the new Clause have been drawn up so that, in respect of certain payments made by the hirer, the hirer may be able to claim repayment of Income Tax on the amount of interest paid on the loan.

The House will realise that the question whether particular payments are eligible for such tax relief or not is one of general application and not to be dealt with in the Hire Purchase Acts. The purpose of the Hire Purchase Acts is to protect the consumer, and this involves many different provisions regulating the relations between owner and hirer, and covering the dealer or even the guarantor when they come into the picture. The aim in framing legislation of this kind must always be to keep it as simple and as direct as possible, although the complexities of the relationships and situations which must be provided for make this a little difficult. There can be no question of adjusting the law to take account of slightly unusual ways in which particular companies may wish to do business.

In the present case, as I understand it, the concern in question operates, again, in a slightly schizophrenic way. One of its companies makes a loan, another makes the hire-purchase agreement and acts as guarantor of the loan. I recognise that there may be commercial reasons why the companies want to see the Hire Purchase Acts adapted so as to protect themselves if they enter into rather unusual arrangements. But we really cannot change the consumer protection law to take account of situations in which finance houses wish to take advantage of the tax law. If we did, we should have to change the law to take account of other unusual arrangements which other finance houses want to operate.

6.15 p.m.

The law must concern itself with the normal transaction, and the normal transaction is that, whatever has been paid under the agreement on behalf of the hirer, that amount has been paid and it is no concern of the finance house whether the hirer has saved the money out of his salary or wages or has gone off to his uncle or his bank to borrow it. The money has been paid as part of the hire-purchase price, and this will be taken into account if the provisions of Section 4 of the 1938 Act about termination or Section 11 about repossession have to be applied. This is certainly not simething to be interfered with. Finance houses—this applies generally, not only with regard to the scheme I have just mentioned—must plan their arrangements so that they can operate them within the Acts. They cannot expect the Acts to be adjusted to suit them so that they can get the advantage of a tax exemption which, I understand, was designed for a different set of circumstances.

The issues involved here are basically matters of liability to tax arising from the Finance Acts and not from the Hire Purchase Acts. This is not the right Measure in which to deal with matters of tax exemption. If it were decided that the interest element in h.p. charges should be made eligible for tax relief—and the hon. Member, as usual, has put formidable arguments for it—then it should be done by amending the tax law in the next Finance Bill and not by amending the Hire Purchase Acts to fit schemes designed to get within the present eligibility for tax relief.

I understand that some variants of this arrangement could come within the present eligibility for tax relief, but that is a matter for fiscal law and not for us to determine in this Bill or for me to pronounce an opinion on. It would not be proper for me to go into the broader issue the hon. Member raised when he claimed that hire purchase was the poor man's method of getting bank loans and that, if we give tax relief on bank loans to people with the credit to obtain them, we should allow similar relief on h.p. agreements. I do not want to express an opinion one way or the other on that, but if I were a Treasury Minister I would only say, "I cannot anticipate the Chancellor's next Budget."

I do not know why the Parliamentary Secretary keeps dragging in the issue of consumer protection. I think that he is fascinated with the words. He seems to be under the impression that he understands what they mean. We will have to disabuse him of that before we finish.

In putting forward this Clause, we have no concern for the arrangements which finance houses make under present legislation—their split-minded activities, as the hon. Member calls them. We are not asking for tax exemption for finance companies or for tax relief for them. I could not care less if they do not get it. We are asking for tax relief for the customers. When the hon. Member says that we should not deal with fiscal questions in this legislation, I think he has the thing the wrong way round. Unless we include this Clause in the Bill we shall be using the Bill to stop customers on h.p. loans, so to speak, from getting the benefit of existing tax Laws.

I am sure it was never the intention in the Finance Acts to deny customers of h.p. loans the facilities for tax relief given to people getting personal loans from banks or insurance societies. As the hon. Member has said, the finance companies can make this arrangement within our existing tax law now, because they do it above the £300 limit and therefore do not get caught by h.p. legislation.

This Bill without our Clause will prevent poorer people from getting the benefit. In that sense, it will, in fact, interfere with the tax law. If the hon. Member cannot see that argument, and knowing how stubborn the Board of Trade can be, the only thing we can do is once more to register our protest at their inability to see something that ought to be done.

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

The House divided: Ayes 149, Noes 176.