FINANCE (No. 2) BILL

Part of the debate – in the House of Commons at 12:00 am on 2nd June 1965.

Alert me about debates like this

Photo of Mr Norman St John-Stevas Mr Norman St John-Stevas , Chelmsford 12:00 am, 2nd June 1965

The hon. Member for Westhoughton (Mr. J. T. Price) some time ago and the hon. Member for Colne Valley (Mr. Duffy) more recently referred to this Amendment as a wrecking Amendment. It is, of course, nothing of the kind. It is a saving Amendment, because it will give the Government some time to think out the implications of this tax, implications which, this debate has made abundantly clear, had not been thought out before the Bill was introduced. It is quite clear that there has been insufficient thought behind this Clause; there has been inadequate preparation; and above all, there has been no sustained effort to obtain evidence of the need for this tax or to work out what its effects are likely to be.

The Chancellor referred earlier to the transitional difficulties which the Clause had raised, but what has become clear in the course of this debate is that there are fundamental difficulties which have never been adequately considered on the Treasury Bench. We do not know whose fault this is; whether it is the fault of the inadequate research services at Transport House, or because under our constitution the party in opposition has to make do with very inadequate research facilities indeed. The point of this Amendment, however, is to allow that research to take place now: better late than never.

Another reason for the moving of this Amendment is the quite extraordinary moment which the Government have chosen to introduce this new tax. No one thinks that the tax system is perfect, but this is surely a very curious time to introduce a radical revolution of this kind when we are facing a grave financial crisis, a deficit overseas, and a crisis of confidence induced by the actions of the present Government. Furthermore, it is being introduced at a period when above all we need a tax system to encourage competition and efficiency—and those are the two things which this new Clause does nothing to bring about.

We have heard some weighty arguments against this tax, but one has heard very little in the way of argument for it. We have heard a lot of declarations of faith from Government spokesmen; we have heard hardly any reasoned argument for the change.

I want to deal first with the effect of the Corporation Tax on overseas investment. The Chancellor said that a favourable balance of payments must be a first priority. We all agree with this. What he failed to demonstrate was how this tax will in any way help to improve our balance of payments problem. He said that we must make foreign investments more selective and that was the whole case for this tax as regards overseas investments. Not one piece of evidence has been produced to show how this tax is going to work selectively. In fact the major criticism of the tax, from the overseas investment point of view, is that it is totally indiscriminate. It will deter overseas investment of all kinds. The objection that can be raised to this tax is precisely this, that it is a blanket tax applying to all companies irrespective of the circumstances in which they may be operating.

To take one example, although many could be quoted, the situation of British Petroleum and the situation of Shell are totally different. This tax will affect them in very different ways to the detriment in particular of the British Petroleum Company. The effect will be to discourage overseas investment indiscriminately and it is an extraordinary situation that a Government which came in pledged to increase investment, particularly in the under-developed countries, and which has for so long affected an attitude of moral superiority on this point, should be dealing investment overseas such a serious blow.

In a number of respects this Corporation Tax will positively worsen our balance of payments situation. Much of investment overseas goes into the actual promotion of exports. We do not have exact figures for it. One example of this was touched on in an intervention by my hon. Friend the Member for Kidderminster (Sir T. Brinton) when he pointed out that in the carpet industry there was a large export trade with Australia and that when domestic production grew up after a time, in order to maintain that market it was necessary to manufacture on the spot. That is precisely the sort of remedial treatment, when sales are going down because of domestic competition in an overseas market, that is made much more difficult by this Clause.

There is also the extremely important position of the E.E.C. As long as we are excluded from the E.E.C., and certainly we shall be excluded as long as the present Government are in power, it becomes vital for us to beat the tariff barriers which are raised against us, by investing within the community itself. This Clause will be a major obstacle to that kind of investment. There is another point that will again be harmful to our balance of payments, arising directly from this Clause. Companies trading overseas are now faced with a threat of penal taxation of anything between the rate of 41 per cent. and 65 per cent. on profits which they transmit to this country. While this uncertainty lasts they will not transmit those profits and if, as seems likely, this rate of taxation is penally high, they will not transmit them at all.

Those are some reasons for opposing this Clause, because it will have a harmful effect on our overseas investment. All these arguments are equally applicable to the situation today or that in seven or 10 years' time. The absurdity of the attitude of the hon. Gentlemen opposite is that they expect us to treat a temporary concession as though it were a major revolution in their attitude. The hon. Member for Meriden (Mr. Rowland) said that we should be deeply grateful for these changes. All that we and British industry have got is a suspended sentence. Why should be be particularly grateful for that? The guillotine is on the way down. It has been temporarily suspended, but the head of industry is still on the block.

If we turn to the home scene, we see that the impact of this proposed Corporation Tax will be equally disastrous. First, it will impose, or is likely to impose, extra burden of taxation on industry. It will make it extremely difficult for the great companies, which are the mainstay of our industrial effort, to maintain their dividends. That is not something to rejoice over, as some hon. Gentlemen opposite seem to imply. It is quite deplorable.

The Chancellor spoke about a high distribution of profits as though that was something immoral, and it was matched by sentiments expressed by hon. Gentlemen opposite that high profits in themselves are immoral. But both these things are perfectly justifiable within the context of our economy. High profits are an indication of efficiency, and a high distribution of profits can be extremely useful in attracting capital, especially risk capital, into new industries.

The Chancellor said that some companies would undoubtedly benefit from Corporation Tax as it is laid down in this Clause. He did not specify which companies would benefit. One thing that is certain is that not only the old-established companies will suffer. The ones which will suffer much more are the new enterprising companies which are trying to break into new fields of endeavour. The effect of the Corporation Tax will be to freeze British industry into a much more rigid pattern than was imposed under the old system.

The third count of the indictment against the Corporation Tax is that it is entirely irrelevant to our economic needs. It does nothing for investment. On the contrary, it reduces the investment allowances. If the Corporation Tax runs at the minimum rate of 35 per cent., investment allowances will go down by more than one-third. It will reduce the money available for investment, because if the great established companies are to keep faith with their shareholders and maintain their dividends—and this is certainly what they should do, because it is on the basis of their dividends in the past that thousands, and perhaps millions, of investors put their savings into these companies—they will have to do so at the expense of the money available for investment in the company itself.

The Corporation Tax does nothing to increase efficiency. It may, in fact, discourage rapidly growing companies from distributing their profits. I suppose that some argument can be made for that, but at the same time this tax will provide a shield behind which inefficient companies will be able to shelter, because competition in dividend distribution, which is one of the essential checks of the market, and one of the things which divides the inefficient company from the efficient one, and exposes efficiency and inefficiency to investors, will be seriously interfered with.

No case has been made on its merits, nor has it been attempted to make one on its merits, for this tax. It can be justified only on the ground of change for change's sake, which is a sillier doctrine even than that attributed to the Bourbons.

We have had echoes during the debate of the absurd theory that there are somehow two completely distinct entities, the company on the one hand and the shareholders on the other; that these entities are totally separate; that they are creatures inhabiting different planets and that there is no identity of interest between them. This is to mistake speculation for investment and to confuse speculators with shareholders. Of course there is an identity of interest between a company and its shareholders. Both have an equal interest in seeing that company prosper and grow. It is the fundamental objection to, just as it is the fundamental justification put forward for, this tax, that it ignores that basic community of interest, which is a fact of industrial and commercial life.

That is not the least of the reasons for opposing this tax. If we can get rid of it altogether, all the better. If we cannot do that, the best we can do is to postpone it so that the damage which it will undoubtedly do will be deferred until the last possible moment.