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Clause 24. — (Rate of Corporation Tax for Financial Years 1964 and 1965, and Provisional Collection of Corporation Tax.)

Orders of the Day — Finance Bill – in the House of Commons at 12:00 am on 21st June 1966.

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3.45 p.m.

Photo of Mr Iain Macleod Mr Iain Macleod , Enfield West

I beg to move Amendment No. 4, in page 25, line 35, to leave out "40" and to insert "37½".

Photo of Dr Horace King Dr Horace King , Southampton, Itchen

With this Amendment may be discussed Amendment No. 183, standing in the name of the hon. Member for Barry (Mr. Gower), in page 25, line 35, leave out "40" and insert "36".

Photo of Mr Iain Macleod Mr Iain Macleod , Enfield West

This is perhaps the most important single Amendment we shall be discussing during the Committee stage of the Bill. It is always desirable in these cases that the Committee should have a clear picture of what the Government are proposing and of the alternative proposals of the Opposition. The figures are clear already. The Government propose 40 per cent, and we propose 37½ per cent. The mathematics behind them are often rather confusing. If we turn to Table 3 of the Financial Statement laid before the House on Budget day, we see the estimate for Corporation Tax put as £1,000 million both before and after the Budget changes.

I would have thought that there were a number of changes in the Budget that would have affected the calculation, but the more important point is that it is very difficult to see where this figure comes from. Clearly, it is a guess. It cannot be a coincidence that such an admirably round figure as £1,000 million is included. If we turn back to the 1965–66 Budget Estimate and Out-turn, which are in neighbouring columns, we see that Corporation Tax does not exist, so we are £1,000 million down. About £333 million of the £1,000 million comes from the severe drop in Profits Tax through the change from the old to the new system, and about £80 million or so comes from Income Tax.

That does not form even half of the £1,000 million and, making all allowance in the world for the buoyancy of the Revenue and other factors, I would like the Chief Secretary to explain a little more, if he can, this very odd figure of £1,000 million.

However that may be, on the day after the Budget, in my speech commenting on the Chancellor's proposals, we started a probe. The right hon. Gentleman will remember that my key question was what level the new system of Corporation Tax and Schedule F would have to be in order to produce the same Revenue as under the old system of Income Tax and Profits Tax. Originally, the figure was 35 per cent, and this figure was the one most frequently used in discussion of the Finance Act, 1965. But a number of concessions, or perhaps acknowledgments, were made by the Government during the course of the passage of that Act, and, as a result, the figure is higher than 35 per cent.

I gave it in my speech as 36½ and the right hon. Gentleman said, the next day —on 5th May, 1966, in col. 1877 of the OFFICIAL REPORT—that he did not quarrel with my estimate. Curiously enough, that makes me rather suspicious. I think that that must mean that my estimate suited him, because otherwise he would have quarrelled with it. I begin to think that I might have pitched it a little high.

However that may be, whether the figure is 36½ per cent, or 36 per cent., or some other more exact figure which perhaps the Chief Secretary will give us, he went on to justify the increase to 40 per cent, basically on two grounds. Not to put them in chronological order, the more important ground on which he rested was that as the new Schedule F tax does not have to be paid for a month after the date of payment, there will be only 11 months' receipt of the tax in the current year. The second and minor ground was that the increase in dividends last year as a result of forestalling would result in a fall in dividends this year.

There is something of a flaw in both arguments. To take what might be called the eleven-twelfths argument, I should have thought that the Chancellor would get his money more quickly, particularly on interim dividends, because, according to the Twelfth Schedule to the 1965 Finance Act, tax on distributions will be paid 14 days after the end of the month in which the dividend is paid.

The Chief Secretary did not tell us—I do not complain about this, because he was then giving a Second Reading answer and, in Committee, we can now discuss the matter in more detail—how much he expected to benefit from this, and there must be a benefit, and nor did he tell us—and this is a figure which I would very much like to have if it can be given—what he expected to get from Schedule F tax as a whole. Unless he gives us that, we cannot tell whether the eleven-twelfths argument is valid for upping the 36½ per cent., or 37½ per cent, which we suggest, to 40 per cent. On both these points more calculation seems to need to be done and more information, which the Committee can reasonably wish to have, should be given.

If the figure of £1,000 million is right for 40 per cent., I suggest that as a matter of arithmetic 37½ per cent, would cost £62½ million. I apologise for the complexities of my somewhat arithmetical introduction, but this is a matter on which the Chief Secretary was, naturally, somewhat short in his explanation and it is something which we would like him to expand when the time comes for him to reply.

In the second part of my speech I turn to the wider considerations. The best comment I can make is to give two short quotations from an article in the Investors Chronicle of 6th May, three days after the Budget and the day after the Chief Secretary had spoken. The article is called,"… and 40 per cent. it is" and it starts by saying: If you can sober up and stop throwing your hat in the air for a moment, you will realise that the failure to increase surtax and income tax is a snare and a delusion. Let's take a quick look at just what a 40 per cent, corporation tax means to companies and their investors. A few lines further on it added: … it is a nice bit of double talk to give transitional relief with one hand and snatch it back with the other in the shape of a higher rate of corporation tax plus a payroll tax. As I understand the position—and I have said this before and not been challenged—the old rates combined amounted to a total of 56¼ per cent. The new rate is equivalent to 64¼ per cent, and by any standard that is a massive increase which must be justified by the Government.

I take just one company to show the effects which this change could have, and I pick I.C.I. For I.C.I, the change between 35 and 40 per cent, means finding £4·3 million. It means that the dividend cover of this enormous firm drops from 1·06 times to 0·98 times, and for many companies, and I am thinking particularly of the stores who will have most serious problems in this respect and who are the companies which will be hurt most if the proposals for the Selective Employment Tax go through the House unamended, the difficulty may be even greater.

Many companies during the year had to decide what sort of figure might be in the Chancellor's mind when he rose to make his Budget Statement, which this year was later than usual because of the General Election. A company of which I am a director started by looking at its monthly accounts on the basis of 35 per cent, and moved, rightly as it has turned out, to 40 per cent, for about the last seven or eight months of the financial year. Most companies did that, and on the whole it was probably the wise and right course, but we are also entitled to remember that it was the figure of 35 per cent, which over and over again was bandied around the Committee and the House a year ago, and it is not surprising that many companies will find themselves in an even tighter liquidity squeeze as they try to "raise the wind" to meet the Chancellor's demands.

This gives added importance to the necessity for the Chancellor to make clear fairly soon what sort of instructions he is to give to the banks about advances to be made to meet the S.E.T. in the autumn of this year. I do not ask for an answer now. As the right hon. Gentleman knows, we rather hoped to. get an answer in the debate on the Regulator on Clause 15, somewhat late at night towards the end of last week, but the Chancellor was charmingly evasive and had nothing to say about it. It is a matter to which he must be giving a lot of thought.

This is an urgent matter from the point of view of a Budget judgment and to the banks and the companies who must know where they stand, and while I will say no more if the Chief Secretary does not want to comment on it today, I hope that, when he winds up the debate on the Second Reading of the S.E.T. Bill on Thursday, the Chancellor will say whether he can do so.

The Chief Secretary will no doubt argue the cost of our proposal. I made my own views clear on another Amendment yesterday. On these great matters I would not put forward a proposal unless I felt it to be something which, if the shoes were reversed, I could reasonably accept. I myself do not believe in the doctrine of what might be called the alternative Budget, which is that every time the Opposition put forward a proposal which would reduce or alter the Chancellor's Budget judgments, there is an obligation on them to fill in the amount which might be left vacant if the Committee happened to agree with the Opposition. That is not a doctrine to which I subscribed in government, except when I knew that I had a very bad case, and I used it in that sense from time to time, but that is not an argument which attracts me, particularly in opposition.

Even leaving aside all the questions of I.R.C. and the Land Commission, and free drugs, and so on, even within the Chancellor's own Budget, our proposals in relation to the premiums for manufacturing industry would certainly more than cover this proposal.

4.0 p.m.

The last point that I want to make is that the two explanations which the Chief Secretary gave for increasing the figure from 36½ per cent, upwards and ending at 40 per cent, and, as he said, going fractionally beyond 40 per cent, to achieve the same mathematical result, are both, in essence, temporary measures. He will acknowledge that. It was a point made by my right hon. Friend the Member for Barnet (Mr. Maudling) and in response the Chief Secretary simply said that all factors would be taken into account next year. We have very little confidence in that and in the desire of the present Administration to reduce the burden of temporary taxation and therefore we move this Amendment.

To summarise, first, it is quite clear that the mathematics, as they stand, are incomplete. Secondly, it is clear that the two arguments upon which the Chief Secretary most relied, anyway in his reply to me in the Budget debate, are temporary factors and we desire to put down a marker for him this year. We could have put down 36½ per cent. It would have been unreasonable for the Opposition to put down 35½ per cent, or even, to make allowances for special factors, the 36½ per cent, which otherwise would have broken even. We have gone to 37½ per cent, which is a full £30 million or so more than the 36½ per cent, which otherwise could be justified.

That seems to be an entirely responsible attitude for the Opposition to take. A 40 per cent. Corporation Tax is disturbingly high and it will have its most serious effect upon investment. The Chancellor must have read with some anxiety the comments of the C.V.I., which my hon. Friend the Member for Oswestry (Mr. Biffen) brought before this Committee in a debate on the Regulator. It is said that it might be that a dip was coming during the next 12 or 18 months. We believe that we have made out a formidable case on this Amendment and that the Government are on the wrong tack in this matter. We will certainly, in the absence of a miraculous change of mind which I do not expect from the Government, wish to press this Amendment to a Division.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

The right hon. Gentleman the Member for Enfield, West (Mr. Iain Macleod), is being a trifle disingenuous here. Of course, anyone would want to see a slightly lower rate of any form of taxation. I would have liked to have seen a rate lower than 40 per cent., but to suggest that we can save £62½ million and to make the point about the arithmetic accuracy, or how it has or has not arisen, is really to stretch this rather amusing point rather too far; as it is also to say that, while one has made a formidable case to reduce the revenue by £62½ million, one will not present to the Committee any other way in which this sum might be raised.

Most economists in all sections of the community, seem to have recommended that the amount taken as by the Chancellor this time, of about £242 million to £300 million is about right. As I said in the Budget debate, I would not have gone quite so far, but as I understand we are in agreement that this was about right. It is not being very responsible to suggest that £62½ million of revenue should be raised in one direction, without suggesting how it could be raised in another.

Photo of Mr Iain Macleod Mr Iain Macleod , Enfield West

I hold to the doctrine that when the Chancellor has presented his proposals we must judge and seek to amend them. In this case I made it clear that on the S.E.T. Bill we will move to strike out the premiums on manufacturing industries, which are more than twice the amount involved in this Amendment.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

That is an entirely different point. The right hon. Gentleman knows that I would have preferred the amount given in premiums to be used in a different way, perhaps not in quite the same way as the right hon. Gentleman. I do not wish to say any more about that. I would simply like to add a question to those posed by the right hon. Gentleman to the Chancellor about the enormous deflationary effect of S.E.T. and the liquidity position of companies as a result of the, approximately, £100 million a month being taken out from September onwards.

I noted the Chancellor saying that he would make something extra available to companies by way of special deposits, so reducing the amount that companies need to give by special deposits. I do not quite know what he has in mind, but I am particularly concerned about the small companies which are already borrowing to the hilt, and I would like to know what he proposes to do. It may be that this proposal could have the effect of putting into liquidation many of these small companies.

This may not have been the intention of the Chancellor, but I can see that, no matter what instructions he gives to banks, they may not be inclined to lend more to the small company, to whom they are already lending up to the hilt. I will be very interested to hear how he proposes to deal with this. As far as the Amendment is concerned, I am glad to note that the right hon. Gentleman is not advising his hon. and right hon. Friends to press it to a Division.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

Then I hope that it will be overwhelmingly defeated.

Photo of Sir Raymond Gower Sir Raymond Gower , Barry

I think that the hon. Gentleman the Member for Heywood and Royton (Mr. Barnett), would admit that even if an Opposition, or a number of critics of a Finance Bill, could agree a global amount of revenue, they would not necessarily accept in toto the allocation or proportion of that revenue to be collected in various ways. It is legitimate to suggest, as my right hon. Friend has done, that less be apportioned to one section of the collection of the revenue and compensated for in another manner. That is based on the assumption that an Opposition or a group of members agrees entirely with the exact apportionment prescribed by a Chancellor.

I trust that the Chief Secretary will not think that we are being unreasonable in looking critically, to put it no higher, at this particular figure. To oversimplify the matter, the first thing that we have to look at is the broad comparison between the former combined amount collected in company Income Tax and Profits Tax, and the amount which will now be collected in the combination of Corporation Tax and the Income Tax on company dividends. As my right hon. Friend has pointed out, we have a very big margin between the old combined rate of 56¼ per cent, and the new combined rate of 64¼ per cent.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

This figure was mentioned before by the hon. Gentleman's right hon. Friend. It is assuming that all public companies will distribute 60 per cent.

Photo of Sir Raymond Gower Sir Raymond Gower , Barry

If the hon. Gentleman had listened to me carefully, he would have noted that I said that we are faced, in the first place, with this broad comparison and I emphasise the word broad.

Photo of Sir Raymond Gower Sir Raymond Gower , Barry

It is fair. In the first place, these are the stark broad figures with which we are faced, although there may be variations within them. This is the first thing that we have to look at critically. During the debates on last year's Finance Bill—and the Chief Secretary was here practically all the time and played an enormous part in them—he will recall that throughout those debates, during the latter part, at any rate, there was a general impression that it would be a lower figure than this.

My hon. Friends will recall that 35 per cent, was constantly referred to. I remember the Chief Secretary saying that it might be 35, 36 or 37 per cent. I admit that he was never bound down, but he rarely said that it might be 40 per cent. The gravamen of his argument was that it would be 35 or 36 per cent., and he never talked in terms of 39 or 40 per cent.

The right hon. Gentleman is entitled to say that, after that, certain things happened. Certain concessions were made, but we respectfully submit that the Government must do one of two things. They must either be able to establish that the subsequent adjustments and tax changes justified the higher rate, or they must say clearly that they intend that companies should bear, and will in the future bear, a much heavier burden of taxation. The emphasis so far has been not that the companies should bear heavier burdens of taxation, but that the higher rate is called for by changes made during and after the passage of last year's Finance Bill.

If the Government say that companies are to bear a heavier burden of taxation, they must go further and justify not only the need for such a heavier burden but its value in the future. It is wrong that companies should in the future bear a much heavier burden of taxation.

We have had arguments about the general burden of taxation, and I should like to relate those arguments particularly to companies in all sections of industry, which includes not only the so-called productive industries, but also the service industries. The Chancellor has placed most companies in a very difficult position. There have been many involved and difficult tax changes, of which this is merely one. There is the new Selective Employment Tax, the change from investment allowances to investment grants, and the inter-relationship between these different things. It is extraordinarily difficult for the most skilled company advisers to calculate with any accuracy the cumulative effect of them all.

In this context, it is not unreasonable for us to press the right hon. Gentleman either to justify the raising of the rate or to explain that it is called for by some of the changes to which he referred last year and this. I support the Amendment.

Photo of Mr Frederic Harris Mr Frederic Harris , Croydon North West

I shall speak for only a few minutes, because my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) made such an interesting speech that I am waiting keenly to hear the Chief Secretary's reply.

I was called shortly after the Chancellor of the Exchequer delivered his last Budget speech, and I remember only too well how so many right hon. and hon. Members left the Chamber feeling, with a sigh of relief, that everything was going rather well. I took a very different view very soon afterwards, because it appeared to me, as I tried to calculate the situation with a 40 per cent. Corporation Tax, that on a general basis, apart from the individual cases which can be cited, company tax was going up by about 15 per cent. That was a terrific increase, and a very heavy burden for companies to stand.

In his speech this afternoon, my right hon. Friend the Member for Enfield, West referred to it as a massive increase, which is the right description. As my hon. Friend the Member for Barry (Mr. Gower) has reminded us, when the Corporation Tax was first announced a year ago the reference to 35 per cent, came out time and time again in our discussions. But I also remember that the Chancellor said on at least one occasion that 40 per cent, would be the absolute maximum, or words to that effect.

4.15 p.m.

I cannot find the relevant reference, but this was the indication which he gave. Knowing what a Socialist Chancellor would do, I automatically assumed the maximum, as chairman of a public company, when we were making our calculations before this Budget. I assumed that he would do the worst, and go to the full 40 per cent., and he did. I was even so unfair to him as to think that he might go above 40 per cent.

As has been rightly pointed out, on a broad basis of a 60 per cent, distribution, combined company tax is going up, in effect, from 56¼ per cent, to 64¼ per cent. This means that two-thirds of the profits of the main companies upon whom we depend for so much, particularly exports, will go in taxation. This is a fantastic burden, and, in common sense, there must be a limit to how far one can go.

It is all very well for us in industry to be constantly told that we can step up our efficiency by some mythical means to ease the burdens, or, increase production in one way or another. The real answer is that, sadly, people have to put two and two together and find the answer in the end, and the pressure comes on for increases in costs and prices, both of services and goods. Such a heavy burden of company taxation tragically means increases in costs. This goes on and on, and we return to the hopeless spiral from which everybody is constantly suffering, chasing after higher and higher prices all the time. Industry has no alternative but to do that.

I therefore support the view of my right hon. Friend the Member for Enfield, West that 40 per cent, is far too high. I trust that when we have a Conservative Administration again this percentage of Corporation Tax will be reduced. I realise that although it is right that we should force the Amendment to a vote this afternoon we shall get no change from the Chancellor for the moment. I cannot imagine that he intends to give us satisfaction on this point.

Photo of Mr Frederic Harris Mr Frederic Harris , Croydon North West

The Chancellor is very kind, but the two go hand in hand as far as I am concerned. I am waiting for the time when we have a Conservative Chancellor and can see a reduction in this fantastically massive rate.

Photo of Mr Rafton Pounder Mr Rafton Pounder , Belfast South

; I could not help being amused when my hon. Friend the Member for Croydon, North-West (Mr. Frederic Harris) said that he based his calculations of the tax on the maximum. Equally, one should proceed on the assumption that it is permanent. Consequently, I am interested but not impressed by the Chief Secretary's reference to the possibility of the tax not being permanent. There is no precedent from his party for this.

It is an acknowledged maxim of fiscal legislation that a tax should be easy to collect. This can, and does in a case such as we are discussing, result in a tendency for the Chancellor to increase a tax not because the category concerned should necessarily have its tax increased, but merely because it is the easiest way of raising additional revenue. I find myself in some difficulty, therefore, in drawing a distinction between taking the heat off the economy and raising revenue for expenditure purposes. If one wishes to take the heat off the economy, to go about it through an increase in Corporation Tax is somewhat strange. I should have thought that Income Tax, or, for that matter, Corporation Tax would be increased only when Government expenditure was directly intended.

On occasions such as this, I cannot help recalling the occasion when a distinguished visitor was being shown round a re-equipped and modernised factory in my constituency by one of the company's directors. The director said, almost tearfully, that, as a result of the modernisation programme the company was employing only half the number of people it had been employing, say, a decade or so before. What the director did not say, and what he should have said, was that, but for the modernisation, it probably would not have been employing anyone at all.

Modernisation is largely financed from retained company profits. Therefore, to increase Corporation Tax in this way is to do no more than penalise a company's ability to re-equip and modernise itself. A company, though it may be a corporate entity, must not be regarded as a broad and lucrative back which can be shaved at will. How can we hope to achieve the industrial modernisation which is the prerequisite of economic progress, and which everyone on both sides of the Committee agrees is necessary, if we are to have a savage increase in an already savage company tax bill?

Photo of Mr John Nott Mr John Nott , St Ives

There is another important matter arising out of this Amendment. I refer to the erosion of the Corporation Tax base. The suggestion that the rate should be 40 per cent, rather than 37½ per cent, is the first evidence of what I call the erosion of the tax base. As hon. Members know, the financing of companies has been made very much more expensive since the introduction of the Corporation Tax from the point of view of equity financing as opposed to debt financing. This applies to preference stock as well.

Since the introduction of the Corporation Tax, more and more companies have resorted to the loan capital market rather than the equity market to finance their expenditure. In due course, this will result in the erosion of the base upon which the Corporation Tax is levied. Equity financing is contracting and debt financing is expanding, and this process will continue from now on.

The Chief Secretary will know that one of the reasons for the high debenture rates in the market now is that companies, since the introduction of the Corporation Tax, have had far greater resort to loan capital finance. As this process continues, so will the Corporation Tax base shrink, and so will it be necessary year by year to raise the rate of Corporation Tax, as has happened on this occasion, in order to bring in a commensurate amount of revenue.

This situation will be seriously aggravated if the Government go ahead with the nationalisation of steel. This is closely -relevant to the Amendment now before us. If the nationalisation of steel comes about, it will take £600 million or so of equity out of the market, which, in terms of Corporation Tax yield, at 40 per cent, related to that £600 million, will represent £24 million. Thus, if steel nationalisation goes ahead, the base of the Corporation Tax will be further eroded, with the consequence that the rate will have to be raised again to bring in a commensurate amount of revenue. All the time, with a narrowing base and a rising rate, there will be a vicious circle.

I hope that the right hon. Gentleman will accept that what is going on now calls in question the whole basis of the Corporation Tax as a system of taxation. The base on which it is levied will narrow the whole time because debt financing is a charge for Corporation Tax purposes whereas equity dividends and preference dividends are not, and so the rate will have to rise year by year in order to bring in the same amount of revenue.

My question to the right hon. Gentleman is simply this: would I be right in saying that one of the principal reasons for the rise in the Corporation Tax rate is that, since the Chief Secretary announced a rate of 37½ per cent, as being the equivalent to the old basis of Income Tax and Profits Tax, the base upon which the Corporation Tax is levied has shrunk considerably? Is this not one reason why the rate has had to be raised to 40 per cent, on this occasion?

Photo of Mr Norman St John-Stevas Mr Norman St John-Stevas , Chelmsford

My intervention, too, will be brief, but brevity must not be taken as any reflection upon the importance of this Amendment. I respectfully agree with my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) that this is one of the most important, if not the most important, Amendments to the Finance Bill.

The importance which we on this side attach to the Amendment is shown, first, by the restrained manner in which it was moved by my right hon. Friend, and, second, by the modest reduction of 2½ per cent, which we propose. It is a modest reduction both in itself and when taken in the context of the Chancellor's general budgetary measures, which are highly deflationary and which will almost certainly have the economy moving sharply towards recession by the autumn.

In an intervention a few minutes ago, the Chancellor said that he would give the Committee satisfaction but not a reduction. Plainly, the only complete satisfaction we could have would be a reduction, but one can say that we should be less dissatisfied if, as a result of this Amendment, we were given additional information on how the Chancellor's figure has been arrived at. So far, we have been vouchsafed very little information on how this most important figure has been reached.

The burden of proof in justifying a level of 40 per cent, rests squarely upon the Government. The only figures we have had are the ones provided by my right hon. Friend. His calculation was that to maintain a rate of taxation equivalent to the previous Income Tax at 8s. 3d. and Profits Tax at 15 per cent., the Corporation Tax should have been at 36½ per cent. How is the gap between his figure of 36½ per cent, and the Chancellor's proposed 40 per cent, to be accounted for?

The Chancellor's rate of Corporation Tax is, moreover, a means of increasing taxation by stealth. Although the figure of 35 per cent, was bandied about when the Corporation Tax was first presented to the House, it was widely rumoured before the Budget that the tax would be higher, and people were psychologically conditioned to a rate in excess of 40 per cent. When the actual figure of 40 per cent, came out, there was a feeling of relief, which may have been psychologically justified but was certainly not statistically justified.

The effect of this high rate of tax on small companies has been referred to already by the hon. Member for Heywood and Royton (Mr. Barnett). It will be felt not only by small companies but, in particular, by new companies. This point was implicit in the important intervention made by my hon. Friend the Member for St. Ives (Mr. Nott), on which we hope that the Chief Secretary will comment.

This high rate of taxation is part of the dirigisme which the Government are attempting to impose upon the economy —obviously, quite unsuccessfully with their incomes policy, but only too successfully with their fiscal policy. With a 40 per cent, tax it will be almost impossible for the distribution of dividend by new and untried companies to take place at a level which will attract adequate risk capital. It will also greatly increase the difficulties of our overseas companies which contribute so much both in the short term and in the long term to our economic prosperity.

These bad effects are inherent in the tax itself. The merit of the Amendment is that it would to some extent limit these ill-effects. We cannot cure the evil of this tax entirely, but the Amendment is a responsible attempt to limit its bad effects.

4.30 p.m.

Photo of Sir Tatton Brinton Sir Tatton Brinton , Kidderminster

I, too, will be. brief in following up the points made by several of my hon. Friends about the effect of this tax, particularly in relation to dividends. The dividend receiver seems to be regarded these days as someone who merits no encouragement or assistance from the Government.

I should like to point out the effect of Corporation Tax on that part of the profits which are paid out in dividend. Until the introduction of Corporation Tax but taking the existing standard rate of Income Tax of 8s. 3d., for a shareholder to receive £1 after tax paid by the company, the company had to earn 45s. 8d. With Corporation Tax at 35 per cent., to pay out a net £1 after deduction of Income Tax, the company would then have to earn 52s. 4d., or an increase of 6s. 8d. in the amount which must be earned for that net payment. Under the rate of Corporation Tax now proposed at 40 per cent., to pay a net £1 to a shareholder after deduction of Income Tax, the company will have to earn 56s. 9d.

The result of this rate of Corporation Tax upon the shareholder and upon the company compared with the effect of the former system of Income Tax plus Profits Tax has, therefore, been that for every £1 paid after tax to a shareholder a company has to earn no less than an extra 11s. 1d.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

Nobody could possibly complain about the speeches which have been made on this issue. They have been short and to the point, and have dealt with a relevant and important question. I hope, therefore, that I shall have an opportunity of answering all the questions which have been put to me.

I hope that the right hon. Member for Enfield, West (Mr. Iain Macleod) will forgive me if, at the beginning of my reply, I take it that he was putting forward a probing Amendment. On that basis, all the questions raised by the right hon. Gentleman were fully justified. We will come later to the question whether a reasonable consequence of what the right hon. Gentleman said concerning his probing Amendment is a Division.

Let us, however, treat the Amendment as a probing Amendment to begin with. I will give the right hon. Gentleman the information for which he asked in detail and then deal more generally with some of the principles, some of them, alas, forgotten since they were discussed so regularly and with such persuasiveness from this side of the Committee and acceptance from the opposite side as to the Corporation Tax.

The £1,000 million is, admittedly, a round figure, to indicate two things. The first is that there is this year for this item a larger measure of doubt and error than is normally the case with taxes which have been levied year after year and where the circumstances have settled down. We are dealing with a quite unusual set of circumstances in this first year. Therefore, it was right to insert a figure which, by its lack of precision, would not mislead people into thinking that one could calculate to the nearest 1d. or, indeed, to the nearest £1.

It is not right to conclude from that that we are calculating to the nearest £1,000. It is the best estimate that we can put forward. If instead of a figure of £1,000 million we had put forward a figure of £1,002 million, it would have been misleading as to the accuracy with which one felt that the Revenue could calculate it.

I have been asked what Schedule F tax is estimated to produce as a whole, because that is the key to the figures which I have put before the Committee and which is well understood. The estimate for Schedule F tax—there is no reason why I should not be perfectly happy to give it to the Committee—is £575 million.

If we now do a little arithmetic—I know that the Committee does not like arithmetic, but it is the key of the right hon. Gentleman's speech—£575 million represents eleven-twelfths, having regard to the periods, of collection, of a full year's revenue. If we therefore add one-eleventh to get to twelve-twelfths, we are adding about £52 million—in round figures, £50 million. Fifty million pounds is approximately 5 per cent, of £1,000 million. If we add on 5 per cent., we are by this one item alone more than fully accounting for the difference between the right hon. Gentleman's figure of 36 or 36½ per cent, and the figure of 40 per cent. In short, this one item alone fully accounts for the difference.

Let me deal a little more carefully with the difference. The hon. Member for Barry (Mr. Gower) and some of his hon. Friends have talked about figures being bandied about. No figures were bandied about. No figures were bandied about last year. What I said in reply to the many questions put to me was that for the Committee to understand fully how a new system of taxation compared with an old system of taxation, it was vital to know at what rate the yield would be the same. I gave that rate several times in the initial stages of the debate as being 35 per cent.

When the concessions were asked for and made by my right hon. Friend the Chancellor, I said, and it was easily understood, that that 35 per cent, would, therefore, go up somewhat so that the same yield should be provided by a new system of taxation as compared with an old system of taxation. That was purely a mental process to understand what we were debating.

A second and separate issue is the rate which my right hon. Friend then said would apply this year. He made it clear that it would be wise to have regard to a figure of 40 per cent. That was what my right hon. Friend said in that context. The 35 per cent, was the figure which I gave in my context.

The 35 per cent, then went up to 36 per cent, or so. The right hon. Member for Enfield, West calculated that figure himself, and I agreed with it. Five per cent, on top of that would produce a figure of over 40 per cent. I said, and I repeat, that the best estimate which we have today is that comparing like with like, one would need to have a figure in excess of 40 per cent, to produce for the coming year the same revenue as was produced by the old system.

Of course, 36 per cent, and 5 per cent, makes 41 per cent. The general market estimate, based on that calculation, not on our psychology—it is not a difficult calculation to make—was 42½ per cent. When my right hon. Friend announced the figure of 40 per cent., he pleased those in the market because it was less than they expected and because it imposed a smaller burden than would have been the case under the old system had the rates remained unaltered at 41¼ per cent, for Income Tax and 15 per cent, for Profits Tax.

Photo of Mr Frederic Harris Mr Frederic Harris , Croydon North West

The Chancellor told the Committee last year that 40 per cent, would definitely be the maximum. I distinctly remember his saying that it would be the maximum. He did not give 40 per cent, as a general guide. There were many interchanges at that time on the point.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

There is nothing different in what I am saying compared with what the hon. Gentleman is saying. Nobody denies that the Chancellor referred to 40 per cent. Nobody denies that I referred many times to 35 per cent, as being the equivalent figure. I hope that I have satisfied the Opposition that the comparable rate would be in excess Of 40 per cent. The reason is very easy to see. The figure of 40 per cent, represents a lighter burden on industry, as industry and, indeed, the Stock Exchange fully recognised when my right hon. Friend made his announcement.

Photo of Sir Raymond Gower Sir Raymond Gower , Barry

The right hon. Gentleman is asserting that the Chancellor was fairly clear and unequivocal in his assessment of 40 per cent, as a wise figure. Can he explain why quite responsible large companies made provision for Corporation Tax at a lower rate than 40 per cent.?

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

The evidence is that they made provision at the rate of 40 per cent. I am not putting any new words in the mouth of the Chancellor of the Exchequer. If the hon. Gentleman wants to know what my right hon. Friend said, he can look it up in HANSARD.

I return to the 56¼ per cent., which is the comparison with last year, and the 64¾ per cent, which the Opposition—and I am surprised that the right hon. Gentleman should do this—support. I should have thought that for intelligent discussion we should compare like with like. It is nonsense to compare 64¾ per cent, with 56¼ per cent., as the right hon. Gentleman knows, and I hope he will forgive my saying so. The first figure to take into account is 40 per cent.

If a company proceeds to plough back all its taxed profits and does not distribute any dividend, its total burden of taxation is 40 per cent, compared with 56¼ per cent, under the previous system. If it proceeds to pay a dividend of 40 per cent, it will be on level pegging under the two systems. If it distributes more than 40 per cent.—for example, 55 per cent., a very high distribution—it would pay more. That is the intention of the Act. The intention of Corporation Tax is to encourage companies to plough back so as to achieve faster growth and greater efficiency.

The main argument produced by the Opposition in support of the theory that one should distribute to the shareholders and that the shareholders would in turn invest in new companies is totally destroyed when one considers the facts and statistics I gave them all last year.

4.45 p.m.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I am sorry that the hon. Gentleman has said that. I gave them last year and I repeat them now. I will write to the hon. Gentleman giving all the calculations and all the sources. I will expect a public letter from him saying whether they are untrue in this or that respect, or a withdrawal of what he has said.

Photo of Mr Patrick Jenkin Mr Patrick Jenkin , Wanstead and Woodford

The right hon. Gentleman is making too much of an intervention which should not have been made from a sedentary position. I am most grateful to him for his offer to write to me setting out the figures. I hope that he will show exactly where Harold Wincott went wrong in his articles in the Financial Times, which were diametrically opposed to what the right hon. Gentleman has been saying.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I have already written to Harold Wincott and told him. I will accept that I am taking too seriously into account an intervention made at a moment's thought and from a sedentary position, which is not the ideal position in which to think clearly. I hope that I have made it clear that a fair comparison is with a dividend of 40 per cent., which is an average dividend. We agree that the company which pays a higher dividend would pay a higher tax. But this is what the Corporation Tax is all about.

I hope that I have satisfied the Committee, first, that the figures are reasonably calculated; secondly, that we are absolutely honest in giving a comparison between the new system and the old system; and, further, that the Chancellor of the Exchequer, as he said when he first mentioned the tax, was not proposing to introduce penal taxation, but merely wanted to modernise the taxation system and to introduce a tax which encouraged efficiency, plough-back and development.

That was my right hon. Friend's purpose. He has carried it out by imposing a rate involving a somewhat lower burden of taxation than would otherwise have been the case. I repeat that it was absolutely right that we should have had this discussion, but if the Opposition wish to pursue to a Division an Amendment which would reduce the revenue for the current year by £67 million, I would regard that as a wholly irresponsible act.

Photo of Mr Geoffrey Hirst Mr Geoffrey Hirst , Shipley

What the Chief Secretary said has not satisfied me. I do not want to go over all the ground again. I do not question the right hon. Gentleman's sincerity, but it is not good enough to advance today one set of arguments, the thesis of which happens to fit in somewhat conveniently with his appreciation of what the effect on industry will be after he used last year a totally different set of arguments, at least as they were so understood by hon. Members, so as to justify a totally different figure. I am not saying that the right hon. Gentleman set out to do this. He knows that I do not accuse him of things of that sort. I am merely saying that that is the effect.

In several discussions last year on Corporation Tax, I sought to pitch my arguments and calculations—unfortunately, the HANSARD index is not up to date and it is difficult to find the references quickly —on the basis of a Corporation Tax of 40 per cent. Each time, the right hon. Gentleman, the Financial Secretary, or some other Government spokesman "shot me down in flames" by saying that the equivalent rate was 35 per cent. I cannot understand why the right hon. Gentleman keeps on talking about 40 per cent.

I am no judge of the truth of the matter, because I have not enough knowledge to know the truth of it, but the Committee does not wholly consist of relatively inexperienced people in these matters. Everyone on this side of the Committee truthfully got the impression which has been the basis of our argument today. If the truth of the matter, which I have not yet quite arrived at in the calculations, which are getting too technical and I want to deal with the principle, is more on the lines of what the right hon. Gentleman has said today, then unintentionally, of course, he grossly misled the Committee during the discussions on last year's Finance Bill. Certainly, he misled a very large number of companies who thought that they were making a reasonable provision on the basis of 35 per cent., although they recognised that there might be a liability up to 40 per cent. The right hon. Gentleman cannot have the argument both ways, to fit in conveniently with "shooting us down" on Amendment after Amendment last year, and then advance a totally different argument on the same basis so as to try to "shoot us down" this time.

I do not see how we can proceed to a Division, which, I think, would be very proper, until the position has been sorted out a little more. If any figures pass across the Committee to my right hon. and hon. Friends, I hope that I shall be supplied with a copy, because I wish to go into them as well.

A vast number of people were misled, and it is most improper for us to be challenged today when we base our arguments on those put to us from the Treasury Bench last year. It is very disturbing and I am not satisfied that we have the true position. Certainly, the country should have it, and quickly, and companies are entitled to know why they were misled. It is a very serious matter.

I want to refer briefly to the question of small companies, to which the hon. Member for Heywood and Royton (Mr. Barnett) also drew attention. He did not refer to what I am about to say, but to the fact that there is a burden on small companies. Under the previous law, at a time when Income Tax and Profits Tax were involved, in many instances they did not qualify for Profits Tax. They now all qualify for Corporation Tax, and I am not aware that the Government are doing anything to meet their case.

Take a company making a profit of £1,000. Under the old system, if it paid a. gross dividend of £400 it would suffer Income Tax on the £600 retained at 8s. 3d., or a taxed figure of £247 10s. The same company making the same profit now would have to pay £400 Corporation Tax plus Income Tax at 8s. 3d. on a dividend of £400, which is £165, making a total of £565, which is getting on very nearly for double. That is a grave disadvantage to smaller companies which, as far as I can see, do not find any place in any Amendment put forward by the Government.

I am seriously concerned with the picture which has been put across the Floor today. It is different from the one which the right hon. Gentleman gave us last year, or, at any rate, different from the only reasonable and proper interpretation that vast numbers of people could put upon his speeches on these occasions.

Photo of Mr Iain Macleod Mr Iain Macleod , Enfield West

My hon. Friend the Member for Shipley (Mr. Hirst) is right in saying that the Chief Secretary's explanation has been entirely unsatisfactory. As I hope to show in a moment, there is an elementary flaw in his argument. First of all, we did not expect to come to agreement on the matter, and he must not think that because I moved the Amendment in a relatively peaceable manner it is not a subject on which I feel deeply. It is.

There were some questions on the mathematics which I thought well worth probing. The Chief Secretary said, if I remember, that it was an intellectual nonsense in a discussion not to compare like with like. At one point in his speech, I wished that he could have looked round and seen two of his hon. Friends who, I think, saw the pitfall into which he dropped.

The right hon. Gentleman was talking about two quite different things. He said that because £50 million, the eleven-twelfths argument, is one-twentieth or 5 per cent, of £1,000, that alone explains the difference between the old figure and the new. That is quite untrue. It is a different 5 per cent., as anyone can see.

The increase from 35 per cent, to 40 per cent, is an increase of one-seventh, or 14 per cent. What the Chief Secretary has done is to commit an error into which a primary schoolboy would not have fallen. He has taken the 5 per cent, of the £1,000 and equated that with a 14 per cent, increase from 35 to 40 per cent.

Another way of proving that his figures are falsely based is that he claimed that the £50 million more than made up the 5 per cent, difference, and then he went on to say that the cost of our Amendment, which is 2½ per cent., is £67·5 million. With respect, the Chief Secretary ought not to put those sorts of arguments before the Committee and assume that we are not quick enough to take up the particular point that he made.

I do not want to go into his other points today. He said that the Stock Exchange was satisfied with the 40 per cent, and that prices rose accordingly. But the Stock Exchange has such a brilliantly delicate mechanism of discounting that, long before the event, it takes account of all these things. I often think that if an atom bomb fell somewhere, prices would rise the next day because it would have been discounted on the Stock Exchange and it could argue that only one bomb had fallen instead of two. The right hon. Gentleman knows that the mechanism of the City of London is so delicate that these matters are taken into account, and, therefore, there is no argument whatever.

I have shown that the right hon. Gentleman's mathematics are wrong, even though I had no advance notice of the points that he would make. I believe that his philosophy is wrong, too. He says, finally, that the Amendment is irresponsible. I should have thought that we had proved yesterday that we on this side do not take an irresponsible attitude in these matters.

I said yesterday that I could not recommend my right hon. and hon. Friends to vote for a particular Amendment simply because I knew that I could not have accepted what it involved if I had been Chancellor of the Exchequer. If

I were Chancellor today, I honestly believe that 37½ per cent, is where I should have sought to put the figure for this year. That being so, I think it right that my right hon. and hon. Friends should divide the Committee.

Question proposed, That "40" stand part of the Clause:—

The Committee divided: Ayes 248, Noes 173.

Division No. 35.]AYES[4.58 p.m.
Abse, LeoDoig, PeterJohnson, Carol (Lewisham, S.)
Allaun, Frank (Salford, E.)Donnelly, DesmondJohnston, Russell (Inverness)
Alldritt, WalterDunn, James A.Jones, Dan (Burnley)
Allen, ScholefieldDunwoody, Mrs. Gwyneth (Exeter)Jones, J. Idwal (Wrexham)
Archer, PeterDunwoody, Dr. John (F'th & C'b'e)Judd, Frank
Armstrong, ErnestEadie, AlexKelley, Richard
Ashley, JackEdelman, MauriceKenyon, Clifford
Atkins, Ronald (Preeton, N.)Edwards, Rt. Hn. Ness (Caerphilly)Kerr, Dr. David (W'worth, Central)
Atkinson, Norman (Tottenham)Edwards, Robert (Bilston)Lawson, George
Bagier, Gordon A. T.Edwards, William (Merioneth)Ledger, Ron
Barnes, MichaelEllis, JohnLever, Harold (Cheetham)
Barnett, JoelEnglish, MichaelLewis, Arthur (W. Ham, N.)
Baxter, WilliamEnsor, DavidLomas, Kenneth
Beaney, AlanEvans, Albert (Islington, S.W.)Loughlin, Charles
Benn, Rt. Hn. Anthony WedgwoodEvans loan L. (Birm'h'm, Yardley)Luard, Evan
Bennett, James (G'gow, Bridgeton)Faulds, AndrewLubbock, Eric
Bessell, PeterFernyhough, E.Lyone, Edward (Bradford, E.)
Bidwell, SydneyFinch, HaroldMabon, Dr. J. Dickson
Binns, JohnFitch, Alan (Wigan)McBride, Neil
Bishop, E. S.Fletcher, Raymond (Ilkeston)McCann, John
Blackburn, F.Fletcher, Ted (Darlington)MacColl, James
Blenkinsop, ArthurFloud, BernardMacDermot, Niall
Boardman, H.Foot, Michael (Ebbw Vale)Macdonald, A. H.
Booth, AlbertForrester, JohnMcKay, Mrs. Margaret
Boston, TerenceFowler, GerryMackenzie, Alasdair(Ross&Crom'ty)
Bowden, Rt. Hn. HerbertFraser, John (Norwood)Mackenzie, Gregor (Rutherglen)
Braddock, Mrs. E. M.Fraser, Rt. Hn. Tom (Hamilton)McMillan, Tom (Glasgow, C.)
Bradley, TomGalpern, Sir MyerMcNamara, J. Kevin
Bray, Dr. JeremyGardner, A. J.MacPherson, Malcolm
Brooks, EdwinGarrett, W. E.Mahon, Peter (Preston, S.)
Brown, Rt. Hn. George (Belper)Garrow, AlexMahon, Simon (Bootle)
Brown, Hugh D. (G'gow, Provan)Gordon Walker, Rt. Hn. P. C.Mallalieu, E. L. (Brigg)
Brown,Bob(N'c'rle-upon-Tyne,W)Courlay, HarryMallalieu,J.P.W.(Huddersfield,E.)
Brown, R. W. (Shoreditch & F'bury)Gray, Dr. HughManuel, Archie
Buchan, NormanGreenwood, Rt. Hn. AnthonyMapp, Charles
Buchanan, Richard (G'gow, Sp'burn)Griffiths, David (Rother Valley)Marquand, David
Butler, Herbert (Hackney, C.)Griffiths, Rt. Hn. James (Llanelly)Mason, Roy
Callaghan, Rt. Hn. JamesGriffiths, Will (Exchange)Mayhew, Christopher
Cant, R. B.Grimond, Rt. Hn. J.Mendelson, J. J.
Carmichael, NeilHale, Leslie (Oldham, W.)Mikardo, Ian
Carter-Jones, LewisHamilton, James (Bothwell)Millan, Bruce
Chapman, DonaldHamilton, William (Fife, W.)Mitchell, R. C. (S'th'pton, Test)
Coleman, DonaldHamling, WilliamMolloy, William
Concannon, J. D.Hannan, WilliamMorgan, Elystan (Cardiganshire)
Conlan, BernardHarper, JosephMorris, Alfred (Wythenshawe)
Cousins, Rt. Hn. FrankHattersley, RoyMorris, Charles R. (Openshaw)
Craddock, George (Bradford, S.)Hazeil, BertMoyle, Roland
Crawahaw, RichardHealey, Rt. Hn. DenisMurray, Albert
Crossman, Rt. Hn. RichardHeifer, Eric s.Neal, Harold
Cullen, Mrs. AliceHerbison, Rt. Hn. MargaretNoel-Baker,Rt.Hn.Philip(Derby,S.)
Dalyell, TamHooley, FrankOakes, Gordon
Darling, Rt. Hn. GeorgeHomer, JohnOgden, Eric
Davidson, Arthur (Accrington)Howarth, Harry (Wellingborough)O'Malley, Brian
Davidson, James (Aberdeenshire,W.)Howarth, Robert (Bolton, E.)Orme, Stanley
Davies, G. Elfed (Rhondda, E.)Howie, W.Oswald, Thomas
Davies, Harold (Leek)Hoy, JamesOwen, Dr. David (Plymouth, S'tn)
Davies, Robert (Cambridge)Hughes, Emrys (Ayrshire, S.)Owen, Will (Morpeth)
de Freitas, Sir GeoffreyHughes, Roy (Newport)Page, Derek (King's Lynn)
Dell, EdmundHunter, AdamPaget, R. T.
Dempsey, JamesJackson, Colin (B'h'se & Spenb'gh)Palmer, Arthur
Dewar, DonaldJay, Rt. Hn. DouglasPannell, Rt. Hn. Charles
Diamond, Rt. Hn. JohnJeger, George (Goole)Pardoe, J.
Dickens, JamesJeger,Mrs.Lena(H'b'n&St.P'cras,S.)Park, Trevor
Dobson, RayJenkins, Hugh (Putney)Parker, John (Dagenham)
Parkyn, Brian (Bedford)Shinwell, Rt. Hn. E.Watkins, David (Consett)
Pentland, NormanShore, Peter (Stepney)Wellbeloved, James
Perry, Ernest G. (Battersea, S.)Short.Rt.Hn.Edward(N'c'tle-u-Tyne)Whitaker, Ben
Perry, George H. (Nottingham, S.)Silkin, John (Deptford)Williams, Alan Lee (Hornchurch)
Price, Christopher (Perry Barr)Silverman, Julius (Aston)Williams, Clifford (Abertillery)
Price, Thomas (Westhoughton)Skeffngton, ArthurWilliams, W. T. (Warrington)
Probert, ArthurSlater, JosephWillis, George (Edinburgh, E.)
Pursey, Cmdr. HarrySmall, WilliamWilson, Rt. Hn. Harold (Huyton)
Rankin, JohnSpriggs, LeslieWilson, William (Coventry, S.)
Reynolds, G. w.Steel, David (Roxburgh)Winnick, David
Rhodes, GeoffreySteele, Thomas (Dunbartonshire, W.)Winstanley, Dr. M. P.
Roberts, Albert (Normanton)Summerekill, Hn. Dr. ShirleyWinterbottom, R. E.
Robinson, W. O. J. (Walth'stow, E.)Symonds, J. B.Woodburn, Rt. Hn. A.
Rodgers, William (Stockton)Thornton, ErnestWoof, Robert
Roebuck, RoyTinn, JamesYates, Victor
Rose, PaulTomney, FrankZilliacus, K.
Ross, Rt. Hn. WilliamVariey, Eric G.Rowlands, E. (Cardiff, N.)
Wainwright, Richard (Colne Valley)TELLERS FOR THE AYES:Shaw, Arnold (Ilford, S.)
Walker, Harold (Doncaster)Mr. Grey and Mr. Whilock
Sheldon, RobertWallace, George
NOES
Alison, Michael (Barkston Ash)Hall, John (Wycombe)Munro-Lucas-Tooth, Sir Hugh
Allason, James (Hemel Hempstead)Hall-Davis, A. G. F.Murton, Oscar
Astor, JohnHamilton, Michael (Salisbury)Nabarro, Sir Gerald
Atkins, Humphrey (M't'n & M'd'n)Harris, Frederic (Croydon, N.W.)Noble, Rt. Hn. Michael
Awdry, DanielHarrison, Brian (Maldon)Nott, John
Baker, W. H. K.Harvey, Sir Arthur VereOnslow, Cranley
Balniel, LordHarvie Anderson, MissOrr, Capt. L. P. S.
Batsford, BrianHawkins, PaulOrr-Ewing, Sir Ian
Beamish, Col. Sir TuftonHay, JohnOsborn, John (Hallam)
Bennett, Sir Frederick (Torquay)Heald, Rt. Hn. Sir LionelOsborne, Sir Cyril (Louth)
Biffen, JohnHeath, Rt. Hn. EdwardPage, Graham (Crosby)
Biggs-Davison, JohnHeseltine, MichaelPage, John (Harrow, W.)
Birch, Rt. Hn. NigelHiggins, Terence L.Pearson, Sir Frank (Clitheroe)
Black, Sir CyrilHiley, JosephPeel, John
Blaker, PeterHill, J. E. B.Peyton, John
Bossom, Sir CliveHirst, GeoffreyPike, Miss Mervyn
Boyd-Carpenter, Rt. Hn. JohnHooson, Rt. Hn. Sir JohnPink, R. Bonner
Brewis, JohnHogg, Rt. Hn. QuintinPounder, Rafton
Brinton, Sir TattonHolland, PhilipPowell, Rt. Hn. J. Enoch
Brown, Sir Edward (Bath)Hordern, PeterPrior, J. M. L.
Bruce-Gardyne, J.Howell, David (Guildford)Pym, Francis
Buchanan-Smith, Alick(Angus,N&M)Hunt, JohnRidley, Hn. Nicholas
Bullus, Sir EricHutchison, Michael ClarkRidsdale, Julian
Campbell, GordonIremonger, T. L.Roots, William
Chichester-Clark, R.Irvine, Bryant Godman (Rye)Rossi, Hugh (Hornsey)
Clark, HenryJenkin, Patrick (Woodford)St. John-Stevas, Norman
Ctegg, WalterJennings, J. C. (Burton)Scott, Nicholas
Cooke, RobertJohnson Smith, G. (E. Grinstead)Sharpies, Richard
Cooper-Key, Sir NeillJopling, MichaelShaw, Michael (Sc'b'gh & Whitby)
Cordle, JohnJoseph, Rt. Hn. Sir KeithSinclair, Sir George
Craddock, Sir Beresford (Spelthorne)Kaberry, Sir DonaldSmith, John
Crawley, AidanKershaw, AnthonyStoddart-Scott, Col. Sir M. (Ripon)
Crosthwaite-Eyre, Sir OliverKitson, TimothyTalbot, John E.
Crouch, DavidLancaster, Col. C. G.Tapsell, Peter
Cunningham, Sir KnoxLangford-Holt, Sir JohnTaylor, Sir Charles (Eastbourne)
Dalkeith, Earl ofLegge-Bourke, Sir HarryTaylor,Edward M.(G'gow,Cathcart)
Dance, JamesLewis, Kenneth (Rutland)Taylor, Frank (Moss Side)
Dean, Paul (Somerset, N.)Lloyd, Ian (P'tsm'th, Langstone)Temple, John M.
Deedes, Rt. Hn. W. F. (Ashford)Longden GilbertThatcher, Mrs. Margaret
Dodds-Parker, DouglasLoveys, W. H.Tilney, John
Doughty, CharlesMcAdden, Sir StephenTurton, Rt. Hn. R. H.
Eden, Sir JohnMacArthur, IanWalker, Peter (Worcester)
Elliot, Capt. Walter (Carshalton)Maclean, Sir FltzroyWall, Patrick
Errington, Sir EricMacleod, Rt. Hn. IainWalters, Denis
Eyre, ReginaldMcMaster, StanleyWard, Dame Irene
Farr, JohnMacmillan, Maurice (Farnham)Weatherill, Bernard
Fisher, NigelMaddan, MartinWebster, David
Fortescue, TimMaginnis, John E.Wells, John (Maidstone)
Fraser.Rt.Hn.Hugh (St'fford & Stone)Mathew, RobertWhitelaw, William
Gilmour, Ian (Norfolk, C.)Maude, AngusWills, Sir Gerald (Bridgwater)
Clover, Sir DouglasMaudling, Rt. Hn. ReginaldWilson, Geoffrey (Truro)
Glyn, Sir RichardMaxwell-Hyslop, R. J.Wolrige-Gordon, Patrick
Goodhart, PhilipMaydon, Lt.-Cmdr. S. L. C.Woodnutt, Mark
Goodhew, VictorMills, Peter (Torrington)Worsley, Marcus
Cower, RaymondMills, Stratum (Belfast, N.)Younger, Hn. George
Grant, AnthonyMitchell, David (Basingstoke)
Grieve, PercyMonro, HectorTELLERS FOR THE NOES:
Griffiths, Eldon (Bury St. Edmunds)Morrison, Charles (Devizes)Mr. R. W. Elliott and Mr. More.
Gurden, HaroldMott-Radclyffe, Sir Charles

Question proposed, That the Clause stand part of the Bill.

Mr. Cower:

The Clause as it stands prescribes that For the financial years 1964 and 1965 the rate at which corporation tax is charged shall be 40 per cent. When the Chief Secretary was dealing with our proposed Amendment to the Clause he seemed to imply that companies were lucky to get away with a figure of 40 per cent. I thought that this had ominous tones for the future. I hope that this is not so.

We accept that this form of taxation has been integrated into our tax system, but we remain critical about the rate. We do not take the view that companies in this country are "lucky to get away with it" if they have to pay a rate as high as this.

Question put and agreed to.

Clause ordered to stand part of the Bill.