Orders of the Day — Finance Bill

– in the House of Commons at 12:00 am on 13th July 1966.

Alert me about debates like this

As amended, further considered.

3.43 p.m.

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

Before I call the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) to move Amendment No. 102, it might be helpful to the House if I announce that I have slightly revised my selection of Amendments for today, having heard representations from the Opposition.

Amendment No. 24 is now selected and Amendment No. 63 is now not selected. Otherwise, the selection stands exactly as yesterday.

Clause 28.—(DIVIDENDS PAID OUT OF PRE-1966–67 PROFITS.)

Mr. Patrick Jerkin:

I beg to move Amendment No. 102, in page 29, line 21, at the end to insert: Provided that this subsection shall not apply to dividends received in the year 1965–66 from a subsidiary company which had suffered a loss in the year 1965–66 as computed for the purposes of corporation tax to the extent that such dividends are not in excess of the amount of such loss, and further provided that the amount of one year surplus accruing to the first-mentioned company by reason of such dividend shall be reduced by any three-year surplus attributable to the subsidiary company. With this Amendment, and the Clause which it seeks to amend, we come to what I am sure all hon. Members regard as one of the most complex pieces of tax legislation that the House has ever had to consider. This part of the Bill deals with the one-year and three-year surplus transitional provisions, covering the taxation of pre-Corporation Tax profits, and the Clause makes amendments to the Sections and Schedules of last year's Finance Act.

In Committee, I was critical, I believe rightly so, of the Government's incompetence in having forced the legislation through last year at such a pace that the Parliamentary draftsmen unwittingly perpetrated what was a monumental miscalculation. We have since been told that this resulted in £100 million of relief which was not intended to be given. I will not reiterate those criticisms, except to say that the Government should be under no illusion at all as to the irritation and annoyance that this has created among those groups of companies which are affected. I will only refer the Chief Secretary to the remarks made by the Chairman of the Rio Tinto Company, if the right hon. Gentleman needs any evidence.

In particular, I refute the statement made in Committee by the hon. Member for Orpington (Mr. Lubbock), who referred to "synthetic indignation" expressed by hon. Members of the Conservative Party. That was absolute nonsense. The hon. Gentleman's statement was not justified in any way. The indignation expressed by those taxpayers who have been affected by this change in the law amounts to nothing less than a sense of outrage, since the relief to which they thought they were entitled has been greatly curtailed.

I begin with the assertion that the curtailing, in a sense retrospectively—although I appreciate the point made in the Clause—of this relief imposes on the Government a duty to make absolutely certain that the withdrawal of the relief goes no further than is necessary. This and a number of other Amendments attempt to deal with the problem where we feel that it is going further than is necessary and I trust that the Government will listen sympathetically to the case that I intend to make.

In his Budget Statement, in May, the Chancellor referred to the withdrawal of this relief given by the Finance Act, 1965, and he mentioned that the profits of subsidiaries and dividends were to be disallowed from qualifying for relief if they would have borne Corporation Tax. A number of people thereupon assumed that it was only in respect of such profits of those subsidiaries on which dividends had been paid that the relief would be withdrawn. In Committee we moved a number of Amendments aimed at that, but having heard what the Chief Secretary said on that occasion, and having since received a helpful letter from him, it is now apparent that the Chancellor's remarks were, to say the least, somewhat misleading. The withdrawal of the relief is apparently intended to go a great deal further than we thought and the question of chargeability to Corporation Tax of the subsidiary's profits is really no test at all.

I will deal, first, with the one-year surplus. The purpose of Section 85 is apparently confined to cases where the profits earned in 1965–66 were charged to Income Tax and Profits Tax. It is argued, therefore, that it is only in those circumstances—where there was an actual charge to Income Tax on profits for that year—that it is intended that the relief should operate and that it has nothing whatever to do with the fact that they have been charged to Corporation Tax.

The Chief Secretary said in his letter— and with this I am bound to agree—that it would not be right to give to groups of companies any greater relief under Section 85 than is available to a company trading on its own as a single company. I fully concede that this is a principle which it appears right to observe, but I add a gloss, which is that it should be "so far as comparable". The burden of the Amendment, and a number of others which will follow it, is that groups of companies, particularly when dealing with the distribution policy of subsidiaries in groups of companies are not comparable with companies trading on their own; and that, in certain circumstances, events may have happened which would make it a matter of justice that the withdrawal of the relief affected by the Clause should be modified to take into account the fact that groups of companies have different circumstances applying to them.

The Amendment deals with the case where a subsidiary has made a loss in 1965–66 and has paid a dividend out of of its pre-1965–66 profits. I concede straight away that this, by itself—were it a single company trading on its own —would not qualify it for the one-year surplus, but it does not follow that this is necessarily right in the treatment of a group. A single company in these circumstances would almost certainly, if it remained in being, qualify for the threeyear surplus, which is calculated in an entirely different way, as the Chief Secretary appreciates. I need not go into the details of this, except to say that, basically, it is where the dividends of 1966–69 exceed the distributable profits for the years 1967–68.

This is not necessarily so with a member of a group. There, the distribution policy will be governed by the parent's policy. The parent will deter- mine what distribution to expect from its subsidiaries on the basis of the requirements of the group as a whole, but the fact is that the dividends in the past from a subsidiary may have been so great that there is now no possibility of that subsidiary qualifying for the three-year surplus; that is to say, it may have no past profits out of which to pay future dividends in excess of its own future profits. Therefore, in such a case only the one-year surplus is available. It was available to the parent under the 1965 Act, and it has now been withdrawn.

The Amendment deals with the case where the subsidiary has suffered a loss in 1965–66, and its intention is to give the relief up to the amount, but not exceeding the amount, of that loss. The Amendment provides, as I am sure the Chief Secretary has appreciated, the safeguard for the Revenue—so as to make the Amendment, I hope, more acceptable to the Revenue. If by any chance I am wrong, and the subsidiary will still in some way qualify for the three-year surplus, although I have indicated circumstances where it could not, there is the further proviso in the last three lines that if the subsidiary later became entitled to the three-year surplus it would operate to reduce the one-year surplus receivable by the holding company.

The point of this Amendment and of one or two other Amendments, is that groups of companies are different in kind from and not comparable in all respects with the single company, and it would be wrong in those circumstances to ignore all inter-company dividends, which the Clause does. I think that this is a case where relief ought to be available, and the Amendment provides a suitable safeguard.

I hope that in those circumstances the Chief Secretary will regard it as acceptable.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I should like, first, to say, if I may without embarrassing the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin), that I entirely agree with most of what he said to begin with. I entirely agree that this is a very complicated section of the Income Tax law. I entirely agree that there is a responsibility on the Government, having taken the steps—the proper steps, as I hope the House will feel—that they did, not to go beyond what is absolutely necessary to ensure that the Revenue is reasonably protected.

I accept that basic philosophy, but I have difficulty in accepting the Amendment because, as the hon. Gentleman has made clear, his basis for moving it rests really on the one proposition that a group of companies is so different from a single company carrying on that totality of trade and making the same total profit, or whatever may be the case, that one should be able to avoid one of the major exclusions, or perhaps the major exclusion, from the one-year surplus relief; that it is so different that one should be able to avoid that exclusion.

The exclusion to which I refer is that to which the hon. Member himself referred, namely, going back earlier than 1965–66 to ascertain the profits, and to use the tax that was paid in those years as an offset to obtain the one-year surplus. If I may say so, the hon. Member has absolutely correctly described the three-year surplus, and if I might add just one sentence to it, the three-year surplus is the normal relief.

The one-year surplus is an abnormal relief. There were very unusual circumstances applying to that particular year. It is, therefore, totally irrelevant to the one-year surplus that the particular company, be it the parent or the subsidiary, has made profits in previous years out of which it has paid Profits Tax and Income Tax.

As we are on the common ground that, if this were one company and not a group, the hon. Gentleman would not be attempting to persuade me that one should accept this Amendment—because in that case one would be going completely beyond the purpose of the scheme of the one-year surplus relief—he then has to persuade me that a group of companies is of such a different nature in its combined functioning and profit as to make it entitled to different treatment. All I can say is that I am sorry, but I am not so persuaded.

I have accepted the hon. Gentleman's first premise that one must not go further than is absolutely necessary to protect the Revenue, as one is changing the rules during the course of the game, if that is the way to put it. That is why we have introduced the exclusion of dividends paid prior to Budget day. I reject completely that one is doing anything retrospective because, as I have previously explained, any dividend declared prior to Budget day and prior to the notification of the change in the rules would be protected.

I accept the basic philosophy that one must not go beyond what is needed, but I cannot accept that the group of companies is so different from the single company as to warrant treating this major exclusion in a different way. For that reason, I am sorry—and I am trying to keep it as broad as possible, and not to go into technicalities unnecessarily—that I cannot recommend the Amendment to the House.

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

Order. We are not in Committee. Did the hon. Gentleman want to put a queston?

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

I wanted to put a question to the Chief Secretary before he sat down, Mr. Speaker, and I hope that I may be permitted to do so.

The right hon. Gentleman has not dealt with my point that, in such a case as this, the subsidiary could well have put itself beyond the power to claim the three-year surplus—whereas the single company could still be able to do so—because the subsidiary may have distributed all available pre-Corporation Tax profits and, therefore, have no pre-tax profits from which to pay.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I did not reply to that point specifically, Mr. Speaker, but I did so generally when I said, bearing in mind what the hon. Gentleman had said, that the group was not so different from the individual company and that I found it difficult to believe that there could be a case where a subsidiary had acted in this way and where it would not have profits in the ordinary way in 1966–67 out of which to declare dividends in the ordinary way. I found it difficult to believe that the subsidiary company had acted in this rather extraordinary way.

In those circumstances, I think that I was taking the generality of cases into account when I said that the group of companies was not so different from the single company as to warrant the very special and exceptional treatment the hon. Gentleman proposed.

Amendment negatived.

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

I beg to move Amendment No. 121, in page 29, line 41, to leave out "publicly announced" and to insert: duly recorded in the minutes of the proceedings of the board of directors". I dealt with this very short point very briefly in Committee on the Question, "That the Clause stand part of the Bill". It will be within the recollection of the House that when the Chancellor of the Exchequer announced the withdrawal of this relief from groups of companies, he stated, in col. 1450 of the OFFICIAL REPORT, that any dividend paid before 3rd May would not be effective.

Clause 28(3) provides that certain dividends may actually be paid after 3rd May, but are, nevertheless, to be treated as though they were paid before that date. These are the cases where it may be said that the company has committed itself to pay the dividend. For instance, we have the case in subsection (3,a) where dividend has been declared before 3rd May and only remains to be paid, or if the directors have recommended or decided hat the dividend should be paid irrevocably, that is, under paragraphs (b) and (c). The Clause goes on to say that the recommendation or decision should be publicly announced.

In Committee, I made the point, which was taken swiftly by the Treasury Bench, that the question of a public announcement is totally inappropriate in the case of a dividend paid by a subsidiary to its parent company. The Chief Secretary undertook to look at the matter again. It was with some disappointment that we found he had not put an Amendment on the Notice Paper. Therefore, we had another shot at the matter by putting down this Amendment.

4.0 p.m.

I have had a letter from the Chief Secretary in which, to some extent, he dissents from the view that the company should have committed itself and says that it is a question of a public announcement having been made and there having been dealings on the basis of a public announcement. I suppose it is possible to conceive of a case where the size of a dividend paid from a subsidiary company would affect dealings in the hands of the parent company, or, alternatively, where the public are interested in the shares of a subsidiary company, but that kind of case would be very limited indeed.

There may well be many cases where it would be acutely embarrassing for a number of reasons if a dividend to which the directors had committed themselves, but made nothing in the nature of a public announcement, were to be struck at because it happened to have been paid after 3rd May. The point at which the Amendment is directed is that in the case of subsidiary companies of that sort there is no public announcement. The decision is recorded in the minutes of the proceedings of the board of directors. The Amendment is so drawn that it needs to have been recorded in those minutes before 3rd May.

I entirely recognise that there may be unscrupulous people who have been so astute as to appreciate fully the force of this and to get out the minute book on 4th May and pretend that it was done on 2nd May. That danger would be a small price to pay for the substantial justice of dealing with the case where the decision was made, the directors had committed themselves, the matter was recorded in the minutes and the whole thing was free and above board. If a decision had been taken and not recorded—I am speaking as a former company secretary—this penalty would be a warning to a dilatory secretary to get out his minutes quickly. But if there were no public announcement what else could be done? I very much hope that the Government will be able to look on this proposal favourably.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I have been many times asked not to pay over-much regard to the problems of tax avoidance. I am happy to say that questions of tax avoidance were completely absent from my mind on this occasion. I draw attention to it only because it is natural to think that tax avoidance is involved, but that is not the criterion. When one talks about a commitment—which is the essence of what the hon. Member has put to one is talking about the commitment made by directors of such a kind that, having been notified of the new circumstances they are unable to alter their minds and decide on a different dividend.

So far as concerns a public company—a parent company—which has made a statement on the strength of which dealings may have taken place and the price has been affected—the hon. Member would readily agree that this might have a bearing on the price and on dealings—the directors of the company, having heard my right hon. Friend's Budget speech, may nevertheless be unable to do anything other than they are committed to do—to continue with the declaration they have publicly announced or the recommendation of it to their shareholders. For that reason one does not want to treat a company the board of which has committed itself in this way any differently from a company which has, in fact, paid the dividend prior to the relevant date.

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

I am sure that the right hon. Gentleman recognises that there may be such a commitment, for instance, to a minority shareholder who may be resident overseas. The parent company may have shares in the subsidiary and it would be just as embarrassing to have to change the dividend although there has not been anything like a public announcement of the dividend.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

We are getting closer together and admitting that the main justification for the exclusion is the public commitment which does not allow the board of directors to change course even after having heard my right hon. Friend's Budget statement.

What the hon. Member is now saying is that there may be a case of a subsidiary company which has made some kind of commitment to a minority shareholder. This is a very unusual state of affairs. There is nothing which prevents the subsidiary company changing its dividend if it wants to do so before it has taken the irrevocable step of passing the resolution and having it recorded in the minutes

I cannot think that there is any such case which would warrant this kind of provision, although, if there were such a case the proposal of the hon. Member would go a good deal further than that, and would relate it in the same way almost as one does to the public com- pany. I think that he would agree that broadly there is a substantial difference between the publicity arising prior to a declaration of a dividend by a public company and the publicity arising prior to a declaration by a subsidiary company, subsidiary to the parent company. It is because there is that very substantial difference that one cannot treat the two in the same way, as this Amendment proposes.

I recognise that there may be something in what the hon. Gentleman said, but even if that were the case the Amendment would go too far in the present state of affairs. I hope that I have clarified the position in connection with the commitment and have made it clear to the hon. Member that we are talking about a commitment with the parent company.

Amendment negatived.

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

I beg to move Amendment No. 96, in page 29, line 45, at the end to insert: (4) The foregoing provisions of this section shall not apply to dividends paid by a company which is a member of a group of companies to another member of the group where the first-mentioned company is a company which has ceased to carry on business before the year 1966–67 or of which the business is at the beginning of that year, being carried on by a liquidator in the winding up of the company. This is another case of the one-year surplus where there can be genuine hardship. This is the case of the dormant subsidiary, the subsidiary which has ceased to trade and which may have very substantial funds in the form of taxed profits which have suffered only Income Tax and Profits Tax and the company has no chance whatever of earning for itself any three years' surplus simply because it has ceased to trade and will have no distributable profits in the three relevant years. Nevertheless, it is in existence and has a fund of profits which have borne Income Tax and, because of the disallowance in Clause 28, its dividends will be left out of account, in computing the one-year surplus of the parent.

If it had its own shareholders there would be no liability but because the money will reach the ultimate owners of the company via the parent which is still trading there will be no relief. I am sure that this must be wrong. I press this point on the Chief Secretary. The case of the dormant subsidiary is one which ought to be dealt with as an exception to the rule. As the Chief Secretary explained so lucidly in Committee, the object of Section 85 was to prevent profits becoming subject to three taxes. These profits will have become subject to Income Tax and Profits Tax in the hands of the subsidiary beforehand, and they will then become subject to Schedule F tax when they are eventually passed on to the shareholders.

There is no possibility of taking advantage of what the Chief Secretary called earlier this afternoon the normal relief, the three-year surplus relief. This is a clear case where some measure of relief must be given in order to allow account to be taken of the one-year relief. Yet under the exclusion and the withdrawal of the whole relief, the companies themselves will get no relief at all. I urge this point on the Chief Secretary as one of considerable substance, and on which the Government should make a concession.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I am anxious to be as sympathetic as possible to the hon. Gentleman who puts forward his proposals in such moderate language, but I cannot see any case in this Amendment.

This is a case where the subsidiary, which one has to look at by itself, is not in a position to claim relief because it is not suffering. That is a very good reason for not claiming relief, because one is not entitled to ask for relief if one is not suffering in any sense. That is to say, the company is not paying the third tax. It is not declaring the dividend which will render it liable to Schedule F tax. It is the burden of the three taxes which is the suffering which one tries to relieve by the one-year relief. I therefore find it difficult to see how, in these circumstances, one could meet the hon. Gentleman's case. The probability is that the profits which will have been made will have been made in the previous years and, therefore, they will not be eligible to count for the purpose of the one-year relief.

The hon. Gentleman asked me to look at the point and, listening between the lines—if one can do such a thing—I gather:A that he was really asking me not necessarily to accept this Amendment, which I cannot recommend the House to accept, but whether I would consider it further to see whether there is anything which the Government ought to take into account at a future time. I cannot give any commitment of any kind. In fact, I am completely unpersuaded that there is any need for one.

However, the least courtesy that I can offer the hon. Gentleman is to say that I will gladly look into the matter and if, in a year's time, I have been persuaded that there is something which has been overlooked, and that there are cases where real hardship has arisen out of the circumstances which are now well known and agreed between the two sides. I will recommend that something should be done about it. But I cannot see that likelihood, and, in those circumstances, I can only ask the House not to accept the Amendment.

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

All I can say is that the Chief Secretary has been a little more forthcoming and, in those circumstances, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I beg to move Amendment No. 20, in page 30, line 1, to leave out subsection (4).

This Amendment is purely paving for Part II to Schedule 7, and I feel sure that it would be more convenient to discuss it when we arrive at that point. Indeed, the same remarks apply to Amendments Nos. 21 and 22.

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

Is there any objection from the Opposition to that suggestion?

Amendment agreed to.

Further Amendments made: In page 30, line 8, at beginning insert "Part I of".

In line 19, after first "and", insert: the provisions of the said section 85 relating to the one year surplus shall have effect subject to the provisions of Part II of Schedule 7 to this Act.

(6)."—[Mr. Diamond.]

4.15 p.m.

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

I beg to move Amendment No. 103, in page 30, line 20, at the end to insert: (6) Where a member of a group of companies has paid a dividend to another member of the group and that dividend has been excluded, by reason of subsection (1) of this section from the dividends taken into account under subsection (3)(a) of section 85 of the Finance Act 1965, then both companies may jointly elect that such part of the dividend as may be stated in the election shall be regarded for all the purposes of the Income Tax and Corporation Tax Acts as having been paid on the first day of the year 1966–67. On we plough through this rather dreary wasteland, but I should like to urge on the Chief Secretary that these are all matters which have been put to this side of the House by companies concerned which, as I said at the outset, feel aggrieved at the withdrawal of the relief.

This Amendment approaches the problem from a rather different angle, and it is one to which I feel the Government ought, in duty bound, to give considerable attention. The position is this. A good many groups of companies acted on the assumption that the relief which was carefully spelled out in Section 85 of the 1965 Act meant what it said.

As I have explained in Committee, some of these people may well have looked at the reports of the debates and may have found that the Government themselves introduced an Amendment on Report dealing with groups of companies, and they may well have drawn the conclusion that the relief, substantial though it was, may have been intended. They acted on it quite properly with a view to putting themselves into the position to qualify for the relief which was spelled out.

In those circumstances—and this has happened, I am informed, in a number of cases—the subsidiaries paid substantial dividends to their parents in 1965–66 in order to take the maximum advantage of the relief. They now find that Clause 28 not only denies them the relief which they expected but, having acted in good faith on the basis of the legislation which was passed last year, they are not now in a position to qualify for the alternative relief, the three-year surplus relief, which would have been available if they had done nothing.

If they had left the situation as it was and did not pass these dividends on to the parents, they would have had a substantial fund out of which they would have ben able to qualify for the three-year surplus if what I may call their post- Corporation Tax dividends and profits brought them within the terms of that relief. In other words, they have been heavily penalised for having acted in good faith by reference to the express provisions of the Finance Act, 1965. I cannot believe that in those circumstances it is equitable to leave them in this position.

The Government have made a mistake. They are putting this mistake right, and the effect has been not only to deprive these companies of the relief to which they thought they were entitled, but also to give them no chance whatever of restoring the position to what it would have been if the mistake had not been made. I go so far as to say that for any Government to act in that way is totally unconscionable.

The Amendment is designed to give the companies the right to elect to treat any dividends paid in 1965–66 as having been paid in 1966–67 and so to bring them into the position where they could qualify, if the other circumstances fit, for a three-year surplus claim—that is to say, to give them a chance to put themselves back into the position which they would have been in if Clause 28 had been part of Section 85 of the Act of last year.

This is the minimum equity which the Government can offer to these groups of companies. It would enable them to repair the damage and, perhaps most important of all, it would restore some of the faith which this monumental error has cost the Inland Revenue. It would restore faith in the probity and uprightness of the financial dealings of the Government and of the Inland Revenue. I urge the Chief Secretary to accept the Amendment and give the minimum relief necessary to restore good faith.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

The hon. Gentleman referred to a subsidiary company having made the maximum payment of dividend, and I only add: as it was fully and quite properly entitled to do. But one should not be unaware of the thoughts that were possibly in the minds of the board of directors. They might even have included thoughts that this was an opportunity of making what is called in the City a "killing", that one should take advantage of it, exercise one's rights to the full, and therefore declare what the hon. Gentleman described as the maximum dividend.

Nobody suggests that companies were not absolutely and properly entitled to do this. But they were aware of what they were doing, and hardly anybody was surprised that the Government acted as they did when my right hon. Friend made his Budget statement. But I repeat that I accept what the hon. Gentleman said earlier, that the Government are not entitled in these circumstances to go further than they must. They are being asked to go much too far by the hon. Gentleman in the Amendment.

First, I imagine that in the vast majority of cases the subsidiary company would be able to claim its own one-year surplus relief by paying its dividend in 1967 in the ordinary way. I recognise that here might be a situation under which the subsidiary company had drained itself of its reserves in a previous year, but continued to make profits and would, presumably, make profits in 1966–67 and declare a dividend. It would get its own one year surplus, and therefore there must at most be a tiny, tiny number of cases where that particular door is closed to it.

The Amendment goes miles too far and would open the door to a whole host of difficulties in the case of a chain of companies. I would bore the House if I started describing how this would happen, but perhaps the House will accept it from me. By a chain of companies I mean more than simply a parent and subsidiary company; I mean parent, subsidiary, sub-subsidiary, and so on. They could jointly act as a result of the Amendment so as to get benefits which the hon. Gentleman did not intend that they should get.

The hon. Gentleman has also drawn his Amendment in such a way that the dividend deemed to be paid on the date in question should rank for the purposes of calculating a three-year surplus, which is a totally different conception. I repeat that in almost every case a company will be able to get its own one year surplus and there will be no need to have recourse to an extraordinarily artificial way of dealing with the situation. Although I have accepted that one should not go further than one need, the Amendment, which is extraordinarily artificial in its conception, is not the kind that one could accept.

Photo of Mr John Peyton Mr John Peyton , Yeovil

I did not intend to take part in the discussion on this very difficult problem until I heard the remarks of the right hon. Gentleman, who has been very properly sympathetic. He has admitted that a miscalculation has been made, but there are one or two things which very much interested me in what he said. He said, first, that a company was quite properly entitled to make the payment. That point is therefore unchallenged and nobody is arguing about it. He went on to say what was in the. mind of the Board—the intention to make. a "killing". This sort of talk makes every hair stand up on the back of my head.

The business of always trying to make companies out to be crooks who are dodging things, trying to fiddle and cook the books, and trying to extract every unreasonable and uncovenanted benefit from a situation, is intolerable. I say to the Government Front Bench now, without qualification, that in so far as there are amongst industrialists and commercial people in this country those inclined to fiddle, it is the mentality of the Government Front Bench that has been the most potent factor in creating those people. It is this addiction—

Photo of Mr John Peyton Mr John Peyton , Yeovil

No. I am busy at the moment. I shall have time to spare for the hon. Gentleman, but at present I am concentrating on his Front Bench.

There are few things that I abhor more than the horrid tendency of the Government always to be looking out for the crook and the fiddler, always to be certain that the most important thing in life is to catch them. So busy are they doing this—one can almost say that when they left the Government in 1951 they left their horrid habits behind them to a certain extent—

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

Order. The hon. Gentleman will not be out of order if he comes to the Amendment. He must refer to the Amendment.

Photo of Mr John Peyton Mr John Peyton , Yeovil

I bow, with great respect, to any Ruling you make, Mr. Speaker, but the remarks I am making were directly prompted by those which the Chief Secretary made just now. I shall continue to adhere strictly to what he said. He went on to say that it was no surprise to those concerned and that the Government were not entitled to go further than they must to remedy the situation. The Government are responsible, as the Chief Secretary has said, for this muddle. What I deplore is that, having made an error the Government, with all the assets and advantages, with all the panoply of power behind them, are unable to face the House and say that they made a mistake and that they find the idea of demanding full restitution from those who were not responsible for the mistake intolerable.

Instead, the Government, alone are entitled, apparently, to wipe the slate clean, go back over what happened and evade the consequences of their own errors. If the hon. Gentleman wishes to intervene, I shall be glad to give way.

Photo of Mr Robert Sheldon Mr Robert Sheldon , Ashton-under-Lyne

The only point that I wanted to make is that the hon. Gentleman is getting worked up about a word that is in fairly common use. I have always interpreted the word "killing" in the City as a coup of one kind or another. This is surely one such.

Photo of Mr John Peyton Mr John Peyton , Yeovil

The hon. Gentleman is very much, although to a rather lesser degree than the Chief Secretary, one of those whom I had in mind. No doubt, if we ever have to suffer in the future the misfortune of another Socialist Government, the hon. Gentleman's mental approach to these things will qualify him very well for a place on the Front Bench.

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

Order. We are not discussing the constitution of the next Socialist Government. The hon. Gentleman must come to the Amendment.

Photo of Mr John Peyton Mr John Peyton , Yeovil

I realise that I must, so far as possible, not only keep within order but avoid obscenities, so I shall revert to what the right hon. Gentleman said, as I understood him. I ask him to avoid, somehow or other, the innuendoes which he inserts, with no justification, suggesting that, because a tax, complicated as it is, allows a company to order its affairs in a certain way in its own interest, a company which acts in that way ought not to do so. The Government's reaction is a rather pious and disapproving frown—"This company has made a killing and now we must exact retribution". I deplore that attitude.

4.30 p.m.

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

I have listened to the interchanges which have taken place so far on these provisions, and I hesitate to come between the two experts in the matter, the Chief Secretary and my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin), who knows the details so well. But my hon. Friend the Member for Yeovil (Mr. Peyton) has expressed in no uncertain terms what I myself feel. It is extraordinarily unfair that, after the Government have made a mistake in their last Finance Act, not only are they anxious to put the matter right, which is understandable, but they appear to want to go further and make those who have acted properly in good faith pay an even bigger penalty for having done so. This seems quite wrong.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I interrupt only because the hon. Gentleman was good enough, though unnecessarily modest, to say that he had been listening and, perhaps, he might not have fully understood. Had the proposition which he has just put been right, we should not be resisting the Amendment. There is no question of requiring anyone to pay an additional penalty or anything like that. There is no question of retrospection. Every dividend which was declared prior to my right hon. Friend's Budget Statement is protected.

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

The right hon. Gentleman may be correct in that, but the interpretation I have been given does not put us back to where we were before. As I see it, therefore, the Government are going further than one would expect them to go.

I am quite sure that the Chief Secretary, looking back to his accountancy days, would have expected boards of directors to be guided by professional advice given to them at the time in accordance with the current tax law. I regard it as the responsibility of boards of directors to save tax wherever it is proper and correct so to do. There is nothing wonderful in paying tax unnecessarily. Shareholders rightly expect their directors to act to save tax when it is proper and right so to do. This is where I cross swords with the right hon. Gentleman. He did not give me the impression that this was his view when he replied a few minutes ago.

As it understand him, the right hon. Gentleman looks upon it almost as a crime to avoid tax. In my view, on the other hand, the avoidance of tax in accordance with the law as it stands is correct, and a board of directors should undertake it. Furthermore, they should call in such professional advice as is available to them to give advice on whether the shareholders' money can be saved.

The Government made an unfortunate mistake, from their point of view. They are now trying to put it right, but they seem to be going too far. I join forces strongly with my hon. Friend the Member for Yeovil on this. He took exactly. the point which I take, but, unfortunately, the Chief Secretary seems to take a very different view. I can only say that I am surprised because I cannot believe that he would have taken this view i a his professional days when advising clients as to the best course to adopt when presented by a situation similar to that with which many of us in business have been faced during the past 12 months. I am quite sure that he would have advised his clients to do the very thing that many businessmen have found it necessary to do in, quite rightly, avoiding tax.

This is the difficulty I find, and I strongly support the views expressed by my hon. Friend the Member for Yeovil.

Photo of Mr Eric Lubbock Mr Eric Lubbock , Orpington

I, too, have listened throughout the debate, and I had not intended to intervene until the points raised in several of the speeches brought to my mind another important point which should be raised in this connection.

As the Chief Secretary and others have said, boards of directors were quite within their rights in taking advantage

Division No. 110.]AYES[4.38 p.m.
Alison, Michael (Barkston Ash)Bennett, Dr. Reginald (Cos. & Fhm)Bruce-Cardyne, J.
Astor, JohnBiffen, JohnBryan, Paul
Atkins, Humphrey (M't'n & M'a'n)Birch, Rt. Hn. NigelBullus, Sir Eric
Awdry, DanielBlaker, PeterBurden, F. A.
Baker, W. H. K.Braine, BernardCarlisle, Mark
Balniel, LordBrewis, JohnCary, Sir Robert
Beamish, Col. Sir TuttonBrinton, Sir TattonChannon, H. P. G.
Bell, RonaldBromley-Davenport,L t. Col.Sir W alterChichester-Clark, R.
Bennett, Sir Frederic (Torquay)Brown, Sir Edward (Bath)Clark, Henry

of the provisions of Section 85 of last year's Finance Act, and there was nothing improper in what they did. But the Government realised that there would, as a consequence, be a large leakage of revenue. I think that the right hon. Gentleman gave us a figure earlier running into many millions of pounds. It was obvious that the Government could not allow the situation to stand. Therefore, as he said, many people in the City and in industry realised that the Government would have to take the action which they are now taking in Clause 28.

This brings me to the point I wish to stress. I hope that the Chief Secretary will transmit it to the Chancellor of the Exchequer because it is of important general application in our future procedure on Finance Bills. In cases of this kind, we ought not to stick to our time-honoured rule that nothing can be announced except in a Budget speech. The matter before us now gives a perfect example of steps which the Government intend to take and which they could announce at any time during the year once they become aware of a large leakage of revenue arising from an unforeseen consequence of previous legislation.

I hope that the right hon. Gentleman will give this point his favourable consideration. No doubt, even in the Bill before us there are provisions which will give rise to unforeseen consequences, and no doubt, also, having regard to its complexities, no one will be greatly surprised if the Finance Act, 1965 gives rise to further unforeseen actions which will be expensive for the Revenue.

The Government should not be bound by the unduly rigid rule in our financial affairs that no changes of this kind are to be announced except on Budget day.

Question put, That those words be there inserted in the Bill:—

The House divided: Ayes 124, Noes 182.

Clegg, WalterHolland, PhilipPeel, John
Cooke, RobertHordern, PeterPeyton, John
Cooper-Key, Sir NeillHutchison, Michael ClarkPike, Miss Mervyn
Corfield, F. V.Irvine, Bryant Godman (Rye)Pink, R. Bonner
Costain, A. P.Jenkin, Patrick (Woodford)Prior, J. M. L.
Cunningham, Sir KnoxKing, Evelyn (Dorset, S.)Pym, Francis
Currie, G. B. H.Kitson, TimothyRenton, Rt. Hn. Sir David
Dalkeith, Earl ofLangford-Holt, Sir JohnRidsadale, Julian
Dance, JamesLewis, Kenneth (Rutland)Rossi, Hugh (Hornsey)
Dean, Paul (Somerset, N.)Lloyd, Ian (P'tsm'th, Langstone)Russell, Sir Ronald
Dodds-Parker, DouglasLongden, GilbertSharpies, Richard
Elliot, Capt. Walter (Carshalton)Loveys, W. H.Shaw, Michael (Sc'h'gh & Whitby)
Errington, Sir EricMcAdden, Sir StephenSmith, John
Fletcher-Cooke, CharlesMacArthur, IanStodart, Anthony
Fortescue, TimMaclean, Sir FitzroySummers, Sir Spencer
Galbraith, Hn. T. G.Macleod, Rt. Hn. lainTaylor, Edward M.(G'gow,Cathcart)
Gilmour, Ian (Norfolk, C.)Maddan, MartinTemple, John M.
Glyn, Sir RichardMarten, NeilThatcher, Mrs. Margaret
Goodhew, VictorMathew, RobertTurton, Rt. Hn. R. H.
Grant-Ferris, R.Mawby, Rayvan Straubenzee, W. R.
Grieve, PercyMaxwell.Hyslop, R. J.Walker, Peter (Worcester)
Hall, John (Wycombe)Mills, Stratton (Belfast, N.)Walker-Smith, Rt. Hn. Sir Derek
Hall-Davis, A. G. F.Monro, HectorW alters, Dennis
Harris, Frederic (Croydon, N.W.)Morgan, W. G. (Denbigh)Ward, Dame Irene
Harrison, Brian (Maldon)Morrison, Charles (Devizes)Webster, David
Harrison, Col. Sir Harwood (Eye)Munro-Lucas-Tooth, Sir HughWhitelaw, William
Harvie Anderson, MissMurton, OscarWills, Sir Gerald (Bridgwater)
Hawkins, PaulNabarro, Sir GeraldWilson, Geoffrey (Truro)
Hay, JohnNicholls, Sir HarmarWylie, N. R.
Heseltine, MichaelNoble, Rt. Hn. Michael
Higgins, Terence L.Nott, JohnTELLERS FOR THE AYES:
Hiley, JosephOrr, Capt. L. P. S.Mr. R. W. Elliott and
Hill, J. E. B.Osborn, John (Hallam)Mr. David Mitchell.
Hirst, GeoffreyPearson, Sir Frank (Clitheroe)
NOES
Abse, LeoDunwoody, Mrs. Gwyneth (Exeter)Lawson, George
Allaun, Frank (Salford, E.)Dunwoody, Dr. John (F'th & C'h'e)Leadbitter, Ted
Alldritt, WalterEadie, AlexLedger, Ron
Archer, PeterEdwards, Robert (Bilston)Lestor, Miss Joan
Armstrong, ErnestEllis, JohnLewis, Arthur (W. Ham, N.)
Atkins, Ronald (Preston, N.)English, MichaelLewis, Ron (Carlisle)
Atkinson, Norman (Tottenham)Evans, Albert (Islington, S.W.)Lipton, Marcus
Bacon, Rt. Hn. AliceFernyhough, E.Lomas, Kenneth
Baxter, WilliamFinch, HaroldLubbock, Eric
Beaney, AlanFitch, Alan (Wigan)Lyons, Edward (Bradford, E.)
Bessell, PeterFletcher, Raymond (Ilkeston)McBride, Neil
Bidwell, SydneyFletcher, Ted (Darlington)MacDermot, Niall
Binns, JohnFloud, BernardMcGuire, Michael
Bishop, E. S.Foley, MauriceMcKay, Mrs. Margaret
Blackburn, F.Foot, Michael (Ebbw Vale)Mackenzie, Gregor (Rutherglen)
Booth, AlbertFord, BenMackintosh, John P.
Boston, TerenceFowler, GerryMcMillan, Tom (Glasgow, C.)
Bowden, Rt. Hn. HerbertFraser, John (Norwood)McNamara, J. Kevin
Boyden, JamesFraser, Rt. Hn. Tom (Hamilton)MacPherson, Malcolm
Braddock, Mrs. E. M.Galpern, Sir MyerMahon, Peter (Preston, S.)
Brooks, EdwinGarrow, AlexMahon, Simon (Bootle)
Brown, Hugh D. (G'gow, Proven)Greenwood, Rt. Hn. AnthonyMallalieu, E. L. (Brigg)
Brown,Bob(N'c'tle-upon-Tyne,W.)Gregory, ArnoldManuel, Archie
Brown, R. W. (Shoreditch & F'bury)Griffiths, David (Rother Valley)Mapp, Charles
Buchanan, Richard (G'gow, Sp'burn)Griffiths, Will (Exchange)Mason, Roy
Butler, Herbert (Hackney, C.)Hamilton, James (Bothwell)Mellish, Robert
Butler, Mrs. Joyce (Wood Green)Hamilton, William (Fife, W.)Miller, Dr. M. S.
Cant, R. D.Hamling, WilliamMitchell, R. C. (S'th'pton, Test)
Carmichael, NellHannan, WilliamMolloy, William
Chapman, DonaldHart, Mrs. JudithMorgan, Elystan (Cardiganshire)
Coe, DenisHattersley, RoyMorris, Alfred (Wythenshawe)
Conlan, BernardHeifer, Eric S.Murray, Albert
Corbet, Mrs. FredaHooley, FrankNewens, Stan
Crawshaw, RichardHowie, W.Noel-Baker, Francis (Swindon)
Cullen, Mrs. AliceHughes, Emrys (Ayrshire, S.)Noel-Baker,RtHn.Philip(Derby,S.)
Davies, Dr. Ernest (Stretford)Hughes, Roy (Newport)Norwood, Christopher
Davies, C. Elfed (Rhondda, E.)Hunter, AdamOgden, Eric
Davies, Harold (Leek)Hynd, JohnO'Malley, Brian
Davies, Robert (Cambridge)Jackson, Colin (B'h'se & Spenb'gh)Oram, Albert E.
Delargy, HughJackson, Peter M. (High Peak)Orme, Stanley
Dempsey, JamesJeger, George (Goole)Oswald, Thomas
Dewar, DonaldJohnston, Russell (Inverness)Owen, Will (Morpeth)
Diamond, Rt. Hn. JohnJones, Dan (Burnley)Page, Derek (King's Lynn)
Dickens, JamesJudd, FrankPearson, Arthur (Pontypridd)
Doig, PeterKenyon, CliffordPentland, Norman
Driberg, TomKerr, Dr. David (W'worth, Central)Perry, George H. (Nottingham, S.)
Dunn, James A.Kerr, Russell (Feltham)Price, Christopher (Perry Barr)
Probert, ArthurSkeffington, ArthurWainwright, Richard (Come Valley)
Pursey, Cltdr. HarrySlater, JosephWalden, Brian (All Saints)
Redhead, EdwardSmall, WilliamWatkins, David (Consett)
Rhodes, GeoffreySnow, JulianWellbeloved. James
Roberts, Albert (Normanton)Spriggs, LeslieWilliams, Clifford (Abertillery)
Roberts, Gwilym (Bedfordshire, S.)Steel, David (Roxburgh)Williams, W. T. (Warrington)
Robertson, John (Paisley)Steele, Thomas (Dunbartonshire, W.)Willis, George (Edinburgh, E.)
Robinson, W. 0. J. (Walth'stow, E.)Summerskill, Hn. Dr. ShirleyWinnick, David
Rodgers, William (Stockton)Symonds, J. B.Winterbottom, IL E.
Rose, PaulThomas, George (Cardiff, W.)Woof, Robert
Ross, Rt. Hn. WilliamThomas, torwerth (Rhondda, W.)Yates, Victor
Rowlands, E. (Cardiff, N.)Thornton, Ernest
Sheldon, HobertTourney, FrankTELLERS FOR THE NOES:
Shore, Peter (Stepney)Urwin, T. W.Mr. Gourlay and Mr. loan Elans
Silverman Sydney (Nelson)Varley, Eric G.

Clause 32.—(TRANSITORY PROVISIONS FOR DOUBLE TAXATION AGREEMENTS FIA VING RETROSPECTIVE EFFECT.)

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

I beg to move Amendment No. 24, in page 38, line 18, at the end to insert: unless the payment is made in respect of securities issued before 3rd May 1966". The Amendment deals with an entirely different point. We have now come to Clause 32. I am delighted to observe that we shall now have a different replier from the Government Front Bench. Although the point is different, I am afraid that it is no less complex than the one that we have been dealing with.

The position concerns companies which have in the past raised loans overseas. The matter at which the Amendment is aimed in particular concerns companies which Dave raised loans from the public in Switzerland. There have always been two requirements which companies trying to raise their finance in this way have sought to meet. The first was a requirement imposed by the Swiss lenders that the interest should be paid gross without tax being deducted. The second requirement, which the borrowers have tried to make sure they achieve, is that the interest when paid should be a deduction in computing their profits, formerly for Profits Tax and Income Tax and now for Corporation Tax.

To achieve these aims, the simple transaction where a United Kingdom company raises a loan in Switzerland and pays the interest to the Swiss lenders is no good. It will not achieve its objectives because the interest has to be paid under deduction of tax, and even if the interest were paid gross to satisfy the Swiss lenders, the amount would not count as a deduction for Income Tax purposes.

Therefore, the firms that were in this position devised a fairly complex scheme.

I should say at the outset that it was devised with the full knowledge, assistance and blessing of the Inland Revenue, and I shall return to that point because it is very important. I take a Swiss loan as an example. This may well apply in other countries. Let us say that money was lent to a United Kingdom company. It was then lent back to a subsidiary specially formed for the purpose, resident in Switzerland, which again might relend the money to the United Kingdom company. The result, working backwards, which is what one has to do with the payment of the interest, was that the interest was paid gross by the United Kingdom company to its Swiss subsidiary, no deduction for Profits Tax being claimed, and then the interest was paid gross, as it was entitled to be under Swiss law, back to the United Kingdom company, and in the hands of that company it constituted an overseas source of income taxable under Case V. This interest was paid gross to the original lenders.

Under Section 132(1,c) of the Income Tax Act, 1952, they were entitled to deduct that gross interest from the taxable income arising under Case V. In that way the object of the exercise was achieved. The Swiss lenders got their interest gross without any United Kingdom tax deducted from it, and the company was in a position to claim a deduction in respect of the gross amount. I emphasise that this scheme was devised with the blessing and assistance of the Revenue.

There was another variant which some companies introduced, perhaps for convenience or to make transactions appear rather more convincing, whereby the third loan, instead of being made back to the original borrower—the parent company—was made to another United Kingdom subsidiary company, so that it would go from the Swiss subsidiary to the United Kingdom subsidiary.

Then came the Finance Act, 1965. Schedule 11, paragraph 1(1)(d)(iv) said that interest paid overseas to a nonresident subsidiary, or to a company where both payer and payee were subsidiaries of a third company, was to amount to a distribution and not a charge. It had all the characteristics of distribution—in particular, that Schedule F tax had to be deducted and accounted for to the Revenue.

I understand that some negotiations took place and it was agreed with the Revenue that this did not apply in the case particularly of Switzerland, for that position was overridden by Article VII of the then Anglo-Swiss Convention relating to double taxation. The result was that the transaction continued in being as it had originally been intended to do, in effect, by the 1965 Act.

Subsection (2) of this Clause recognises the position to be what it was. Subsection (2) deals with Schedule 11, paragraph 1(1)(ci)(iv) and says that Schedule 11 … shall apply to any such payment if, under an existing double taxation agreement, the recipient is entitled to relief … But subsection (3) takes us back to square 1, because it says: Subsection (2) above shall not apply to any payment to a company more than fifty per cent. of the voting power in which is controlled, directly or indirectly, by a person or persons resident in the United Kingdom. That takes us back to the position where companies had thought they were and from which they thought they had extricated themselves by their arguments last year with the Revenue.

The Amendment is intended to restore the position in the case of arrangements of this nature made before Budget day and to leave the position as it was and as it had been agreed to be under last year's Finance Act. I believe that this is entirely justified. The Government are encouraging firms which want to invest overseas and, indeed, are compelling them to raise their money abroad. It is now almost impossible to obtain the sanction of the Bank of England for the transmission abroad of funds from this country to invest overseas.

The needs and requirements of foreign lenders must still be met and firms which want to borrow money in these circumstances will find that they will have to pay the interest gross. These arrangements, which were entered into in the past entirely for this purpose and have been given the Revenue's blessing, should be allowed to stand. It might be thought that as a result of the change in the law companies might unscramble their present arrangements and make new arrangements which would avoid the difficulty. But in many cases the securities on which the loan is secured were issued to members of the Swiss public and not to a single lender. Indeed, perhaps the lenders total hundreds or indeed thousands of people. An unscrambling operation is impracticable.

The result is that subsection (3) of this Clause would put these companies into a substantially worse position than they were and had been agreed to be by the Revenue under the law passed last year. Justice and good economic sense require the Amendment, which would have the effect of leaving the arrangements entered into before the Budget day unaffected by subsection (3), and I hope the Government will accept it.

The Financial Secretary to the Treasury (Mr. Niall MacDertnot):

I am afraid that the Amendment is misconceived and that I cannot accept the background history or introduction which the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) gave if it was intended to suggest that this was the origin of the Clause. I agree that the matter is complicated. The background to the Clause is that Schedule 11 of the Finance Act, 1965, prescribes that various categories of interest and certain royalties paid by a close company to participators are to be treated as distributions. The result is that the paying company can make no deduction for these payments in computing its profits for Corporation Tax.

The taxation position of the recipient of the interest or royalties is quite unaffected by this provision. Any relief which is due from our tax under an existing double taxation agreement to a resident overseas continues to be due, regardless of the treatment of the paying company. That is the starting point.

In negotiating our new double taxation agreements, we are prepared to concede that, unless the recipient is a company under United Kingdom control, the provisions of Schedule 11 should be overridden so as to allow the paying company a deduction in computing its taxable profits in respect of two cases—first, interest paid by a U.K. subsidiary to an overseas parent company or overseas close subsidiary company and, secondly, royalties paid by a close company to participators. We have written a provision to that effect into our recent protocols with the United States aid with Switzerland.

As a transitional measure while we are negotiating these agreements, the Clause unilaterally writes this concession into existing double taxation agreements which we have not yet had time to renegotiate. It does this for a long transitional period of two years, to allow deductions for Corporation Tax purposes for the payment of interest and royalties of these kinds. It also limits the class of payments to those which are received by non-resident persons who are entitled under an existing double taxation agreement to exemptions from U.K. tax on them.

Subsection (3) limits the class of payments still further by excluding payments to a company under United Kingdom control in which more than 50 per cent. of the voting power is controlled by United Kingdom residents. The Amendment would remove that limitation in respect of payments on securities issued after Budget day. It is unlikely that many such securities were issued before Budget day and the effect of the Amendment would, for practical purposes, be to remove that limitation in subsection (3) for practically all interest payments.

We see no reason why it should be removed. This proposal might be appropriate if the Clause withdrew relief to which companies had formerly been entitled but that is not the position. The Clause gives relief which, prior to Budget day, companies were not entitled to expect and the exclusion by this subsection of payments made to a company under United Kingdom control corresponds to provisions which have been incorporated in revised double taxation agreements, including agreements with the United States and Switzerland.

5.0 p.m.

The main reason for this exclusion is that since the payments in question effectively belong to United Kingdom residents, other countries cannot reasonably expect us to override the provisions of our domestic law in relation to them. Indeed, if we were to accept the Amendment, we would get the rather absurd result that, for example, a company making payments to a United States company under United Kingdom control in respect of securities issued before Budget day would get relief under the Amendment for the two-year transition period and when the transition period ended it would then lose the relief, because it would not be provided for in the Double Taxation Agreement which we have concluded with the Americans. For these reasons, I must ask the House to reject the Amendment.

Amendment negatived.

Clause 33. — (TRANSITORY PROVISIONS FOR DOUBLE TAXATION AGREEMENTS HAVING RETROSPECTIVE EFFECT.)

Photo of Mrs Margaret Thatcher Mrs Margaret Thatcher , Finchley

beg to move Amendment No. 25, in page 38, line 43, to leave out: concerning interest or royalties"and insert"in respect of interest or royalties which have already been allowed against income tax and profits tax". The Amendment concerns a discussion which we had in Committee on what was then Clause 31 and is now Clause 33. The Financial Secretary will remember that we had a good deal of difficulty in construing the purpose of that Clause from what it said. The hon. and learned Gentleman gave quite an explanation, which consisted of saying, first, that it was an enabling Clause and implying, secondly, that it could not be very damaging because any agreement brought before the House under the Clause would have first to have been agreed with another country as well as our own and that that would limit its operation.

We should always look carefully at a Clause which confers enabling powers on any Government. We want to see precisely what we are enabling that Government to do. The Amendment is one means of narrowing down those powers to achieve exactly what the Financial Secretary said it was meant to achieve, and no more.

There is no reference in the Clause to the Swiss Double Taxation Agreement. One would say, therefore, that the Clause could go a good deal wider than the new protocol which has recently been signed. The only limitations in the Clause are three. First, any agreement which is brought before the House of Commons must be made before 1st January, 1968; secondly, the agreement can only withdraw relief from Corporation Tax; and, thirdly, it must be one which concerns interest or royalties.

That leads us to ask a number of questions of the Financial Secretary about the powers under the Clause and under the Amendment. First, will he tell the House whether he has it in mind to bring any other double taxation agreements before the House before 1st January, 1968, withdrawing relief retrospectively? As the hon. and learned Gentleman has not referred to the Swiss Agreement only, it is possible that he may have it is mind to vary other agreements before 1st January, 1968.

Secondly, will the Financial Secretary give an assurance that he will not use his enabling powers under the Clause to require a taxpayer to repay tax for which relief had previously been granted? If the Clause refers only to the Swiss Agreement, it will not he a question of repaying tax, because the first payment of Corporation Tax will not be due until 1st January, 1967. There is, therefore, no question of clawing back tax which has already been paid.

My third question is whether the hon. and learned Gentleman can give us an assurance that these powers will be invoked only where there has clearly been a mistake and relief was never intended in the first place. I refer to a mistake not in the amount of relief but as to the terms upon which it was granted.

The Amendment is a little more specific than the Clause. It attempts to replace the phrase concerning interest or royalties with one which narrows that phrase and states: in respect of interest or royalties which have already been allowed against income tax and profits tax". That is merely one attempt to try to narrow the Clause to do what the Financial Secretary said he wanted it to do.

I shall be grateful if the hon. and learned Gentleman will answer one or two of my questions so that before we part finally with the Clause and the Amendment, we may have certain undertakings from him.

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

In moving the Amendment, the hon. Lady the Member for Finchley (Mrs. Thatcher) is exercising a proper traditional function of the House of Commons in scrutinising closely any demand for enabling powers. I share the hon. Lady's concern about it.

As I explained when we discussed this matter in Committee, all that we are seeking to do here is to take powers for the House, to enable the House to consider the provisions which, if approved, would have the effect of withdrawing certain reliefs retrospectively and to enable them to be considered when we look at the protocol to the Swiss Agreement. That is the sole purpose for which the Clause was drawn.

The purpose of the Amendment, as the hon. Lady has made clear, is to narrow the terms in which the Clause is drawn and to limit it more closely to that specific Agreement or agreements strictly parallel with it.

In principle, I see no objection to limiting the Clause in the sort of way that the hon. Lady suggests, but the Amendment would not succeed in achieving the right result. First, although this is not the main difficulty, there is the fact that, quite understandably, the Amendment is drawn in such terms that it is limited to cases where the retrospective withdrawal of the provision in the Swiss Agreement entitling a payer of interest or royalties to a deduction for Corporation Tax purposes was made necessary because payment of interest or royalties made prior to 6th April would otherwise have got effective relief both against Income Tax for the year of assessment in which the payment was made and also against Corporation Tax charged on the profits arising during that year.

One rather exceptional case is covered by the protocol where the provision will also apply to payments made after 6th April. I did not go into this in detail in Committee, but when we look at the protocol it will be seen. The matter is a little involved and perhaps hon. Members will not wish me to take up the time 01 the House in explaining it.

The effect of the Amendment would be that we would not be able to consider those provisions in the protocol which we have provisionally agreed with the Swiss. Secondly and more seriously, however, in its reference to Profits Tax the wording of the Amendment would frustrate the whole exercise. Profits charged to Corporation Tax are not also charged to Profits Tax, and, therefore, there would be no question of the interest or royalties which are to be denied Corporation Tax relief having, in the words of the Amendment, been allowed against Profits Tax.

There is also a drafting error in referring to interest or royalties which have already been allowed against Income Tax. That would be more apt a reference if interest were allowed as a deduction from income for Income Tax purposes.

Those are somewhat technical arguments, but they are valid ones for rejecting the Amendment.

Photo of Mrs Margaret Thatcher Mrs Margaret Thatcher , Finchley

When I put the Amendment down on the Notice Paper, I hoped that the Financial Secretary would see what I was trying to get at, and put the Amendment in order if he is prepared to accept it in spirit. I am a little concerned about the breadth of the powers.

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

I am coming to the breadth of the powers. I do not think that the anxieties which the hon. Lady has expressed are ones which need concern her or the House.

The Clause is already fairly narrowly drawn. In the first place it only applies in respect of interest and royalties. It is only in respect of them that it can authorise the retrospective withdrawal of relief, and then only if the withdrawal is in consequence of arrangements made pursuant to an Address presented to Her Majesty by the House before 1st January, 1968. That means that we are not taking some permanent power for the future.

The hon. Lady referred to my explanation in Committee that the consent of the other country must first be obtained. It would only be in unusual circumstances that another country would agree to consent to the retrospective withdrawal of a relief in this way. I explained in Committee briefly how those circumstances have arisen in one case. I do not think that it is something that is likely to arise often.

I was asked whether we have any other agreement or protocol in mind. The answer to that is no. We do not anticipate that we shall need the power in respect of any agreement other than the Swiss one. Equally, the question of clawing back any tax which has already been paid does not arise, and I do not envisage this being used except in comparable circumstances, if they arise, to the ones which gave rise to the Swiss agreement, where there clearly was a mistake which both countries recognised must be rectified.

Photo of Mrs Margaret Thatcher Mrs Margaret Thatcher , Finchley

In view of the Financial Secretary's reply, I beg leave of the House to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 35.—(ABOLIT1ON OF INVESTMENT ALLOWANCES AND AMENDMENTS AS TO INITIAL ALLOWANCES.)

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I beg to move Amendment No. 28, in page 39, line 42, leave out from "where" to end of line 2 on page 40 and insert: that asset is brought into use not later than 16th January 1968".

Photo of Sir Eric Fletcher Sir Eric Fletcher , Islington East

I think that it will be for the convenience of the House to discuss with it Amendment No. 27, in line 42, leave out from "1966" to end of line 2, in page 40, and Amendment No. 29, in line 43, after "made", insert: not later than 16th January 1967".

5.15 p.m.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

It will be within the recollection of the House that there was a long and helpful discussion in Committee relating to a situation where capital expenditure incurred after 17th January, 1966, but under a contract entered into before that date, would still rank for investment allowance, provided that the asset concerned was brought into use and paid for within nine months of that date.

There were many views expressed about the nine months, and they were unanimous in saying that the period was inadequate. There were a number of examples given of ships, industrial buildings, farm buildings, buses, lorries, and so on. I was much impressed with the weight of the arguments particularly coming from my hon. Friends the Member for Heywood and Royton (Mr. Barnett) and the Member for Ashton-under-Lyne (Mr. Sheldon).

As usual, the Government are always anxious to take full account of the views expressed in the Committee and to come forward at the appropriate stage with what is a suitable Amendment, in the Government's view—[Laughter.] I am totally unaware of the cause for merriment. I made an obvious statement about the flexibility of the Government and, in particular, the Treasury Bench.

It will he recalled that I was not anxious at the time to indicate which of the many Amendments moved was the most suitable one, because the Government wanted as far as possible to take them all into consideration and come forward with an Amendment which would satisfy the whole House.

Dealing with it in its two parts, and, first, the period within which the asset ought to be brought into use, there were many speeches advocating periods of up to two years. I do not recollect a single case of a suggestion of more than two years, although there were other suggestions of periods less than that. It seems to me that we ought to try and meet the fullest wishes of the Committee, so the Government are proposing in the first place that the period shall be a full two years. That should be adequate to meet the needs of every hon. Member who spoke on that occasion.

There was also the point about the date of payment, and many difficulties were brought to our attention about it. One hon. Member referred to the discounting of bills, where the payer's bills had been discounted by the seller and therefore it was no longer possible for the payer to expedite payment, because he had a promissory note or whatever it might be, had to meet the bills on the due day and therefore could not expedite the bills as could have been done by a person paying by cheque.

There was a related argument about retentions, where a contractor would naturally expect to have five or 10 per cent. of the final payment withheld until after a period of testing had been carried out on whatever it was he was supplying to the satisfaction of the purchaser. It was certainly not the intention of the Government that that normal safeguard should be prejudiced in any way.

There was also the point about accounting machines, which do not readily identify the date of purchase.

For all of those reasons, it seemed that the question of a date for payment was one of some difficulty, and certainly a period of nine months was not suitable. But, on further consideration, we came to the conclusion that there was no particular safeguard in the provision with regard to payment. The essential safeguard is the period within which the asset is brought into use.

I think that it would be accepted all round that once an asset is brought into use, the provider expects to be paid for it within a reasonable time afterwards, if it has not been partly paid for before that date. Therefore, the relevant provision is the date when the asset has been brought into use.

As a result, we are proposing this Amendment, which is a costly one. hope that the House will not be unduly critical of a Treasury Minister who comes forward with an Amendment which will cost about £10 million within the next three years. It is the responsibility of a Treasury Minister to put himself at the mercy of the House and accept whatever criticisms for extravagance may be forthcoming. In the present case, I hope that it will be agreed that this is a useful Amendment.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

We on this side of the House welcome the Amendment. We are very glad that it appears that reason has prevailed and that the Government have seen fit to make some concessions. I do not know that I would agree with the Chief Secretary in feeling that the representations of the hon. Members for Ashton-under-Lyne (Mr. Sheldon) and Heywood and Royton (Mr. Barnett) were largely responsible for the Government's change of heart. The Amendment which they have now tabled linked with the Government's Amendment is asking for something less than they are now prepared to give. Therefore, it may well be that it was the very cogent representations made from this side which rightly persuaded the Government to change their mind regarding the restrictions which have been imposed.

We stressed in Committee that it was essential that confidence in the investment allowance system should not be shaken. Yet, even if the Government Amendment is accepted, we shall still find ourselves in a position in which an additional restriction has been placed on the grants after the investment decisions have been taken. There is still to be a restriction with regard to the date by which the assets have to be "brought into use". The terms originally offered have been altered ex post by the Government. This is clearly not desirable.

The Chief Secretary said that this is a costly Amendment; about £10 million would he involved. I should have thought that this was something which the Government should incur in order to increase investment, particularly at a time when investment is being deterred by the general squeeze on liquidity which is likely to be greatly accentuated by the Selective Employment Tax in the autumn. I should like to ask how much more it was likely to have cost if the restriction had hen removed altogether, because we have not been given any reason why this additional restriction has to be imposed.

I should like the Chief Secretary to clarify one point of definition. Suppose that the House accepts the Amendment. The crucial phrase in the Clause would then be "brought into use". I wonder whether the right hon. Gentleman could clarify precisely what this means. For example, if the chassis of a vehicle has been constructed but the vehicle has not been fitted with, say, seating but has been tested, and "brought into use" on the road. Would it be considered to be "brought into use "? Suppose that a bus has been delivered and has been completed in every respect but is being held as a reserve stock until the existing buses become uneconomic to repair. Would it be considered to be "brought into use" within the terms of the Amendment?

What would be the position with regard to equipment installed in a building which had been "brought into use" initially and produced samples but which had, perhaps, teething troubles and was not in full production by the date specified in the Amendment. Would it be regarded as having been "brought into use"? If so, would the investment allowances be granted to the people who had carried out the construction of the building and machinery? It would be helpful if the Chief Secretary could clarify what this phrase in the Amendment means, because a number of industrial firms are worried even now about the restriction which the amended Clause would impose on their entitlement to investment allowances.

We on this side still feel that there is a strong case for accepting Amendment No. 27 which would eliminate these additional restrictions altogether. Even if the Government Amendment is accepted the time limit between the date when the contract was entered into and when the asset has to be "brought into use" will still be only two years. There may well be cases in which the asset is not brought into use "in full production within this period. The building which will be occupied by the asset may not have been completed within the two years. It may be that the effect of the credit squeeze has had an impact on the building and delayed it. It may be that this has deferred certain parts coming forward and being used in the completion of the project. It may be that the impact of the squeeze on liquidity brought about by the Selective Employment Tax will slow down the operations and make it more difficult for the project to be completed within two years.

I presume that all the projects which would be covered by this Clause have been approved and are known to the appropriate Government Departments. I wonder whether the Chief Secretary could give some idea of the total value of the projects. He has given an estimate of the cost of the Amendment. Therefore, presumably he has figures for the total number of projects. What is roughly the value of those projects, and what does he think the value is likely to be of those which may go beyond the two-year period? Unless some of them are likely to go beyond the two years, there is no point in the Government's Amendment. There would be every case for accepting; Amendment No. 27.

I should be grateful if the Chief Secretary would clear up the technical points which I have raised, because I know that he agrees that it is desirable that industry as a whole should be clear about the circumstances surrounding these investment allowances. Perhaps he would also give a clear indication as to why the Government do not feel able to accept the Amendment which would limit these additional restrictions completely.

Photo of Sir Robert Cary Sir Robert Cary , Manchester, Withington

May I thank the Chief Secretary for and congratulate him on his act of repentance in moving this Amendment. In Committee I made the plea that two years was fairer than nine months. I named quite a large number of vehicles which I had ordered only a few months ago which I hope will be delivered and in service within two years. By that much the point is covered.

But I would ask the right hon. Gentleman to bear this in mind. We are heavily committed and visibly engaged in the export trade. I do not begrudge the chassis of a public service vehicle due to go to the Manchester Corporation or to the concern in which I am interested, Lancashire United Transport being diverted to the export trade. That would be a national benefit, although in operating my fleet it would retard progress. For that reason, I agree with the sentiment expressed by the Financial Times yesterday, namely, that 1969 would be better than 1968. The Financial Times was pleading for three years. I am pleading for two years.

What the Chief Secretary has done matches the words he used in Committee, namely, What we would be considering sympathetically are arrangements related to the transitional period and we would not be considering a complete root and branch operation."—[OFFICIAL REPORT, 22nd June, 1966; Vol. 730, c. 650.] We shall deal with that later.

I ask the Chief Secretary to bear this in mind, too. My hon. Friend the Member for Worthing (Mr. Higgins) referred to the phrase" brought into use ". A chassis may be delivered, but it may take three, four, five or six months of bodybuilding operations to complete it before it can be brought into operation. There may be an overflow of eight, nine or ten vehicles because of the delayed work of the body-builders in bringing them into operation. I do not want to retreat from what I said about two years, but it would be wise if there were a little more flexibility. Operation root and branch will be dealt with by a later Amendment.

I conclude by again thanking the right hon. Gentleman for the Amendment, which is the reverse of an operational extraction. We are suddenly taking £10 million out of the Treasury instead of having the Treasury take £10 million out of us, and that is always a very satisfactory state of affairs for Private Members on the back benches.

5.30 p.m.

Photo of Mr Robert Sheldon Mr Robert Sheldon , Ashton-under-Lyne

1, too, am impressed by my right hon. Friend's generosity, which went further than I had intended. Perhaps I was trying a little too hard to protect the revenue in a manner which my right hon. Friend found unnecessary. I am delighted to see this extension, which covers so many of the points which I made in Committee.

I am particularly pleased that we are now taking account of the delay between the ordering of and the paying for plant or machinery, or whatever the investment may be. This is important largely because of the recent upsurge of investment, which has considerably extended delivery dates and has led to some firms over-stretching themselves and using somewhat unorthodox methods to make payment for some of the investment programmes which they have had in mind.

We now know that there are many occasions when plant and equipment and instrumentation are put in progressively, one after the other, in very great detail and such planning can be largely upset by any interruption in the scheme by which allowances are paid. We are getting much more sophisticated in our ideas about investment and as we become more sophisticated, so interruptions or changes in investment allowances have more effect, although the country ultimately benefits from such greater sophistication.

I believe, as the Royal Commission on the Taxation of Profits and Income said very strongly, that it is important always to honour to the maximum investment allowances, grants and incentives of whatever kind. What we need most is some assurance that, so far as it lies within the province of the Government, investment decisions will be honoured and that the investment decision will not be distorted by the introduction of factors which may be outside the province of those making the decisions. They must have a reasonable assurance that future legislation will not detract from the correctness of the decision as and when it is made.

This is becoming even more important now that more sophisticated methods of determining the value of an investment are being used. It is useless thinking of a discounted cash flow if there is to be a change in the investment incentive which will nullify the effect of such massive sophistication. There have been many critics of these types of refinement who have felt that investment decisions are so broadly based that such refinements are of limited value. But it is useless to expect people to bring in any refinements if there is then a massive change in the allowances or the incentives.

The most important aspect of this is that it is the largest of the investment decisions, those which use the most sophisticated methods, which have the longest period of gestation. So by one blow we affect the largest investment decisions as well as those who use the most sophisticated methods. It is important that we do not upset this kind of investment more than is necessary and I therefore very much welcome the Amendment.

Photo of Mr Richard Wainwright Mr Richard Wainwright , Colne Valley

We on this bench naturally welcome the Amendment which deals with an issue which we raised on Second Reading and, more important, which brings to an end at last the period of very great anxiety among those businesses, large and small, with contracts now outstanding and placed before 16th January in the expectation of civilised treatment of investment allowances.

While welcoming the Amendment, I must note that throughout several discussions of this time limit no defence or excuse was ever offered for the date of 16th October which appeared in the Bill and which naturally gave rise to great anxiety in the business community. Perhaps it is not too much to hope that when limits of this kind have to be introduced in future legislation, unnecessary alarm will not be caused by apparently random choice of dates. Quite naturally, I very much support the Amendment.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I rise to speak again by leave of the House. I fully realise that we are on Report and I am in a rather difficult position, having moved the Amendment, that if I do not seek the leave of the House to speak again, I shall not be able to reply to the questions which have been properly put to me. I hope quite shortly to give whatever information I can, although I do not have a great deal.

I cannot make any estimate of the further cost which might arise if there were no limit on the period. The words "brought into use" are simple English and have no special legal definition which would detract from their ordinary English meaning. The inspectors of taxes will not take too narrow a view of the meaning and if as in the example put to me, a factory or machine is being run in. that will certainly be regarded as being brought into use. I cannot think that there will be any difficulty, as we have gone to the length of two years so as to cover any possible case.

Photo of Mr Peter Walker Mr Peter Walker , Worcester

This is rather important in connection with buses. I do not necessarily expect the right hon. Gentleman to know the answer now, but I would be most grateful if the Treasury could make clear to the bus operators what their position will he when taking delivery of a bus which has to he fitted with certain needed refinements. Presumably, on a legal definition, if a bus went on a trial run before the fittings were added, it could be argued that it was brought into use.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I take the point. That is why I have said that the inspectors of taxes will not take too narrow a view of the meaning of the words. I would not have thought that there would be any difficulty, in what I shall have to call the bona fide cases, about satisfying the reasonable requirements of the Revenue, which are the reasonable requirements of the House.

There was a comment about diversion for export which struck a sympathetic chord. I have not had an opportunity to consider this, but I am sure that it would be right for me to say that if, notwithstanding the two-year extension, there were to be a case in which it became apparent that there was competition to satisfy an export order and to satisfy an English domestic operator—and one knows that lorries, for example, are regular exports—it would obviously be in the interests of the nation that the export order should have first claim on the manufacturer of the chassis, for example, and it would be the duty of the Treasury and the Government to take note of that in any necessary adjustments. I do not want to go further than that except to say that we regard exports as priority No. 1.

There is one further point. I was asked why there should be any limitation at all. The reason is the same as that for which we introduced the nine-months' limitation. First, it was thought to be a reasonable half-way house between the proper requirements of those who acquire assets and the proper protection of the Revenue against those who had anticipated the situation and entered into long-term contracts.

We feel that a two-year period goes quite far enough. Those who have thought fit to protect themselves by entering into long-term contracts for a long period of years cannot object to having a two-year run and that being the end of it. I am grateful to you, Mr. Deputy Speaker, and I hope that the House will accept the Amendment.

Amendment agreed to.

Photo of Mr Peter Walker Mr Peter Walker , Worcester

I beg to move Amendment No. 31, in page 39, line 42, after the words last inserted, to insert: (ii) in so far as that expenditure is on public service vehicles as defined by section 117 of the Road Traffic Act 1960.

Photo of Sir Eric Fletcher Sir Eric Fletcher , Islington East

With this Amendment we can also discuss Amendment No. 30, in page 40, line 2, at end insert: or where that asset is a public service vehicle as defined by section 117 of the Road Traffic Act 1960 and if this is desired it will be convenient for the vote to take place on Amendment No. 31, I understand.

Photo of Mr Peter Walker Mr Peter Walker , Worcester

This seeks to continue investment allowances in respect of those vehicles defined as public service vehicles under Section 117 of the Road Traffic Act, 1960. This is a continuation of the argument propounded in Committee. There we argued that there was a need to continue investment allowances for buses and public service vehicles, seeing that they were not to receive the new cash grants which the Government are bringing into being.

On an examination of the debate in Committee it will be seen that the Chief Secretary—I think he would agree with this—did not answer the points made on this subject. This appears to have been due to a genuine misunderstanding on his part. We therefore welcome this opportunity of his being able to propound the arguments for not providing any form of investment grant or cash grant in respect of buses and public service vehicles.

It seems an extraordinary thing for a Government who have stressed the need for better public transport suddenly to introduce taxation policies which add to the tax burden on bus companies. The Amendment seeks to ensure that bus companies continue to enjoy investment grants. When I say that no argument was propounded by the Chief Secretary, I should make it clear that in a previous debate on 22nd June, on another Amendment, he propounded a rather remarkable argument, which is the only one I can find on record which enables the Treasury to put forward the view that it is a reasonable thing to take away all forms of investment allowances in respect of buses. In that debate, the Chief Secretary was talking about investment allowances and was dealing with the argument of my hon. Friend the Member for Manchester, Withington (Sir R. Cary), and he said: I would not wish to encourage him to believe that the Government are likely to look very sympathetically on cases where investment is already so overstretched it is impossible to supply the investors' demand for two or three years."—[OFFICIAL REPORT. 22nd June, 1966; Vol. 730, c. 616]

5.45 p.m.

This is a very interesting new concept why investment allowances should be offered. If we examine current Government proposals as they concern the new cash grants we find many items in respect of which there are long order books and other items where, presumably, the Government hope that the grants will result in a considerable demand. Is this concept of the Chief Secretary's to be applied in the future? If the Government decide that machine tools are in great demand at a certain time will they take away the investment allowances?

If that is the case, it is a very dangerous and frightening new concept of the Government's attitude to the question of investment allowances. If this is not the basic argument, however, I must ask the right hon. Gentleman to give the House the arguments that the Government can provide for seeing that the bus industry is penalised in this way.

On a previous Amendment, the Chief Secretary boasted of his generosity. In my view the Treasury is never generous. It is our money and not the Treasury's. Thus, we are very surprised that the Government now intend to take away investment grants on buses. This will cost the public bus companies £2.8 million a year. This is apparently the Chancellor's policy for the bus companies. This is the same Chancellor who, when he increased petrol tax, decided that the level of fares was such an important problem that special legislation should be introduced whereby the bus companies could obtain a rebate in respect of the increase in fuel tax, worth approximately £5 million a year.

This is the same Chancellor who, last year, decided that it was essential—in terms partly of the Government's prices and incomes policy and partly their policy on public transport—to introduce the novel and unusual factor of the rebate scheme in respect of fuel tax. Yet a year later the same Chancellor, in the same Government, by doing away with the investment allowances, imposes additional taxation amounting to £2.8 million a year, and, by way of the Selective Employment Tax, takes from the bus industry an interest-free loan of £15 million.

Those two factors combined mean that there will be no advantage from the rebate on the fuel tax for about seven years. We see that the net result of the rebate and the removal of investment allowances is a total concession of £2.2 million a year. In their Selective Employment Tax the Government are taking an interest-free loan of £15 million, and I just cannot understand why, of all organisations, the buses should have this form of investment incentive removed, with the very dramatic result that in respect of a bus costing £6,000 there is an increase of £720. A bus company operating 300 vehicles, with the normal sort of replacement programme, will have to bear a burden of £45,000 a year. This question appears to have been treated by the Government with the most remarkable complacency. In Committee, I gave some attention to the remarks which had been made by the Ministry of Transport. Once again, one must express surprise that on a major transport matter such as this there is no representative from the Ministry of Transport present. However, this is the normal practice and we are now used to it.

I quoted this in Committee. As, obviously, the Chief Secretary will have read through carefully the reports of the Committee debates, he will no doubt wish to comment on these words of the spokesman of the Ministry of Transport. He said that he: had considered the representations made by the industry to see what could be done to help but he appreciated that this had not yet resulted in effective action. He appreciated that the effect of the withdrawal"—

of the investment allowances— might be increased fares, reduction of services or standards.

The Ministry of Transport have appreciated that the withdrawal of the investment allowances will mean increased fares, reduction of services or standards. Will the Government tell the House whether they are happy to produce taxation proposals which will increase fares and reduce services or standards?

The same spokesman of the Ministry of Transport said that: It was necessary that the industry and the Ministry jointly should face these problems and whilst he was not yet in a position to comment on the recommendations of the Prices and Incomes Board, he had noted the recommendations that the industry should take the lead in obtaining extention of one-man operation."—[OFFICIAL REPORT, 22nd June, 1966; Vol. 730, c. 640.]

Taking the lead in going over to one-man operation means more new buses. There has to be a different type of bus. Therefore, if the Government wish to go over to one-man operation of buses, their task, if anything, is to increase the investment allowances to those public companies which are willing to do so.

Yet if the Amendment is not accepted, rather than increasing the investment allowances to encourage the conversion to one man operation, the Government will discourage it by taking away what allowance exists. I believe that public transport has been very badly treated and affected. It has had to meet considerable wage increases, it pays an enormous fuel duty, it has considerable licence fees to meet and it now has the burden of the Selective Employment Tax. It is remarkable that, added to all this, the Government should ruthlessly decide to do away with the investment incentives which have existed. I therefore hope that, in the interests of the many people who travel by bus, the Amendment will be accepted by the House.

Photo of Sir Robert Cary Sir Robert Cary , Manchester, Withington

I would reinforce what has been said so vigorously and eloquently by my hon. Friend the Member for Worcester (Mr. Peter Walker). He has raised many questions in my mind. I could speak a long time on the relationship which I have known for many years between the industry and the Treasury. It is only in recent years that I have begun to see any relaxation or any gesture to the industry at all. A recent example of this, almost the first that I can recall, is the putting into effect of the right hon. Gentleman's intimation in Committee, giving the industry a benefit of £10 million.

However, that is in the short run, and we are now considering the long run, the root and branch operation. What my hon. Friend has said is all too true. I am fearful of the range of additional expenses which may fall upon the operation of our fleets, whether municipal or private. In the pipeline at the moment is a claim, under consideration by the National Council, for 6 per cent. The Government are making their own pleading about what any such advance could be, but in any case, if the Government's norm of 3,½, per cent. were agreed, plus the withdrawal of investment allowances and with no concession on the extremely heavy fuel duties carried by the industry, in spite of the modest concession by the right hon. Gentleman of £10 million for vehicles in the short run spread over—

Photo of Mr Peter Walker Mr Peter Walker , Worcester

My hon. Friend will realise, of course, that this does not apply solely to vehicles but to everything in the economy. Not only this industry will get the benefit.

Photo of Sir Robert Cary Sir Robert Cary , Manchester, Withington

Yes, only a limited part of that £10 million applies to this industry. Only a proportion will apply, which makes it rather worse for the industry.

These are two shattering things at constituency level which upset me more than anything else. One is, outstandingly, any substantial increase in rates. The second is the destruction of fare schedules which necessitates the rebuilding of the fare structure to give an enhancement of revenue of about 15 per cent. to 16 per cent. to operate a company.

Private companies have to operate profitably or go out of business. The municipalities operate too, but always have the acrobat's net of the ratepayers' cheque book below them to make up the deficiency if necessary. This is often done by the municipalities, but private companies, whether a holding company and an operating company like the B.E.T. or the Lancashire United Transport Company, in my constituency, which is a wholly joint stock company, have to make both ends meet. If it had two bad years and used up its reserves, in the end it will go out of business.

Following my hon. Friend's pleas, I would put this proposition to the right hon. Gentleman. The Government are extremely keen to get an economy by co-operation. Because of the slow improvement of the industry, they want a change-over as quickly as possible to one-man operation. Even if the right hon. Gentleman will not consider accepting the Amendment root and branch, if a company decides, in conjunction with the manufacturers, to expedite the replacement of its fleet, with as much one-man operation as possible, under the referee-ship of the Traffic Commissioners, will he allow investment allowances to be given to those vehicles which have to carry into effect the Government's policy of converting fleets as much as possible to one-man operation?

I know that this will make a separation in taxation between some vehicles on the road and others which will be brought on to help to meet the Government's point about the use of manpower in industry.

In addition, I repeat a plea which I have made over and over again—a plea which the industry has made repeatedly: will the Government ease the fuel tax position of the industry? The industry is still paying 2s. 9d. a gallon on its fuel. If the Chancellor will consider the age-old problem which has worried the House for a long time he will realise that he can confer no greater benefit on the industry than that of reducing the level of fuel taxation. The Government have demanded that the industry should not destroy the existing fares structure, but I make a prophesy that in less than two years the present fares structure all over the country will have to be destroyed and rebuilt— and that can be done only at the expense of the fare-paying public. How shall we get moderation in wage and salary demands if we allow a substantial increase in the cost of living— and bus fares are a basic part of the cost of living—by destroying the present level of fares over the whole industry? In great cities such as Manchester and Liverpool there will be an additional 15 to 16 per cent. added to the fares paid by the general public.

6.0 p.m.

Photo of Mr Geoffrey Hirst Mr Geoffrey Hirst , Shipley

I rise briefly but very sincerely to support the Amendment and the very strong and lucid speech of my hon. Friend the Member for Worcester (Mr. Peter Walker). We discussed this very important matter in Committee in various ways, and I hope that the Chief Secretary is now ready to offer a solution to what is a glaring inconsistency in Government policy which must be corrected.

It is shattering that, on a subject which is so important, and which must inevitably lead to an increase in cost to the travelling public, apart from the thin red line on the Treasury Front Bench and the attentive and long suffering P.P.S. sitting behind the Chief Secretary, we have had an average of fewer than two hon. Members on the Government Benches throughout the discussions, and in part of the time there has not been one hon. Member on those benches.

It is devastating that so little interest has been shown in a proposal which will add £750,000 to the costs of the operating bus companies. Hon. Members opposite ought to be up in arms about it. If I had been on that side of the House and the Conservative Party had been in power, hon. Members know what hell the Treasury Bench would have been getting from me had they introduced a proposal such as this. Nothing inhibited me when I was on the benches opposite and nothing inhibits me now. Hon. Members opposite should have been out in full cry on this occasion. The Government last year said that they would give a rebate in respect of the petrol duty to ensure that the fare structures were maintained as far as possible, but now they have added this charge to wipe out a great slice of that essential advantage which was needed to maintain the structure.

Another important aspect concerns the manpower situation. We hope to see manpower in this country fully stretched. I could make some comments about vacancies at present but this would not be an appropriate time to do so. We all know that there is a shortage of manpower and we want to see more economic and a more modern use of the manpower available. If that is related to the Amendment it will he seen clearly that we are seeking to encourage bus companies to go over to the new one-man buses. Yet the Government produce a fuel investment policy which has been condemned throughout industry. How can they defend this inconsistency?

What particularly concerns me is that this matter was discussed clearly in Committee and yet the right hon. Gentleman did not jump to his feet immediately after my hon. Friend had moved the Amendment in order to save the precious time of the House by saying," This fault will be rectified ". He has not done so and his silence gives me no encouragement that the inconsistency of the Government's policy has been admitted, despite the inevitable increase which it must cause in fares being paid by the public.

Photo of Mr David Mitchell Mr David Mitchell , Basingstoke

I rise only briefly to add to the pleas which have been made particularly in two respects, one of which has scarcely been touched on in the debate. The first is the effect which this proposal will have on the costs of bus operators and on a fares structure, and the way in which it will affect old-age pensioners. I make the point particularly strongly that it is the old people who have no cars and who have had no share in the prosperity of the past 13 years. This section of the community uses bus transport most and will be most affected by this proposal.

Secondly, I make a plea about the effect of the proposal on rural transport. In the Basingstoke and Andover rural areas, we have serious problems arising from the difficulties which local bus operators have in maintaining an economic service without driving up fares to a point at which they will cause great difficulties, or without—this is more serious—being forced to withdraw their services from the outlying villages and hamlets. This aspect causes me grave concern and it should concern a Government which at the Election said that it would help all sections of the community Their proposals are making the problems of rural transport substantially worse. Looking at the Government benches, I regret that only five hon. Members of the Labour Party appear to consider this matter sufficiently important to attend the House.

Photo of Mr Geoffrey Hirst Mr Geoffrey Hirst , Shipley

That is a 100 per cent. increase on two-and-a-half minutes ago.

Photo of Mr David Mitchell Mr David Mitchell , Basingstoke

There is no Transport Minister on the Front Bench. I very much hope that the Minister will give a sympathetic hearing to this proposal. One of the major social problems of the country districts is that we are having a drift out of the smaller hamlets, because farmers cannot get farm workers who will live in those areas because they are isolated and cut off from public transport. I hope that the Minister will be more receptive to this proposal.

Photo of Mr Paul Dean Mr Paul Dean , Somerset North

I should like to support the plea which has been made from this side of the House and particularly the remarks of my hon. Friend the Member for Basingstoke (Mr. David Mitchell) about the difficulties of rural bus operators. I am sure that even the Chief Secretary admits that they are having an exceedingly difficult time under present arrangements. They are finding it very difficult to maintain a satisfactory service, and in many cases already the service is inadequate. Their costs and their fares have been mounting rapidly. The Chief Secretary also knows that we are dealing with a comparatively small section of the community who are not well off. Tycoons do not travel by public transport[Interruption.]—not usually. The majority of people who use public transport, particularly in the country districts, are those with comparatively modest means, certainly those who cannot afford motor cars. They are already finding bus fares a considerable burden, and now the Chancellor is making things even harder for them. Hon. Gentlemen opposite are always talking about social justice. Here is a policy which is completely contrary to their avowed aims.

Many rural bus operators are having to run additional services because of railway closures, services which would not have been contemplated had those closures not taken place. These are additional burdens being placed on bus operators and I hope that the Chief Secretary will recognise the strength of the pleas which my hon. Friends and I are making.

Photo of Sir Douglas Glover Sir Douglas Glover , Ormskirk

Unless the Chief Secretary accepts the Amendment, he will be demonstrating that the Government have completely lost control of their transport policy. I trust that the right hon. Gentleman has noted that only one back bencher is seated behind him voluntarily and is not a pressed man. That is an indictment of the party opposite, which was returned to power to protect the interests of the underprivileged and the transport problems particularly of those who cannot afford motor cars. I am surprised that more hon. Gentlemen opposite have not been prepared to come here to listen to our discussions, even if they are not prepared to take part in them. It is a pity that there are not a few honourable and independent hon. Gentlemen opposite of the calibre of my hon. Friend the Member for Shipley (Mr. Hirst).

It is obvious, from the policies the Government have pursued, that they are like a wounded rhinocerous which has been shot in one eye and is running around in ever increasing circles damaging the remainder of the herd and not achieving anything else. This has happened to the Government's transport policy.

Before referring to last year's Finance Act, I must mention that we seem to have had a permanent Finance Bill since the Government came to power. No sooner have we dealt with one Measure than another is before us. In this continuous process, might it not be a good idea for the Government to introduce a running Finance Bill, which they could amend from time to time, thus saving us the trouble of having to go through the various stages of each Measure? I am certain that before this Measure has received its Third Reading the Chancellor will produce further measures of financial repression and restriction.

Hon. Members:

Give way.

Photo of Sir Douglas Glover Sir Douglas Glover , Ormskirk

I trust that my hon. Friends and I will not argue over this. My hon. Friend the Member for Peterborough (Sir Harmar Nicholls) always makes brilliant speeches. I am sure he will do the same today.

6.15 p.m.

In 1965 the Government had a transport policy. But that was in the dim and distant past when there were heads of agreement and statements of intent. At that time they were trying to keep down the cost of transport, so much so that when they introduced what they called their mini-Budget, in which fuel tax was increased by 6d., the Chancellor excused the transport undertakings from paying it. Now—having saved the road transport operators about £5 million on that occasion—in this Measure the road transport undertakers will have to pay another £2,¾ million, in addition to which they are faced with the Payroll Tax, which will cost them £10 million to E12 million, so that their total oncost of the Government's so-called co-ordinated transport policy is colossal and means that the Government are deliberately putting up the costs of the road transport undertakings at a time when hon. and right hon. Gentlemen opposite keep telling us that they want to keep the cost of living stable.

The Chief Secretary should remember that these additional costs are paid not by the community at large but by those in the lower income groups. I should, at this point, correct my hon. Friend the Member for Worcester (Mr. Peter Walker), who said that it was not the Treasury which found the money but us. I am grateful that he thinks that Members of Parliament are so wealthy that we raise all this money for the nation. Of course, the money is not raised just by us but by the public in general. These increased charges will be paid by, if anyone, the under privileged people in our community. I am glad to see the right hon. Lady the Minister of Pensions and National Insurance in her place because she takes a great interest in these matters. Hon. Gentlemen opposite stated that they would help the underprivileged members of society, but here they are increasing the costs of the road transport industry, costs which will be paid by those in the lower income groups.

My hon. Friend the Member for Basingstoke (Mr. David Mitchell) spoke about the rural districts, and while I do not want to make a special case of my constituency, I must tell the Chief Secretary that the Minister of Transport is at present considering whether or not to accept the closure of the line from Ormskirk to Preston. If that line is closed, additional rural road transport will have to be provided. What encouragement have the Government given, by their recent actions, for rural road transport undertakings to produce such additional facilities? The rural areas are finding it increasingly difficult to keep their road services going.

A great drive is on for the introduction of one-man operated buses, but this involves capital expenditure. Bearing that in mind, what have this modernising Government done? They have taken away the capital allowances which would encourage operators to introduce buses controlled by one man.

As I said, the Government are acting like a wounded rhinocerous, running around in ever increasing circles, damaging the population and showing more and more that they are losing control of events and are acting out of panic rather than out of real thought and resource. I hope that, for once, the Chief Secretary will realise the sense of what my hon. Friends and I are saying and will accept the Amendment.

Photo of Mr Robert Cooke Mr Robert Cooke , Bristol West

I am privileged to speak following my hon. Friend the Member for Ormskirk (Sir D. Glover), although he did not go nearly far enough in drawing the attention of the House to the way in which the Government have utterly neglected the sphere which we are trying to help by the Amendment.

It is also worth noting that, despite the hurrying and scurrying of the Government Whips throughout the building, they have managed to produce only a smattering of hon. Gentlemen on the benches opposite who, I am sure, have no idea of what we are discussing. For their benefit, we are at page 1674 of the Notice PaperAmendments Nos. 30 and 31. I suppose that we have the one consolation that they are unlikely to muster 100 Members for the Closure in the near future.

I want to take up one or two of the points made by my hon. Friends and also to make some new ones. First, there is the question of one-man bus operation—. the modern approach. This will not be helped by the Government's attitude. In fact, as a result of Government action it will go forward much more slowly. The result will be the perpetuation of out-of-date public service vehicles; out-of-date buses blocking up our roads long into the future, because those buses cannot be replaced by new vehicles as the operators will not get the necessary help.

That will make for considerably worsened traffic conditions. Heaven knows, we have had evidence that with buses or taxi cabs off the road traffic moves with complete freedom in London. Perhaps if we had better buses in the provinces—and we need them in Bristol—we might have a quicker flow of traffic. Here we have an example of Britain's modernisation being impeded by the Government's own policies.

Before I had the privilege to speak in this debate I listened to the end of the previous one, when I heard the Minister say that exports were the Government's No. 1 priority. How do we have a healthy export market in these new buses if we do not have a healthy home market? We shall not find them being ordered in great quantities unless we have them being used here, and they will not be available here unless they get the proper tax treatment—

Photo of Mr Arthur Woodburn Mr Arthur Woodburn , Clackmannan and East Stirlingshire

I am very much interested in the arguments advanced by the hon. Member for Bristol, West (Mr. Robert Cooke) and his hon. Friends. During this debate we have heard a great deal about the numbers of people and the kinds of people who should not pay the tax. Will the hon. Gentleman now suggest who should pay it, if these people should not?

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

The hon. Member would be out of order if he responded to the challenge.

Photo of Mr Robert Cooke Mr Robert Cooke , Bristol West

I am most grateful, Mr. Speaker, for your guidance, and help in not getting this debate off the lines. I have no intention of following the right hon. Gentleman the Member for Clackmannan and East Stirlingshire (Mr. Woodburn) into his irrelevant field. We are now discussing the difficulties which bus operators, in particular, are facing, and which are not being helped by what the Government are doing. It is a pretty desperate state of affairs when all one can get from the other side is the right hon. Gentleman coming in and, as you said, Mr. Speaker, interrupting, with something quite irrelevant and out of order.

One of my hon. Friends spoke of municipal bus undertakings. The Government are no doubt in favour of anything not privately owned, but many undertakings are a partnership between the municipal and the commercial elements— and we have just that state of things in Bristol. My hon. Friend the Member for Manchester, Withington (Sir R. Cary) said that underneath there was always the ratepayer's cheque book as a sort of safety net into which the undertaking could fall if it got into deficit. That is a pretty poor attitude to adopt, and a pretty poor solution— that because the Government are not doing their duty, the ratepayers will pay lest the undertaking should go out of business.

From what I have heard in this debate this afternoon I am thoroughly convinced that the Government should make this concession. I hope that they will accept the Amendment.

Photo of Mr James Dance Mr James Dance , Bromsgrove

I want to underline what was said by my hon. Friend the Member for Somerset, North (Mr. Dean) about rural buses. In Worcestershire we have been, and are, threatened with railway closures, and some of these have been carried out. When this scheme first came out under Dr. Beeching, most of us approved, provided we got adequate alternative forms of transport. I gave my support to closures of uneconomic lines and insisted that we must have this alternative form of transport.

The ordinary bus is not good enough today. We need a form of goods van such as they have on the Continent, where a woman can pack her pram or her trunk. I have even travelled in France with a thing on top of the vehicle carrying a lot of chickens, ducks and geese—[An HON. MEMBER: "Pigs?"]—yes, let us take a few pigs along, too. We need proper goods vans on our buses.

When I got in touch some time ago with my right hon. Friend the Member for Wallasey (Mr. Marples) on this subject he produced a photograph of one of these things being tried out. They were not cheap. They were tied to the back of an ordinary single-deck bus and contained quite a lot of things that people in the country areas want to have carried —prams, mail carts, trunks, parcels, and so on, which cannot be taken in the normal bus.

The Government are completely falling down in this respect in not allowing these allowances. This development would cost money, but if the Government intend to pursue their policy, with which I do not disagree, of closure of certain uneconomic railway lines, they must provide this alternative transport. As people in the country areas know, though I do not suppose that everyone in the towns appreciates it, what is needed in the rural areas is not just a bus, but an extra bit of accommodation at the back or on the top of the bus for the carriage of goods.

I therefore plead with the Government to consider this subject again to see whether they cannot grant this allowance for something that is so completely essential for the efficient running of the bus services that I hope we shall have in the future and, in particular, for the welfare of the countryside.

Photo of Sir Eric Errington Sir Eric Errington , Aldershot

I should like to add my support to those of my hon. Friends who have spoken of the difficulties and problems facing bus companies. We are fortunate enough in my constituency to have an extremely efficient and well-run organisation, yet I get a very large number of requests for further bus routes and for more convenient arrangements. The question is often posed whether, instead of having the double-decker bus, which is too expensive, we could have the single-decker which takes a less number of people. The bus companies' problems are mounting up. The transport of children to school also needs the most careful consideration.

Investment allowance policy is only one of a number of things that the bus operators have to face, and the only way they can face up to it without cutting off the services—which in the country parts is a very unsatisfactory way of dealing with the matter—is by increasing the fares. Let us have no doubt at all that one of the results of the Government's attitude will be an increase in fares. It will also mean a worse service, as buses, like other motor vehicles, require constant renewal because of the desirability of having up-to-date arrangements. All these things are hitting at a service that is absolutely essential in the countryside.

I have had letters from old people who are desirous of having increased bus services. In certain places there is only one bus service during the daytime. They desire at least two so that they can make journeys at reasonably convenient times. When I put this to the bus company the reply was, "We do our very best, but this is not a viable route. In consequence, money has to be made from other services to meet the situation." I ask the Chief Secretary to look at this matter in a broader way than that merely of a question of abolition of investment allowances. That is only one thing, but the accumulation of things which make it difficult for bus operators to provide a service is very serious indeed. There is little doubt that this will have the result of increased fares being charged or no service being provided.

6.30 p.m.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

On a point of order, Mr. Speaker. Several of my hon. Friends and I have been sitting here for a very long time trying to catch your eye. May we have the assurance of Mr. Speaker that the fact that the Chief Secretary has risen in his place will not curtail in any way our honest endeavours from the Opposition benches?

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

I can put the hon. Member out of his misery. I called the right hon. Member on the Front Bench on the Government side, but that does not necessarily mean the end of the debate.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I am most grateful to you Sir.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

The hon. Member for Aldershot (Sir E. Errington) asked me not to regard this matter too narrowly but to deal with it more widely than the Amendment before us does and to deal with investment allowances. Indeed the whole of the debate, with the possible exception of the speech by the hon. Member for Worcester (Mr. Peter Walker) has dealt with matters which are broadly related to the difficulties of bus services in the country and other services. Hon. Members who have suggested that an hon. Member coming into the House and listening for an hour would not follow what the debate was about have been on sound ground, because the number of times in which the matter contained in the Amendment has been mentioned has been minimal.

Photo of Mr John Peyton Mr John Peyton , Yeovil

Mr. Peyton rose

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

No, I shall not give way. I hope that the House will allow me to deal with the speech of the hon. Member for Worcester and the Amendment before us. What is being asked is that an exception shall be made from a general policy decision, an exception shall be made in regard to buses from the general policy decision which is to exchange for investment allowances investment grants in appropriate cases with the special application of those grants as a backing to economic policy. The case which is to be made therefore on the Finance Bill is that buses are in such a special category as to be necessarily separated from every other kind of asset in the country so as to continue alone to get investment allowances which are attributable to no other asset in future.

I am bound to say that I have not heard arguments making that case. I have heard arguments making the case for the difficulties of the public service vehicles. I have heard arguments making the case that they should have special treatment and acknowledging that they have had special treatment. Indeed, the basis of the claim for inconsistent treatment is that they have had special treatment from the Chancellor in relation to the rebate of fuel tax.

Photo of Mr Peter Walker Mr Peter Walker , Worcester

If the right hon. Gentleman will now say that he is willing to exchange investment grants for the new cash grants for buses, I shall withdraw the Amendment.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I thought the hon. Member was going to say that. This underlines how inappropriate the Amendment is to this particular debate because the hon. Member knows, and knows full well—no doubt he has made this argument elsewhere himself—that this is not the Bill which deals with investment grants. He knows that there is no Clause in this Bill dealing with investment grants. There is no power here to deal with investment grants. He is asking me to agree to do what this Bill does not do. There is another Bill in which there will be full opportunity for hon. Members to take—

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

Sir G. Nabarro indicated dissent.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

It is no use the hon. Member shaking his head. He is wrong again. There has been a debate on the White Paper in which the whole policy of investment grants has been discussed. There is a Bill which has been debated on Second Reading and in Committee upstairs dealing with the full details of investment grants. We are now dealing with the Finance Bill under which as a corollary, but only as a corollary—not as a matter of policy, only as a corollary to the other Bill which deals with investment grants—this Bill deals with the withdrawal of investment allowances.

Photo of Mr Peter Walker Mr Peter Walker , Worcester

This is an extraordinary argument. It is known that it is Government policy not to give the new grants for buses. Therefore, we should discuss on this Clause of the Finance Bill the leaving of buses without any allowance of any description. It is perfectly reasonable that we should continue the discussion.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

We are not discussing buses with no allowances at all.

Photo of Mr Peter Walker Mr Peter Walker , Worcester

What have they got?

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I repeat that this is not a debate on general transport policy or even on a limitation of general transport policy as far as it affects buses concerned in the Amendment, public service vehicles. There are many ways in which services mentioned in this Amendment are helped, very many ways. If there is not a sufficient number of ways there are other methods of putting forward requests and appropriate ways in which they can be met. This is not the occasion for doing anything other than establishing that the withdrawal of investment allowances which is accepted—

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

—by the whole of the House, and the House is now sitting. The withdrawal of investment allowances has been accepted by the whole of the House.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

Sir G. Nabarro indicated assent.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

It has been accepted on several occasions. The approval of the White Paper was one. The Second Reading of the Bill dealing with investment grants was another. Everyone who voted for acceptance of investment grants knew that he was voting for withdrawal of investment allowances.

Photo of Sir Raymond Gower Sir Raymond Gower , Barry

Will the right hon. Gentleman answer—

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

Yes, I will answer.

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

Order. I hope the right hon. Gentleman will not go too wide in the answer.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I hope that I shall go considerably narrower than the points which were put to me. I shall certainly endeavour to follow your Ruling, Mr. Speaker, and deal with them very narrowly indeed. The whole of my argument is to claim that all the arguments put to me are far too wide and I am grateful for your comment and help. What we are concerned with here is the very narrow point as to whether vehicles of this kind are so to be distinguished from every other asset and every single other asset in the country, that they alone should continue to get investment allowance.

Photo of Sir Raymond Gower Sir Raymond Gower , Barry

Mr. Gower rose

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I have said six times that I am not giving way to the hon. Member. Cannot he hear? I have given way I dare say 50 times—[An HON. MEMBER:" It is a prolonged debate."] The debate has been very much prolonged already. I have noticed hon. Members on the Front Bench opposite collecting speakers to keep it going.

Photo of Mr Peter Walker Mr Peter Walker , Worcester

Mr. Speaker, I ask the Chief Secretary to withdraw that remark which is completely untrue.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

If it is not hon. Members on the Front Bench opposite who have been getting speakers in, it is others who have been collecting speakers to continue the debate.

Hon. Members:

Withdraw.

Photo of Mr Peter Walker Mr Peter Walker , Worcester

On a point of Order, Mr. Speaker. I must ask the Chief Secretary to substantiate that remark or to withdraw it.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

On a point of order. Is it in order for the First Secretary to indulge in crass mendacity in the House?

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

I hope the hon. Gentleman will withdraw the word "mendacity".

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I withdraw "mendacity" and substitute "inaccuracy", Mr. Speaker.

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

It is in order for any hon. Member to indulge in inaccuracy. It is a common complaint.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I may have been inaccurate in my hearing, Mr. Speaker. However, I do not want to pursue the matter. I thought I heard the hon. and gallant Member for Knutsford (Sir W. Bromley-Davenport) invited to come in and make a speech. If that is not the case, if he was not invited—

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

Order. I hope that we can get back to the Amendment.

Photo of Lieut-Colonel Sir Walter Bromley-Davenport Lieut-Colonel Sir Walter Bromley-Davenport , Knutsford

Mr. Speaker, did my own ears deceive me? I wonder whether the right hon. Gentleman who has just referred to me would mind repeating the glowing remarks that he has just made about me.

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

I think the House had better take my advice and get back to the Amendment.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I accept your advice very readily, Mr. Speaker, and I repeat shortly, therefore, that the only case which could be made out for the exceptional treatment of public service vehicles as being the only asset in the country to be excluded from the withdrawal of investment allowances has not been made out, and therefore I regret that I cannot recommend the House to accept the Amendment.

Photo of Mr John Peyton Mr John Peyton , Yeovil

We have listened to a number of unsatisfactory answers during the course of these debates, and the right hon. Gentleman the Chief Secretary must now be awarded the palm or some more suitable prize. The answer which he has just given is surely the most unsatisfactory, unsympathetic and unfeeling that we have yet had from the Government, and that is saying a lot. The right hon. Gentleman's commencing remarks were quite astonishing. He appeared to be suggesting that investment allowances had no bearing on the general problems of running rural transport.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I did not say that.

Photo of Mr John Peyton Mr John Peyton , Yeovil

The right hon. Gentleman was so generous in giving way and I trust that he will not indulge tonight in the habit of sedentary interruptions. Perhaps he will have other opportunities to explain exactly what he did mean. I am certain that I carry my hon. Friends with me when I say that the right hon. Gentle. man gave us the clear impression that he was conducting a very specious argument by suggesting that the removal of investment allowances had little or no bearing on the difficulties of running rural transport. This seems to me astonishing.

The right hon. Gentleman then capped that amazing piece of speciousness with another suggestion, that all those who had voted for investment grants were auto- matically against investment allowances. A little bit of something is better than nothing at all, but any suggestion that those of us who are speaking on behalf of the Amendment are against investment allowances for buses or anything else is quite wrong and without foundation, and the right hon. Gentleman knows it very well.

I cannot help but believe that the Government are now giving one more indication of their real hostility or callousness where the affairs of the countryside are concerned. When one recollects the crocodile tears which were once shed by some enthusiastic but irresponsible advocates of helping the countryside when the Socialist Party was on this side of the House, one feels some disappointment that those sentiments are not reflected in Government policy now.

6.45 p.m.

It is very sad indeed that we do not have any representative from the Ministry of Transport here. The Treasury Ministers already have quite a load on their shoulders. They cannot be expected to be masters of every aspect of Government policy, even though they think they are. We think it would be unfair to expect it of them. But it is not unfair for the House of Commons to expect the presence of representatives from a Department whose affairs are under discussion on a Bill of this kind. They certainly should be here. I recollect only too well that the Minister of Power was not here during a power debate. But the right hon. Lady the Minister of Pensions and National Insurance does come. Why cannot her example be followed by the Minister of Transport? I observe, Mr. Speaker, that you may be getting restive but I am sure you understand the peat amount of provocation that we have had.

I want to remind the Government not only of the Jack Report but of the series of local inquiries which followed that Report. May I remind the Chief Secretary, or may I tell him because I do not suppose he has heard of it before, of the Report on Rural Bus Services which indicates how marginal was the possibility of rural bus services even surviving, and referred in particular to the help that might be given by a remission of the fuel tax. I shall not read much of it, but I should like to quote from paragraph 84 as follows: The bus operators' representatives in the area emphasised the heavy cost of maintaining rural services. Additional facilities could only be provided if financially supported, whether locally or nationally.

It goes on to consider the advisibility or otherwise of a remission of fuel tax. I am not going to consider that now. I am only raising it because the evidence of the Committee and its inquiries were to one effect, a-at even the most marginal help would be valuable.

What would have been the reaction of this Committee had it been told that the Government contemplated, in Measures such as this, removing investment allowances from the bus companies? I believe those responsible for these inquiries would have thought that the Government or the Treasury which is responsible for such a proposal as this, had gone clean out of their minds. But they were not such pessimists as to anticipate the arrival of right hen. and hon. Gentlemen on the Front Bench opposite.

I do not wish to delay the House from the joys which I expect will come pouring forth from my hon. and gallant Friend the Member for Knutsford (Sir W. Bromley-Davenport). But I want to register my utter disgust at the Government's careless dismissal of the genuine anxieties felt by bus operators and their customers throughout the countryside, and if the Government do not do better than this I shall be driven to the conclusion that Hungarians do not travel in buses.

Photo of Mr David Webster Mr David Webster , Weston-Super-Mare

I thought the Chief Secretary was, to say the least, a little irritable and I thought that made up for his lack of argument in replying to this excellent debate.

The point that has been quite clear is the deep strength of feeling among hon. Members on this side of the House who represent every shade and sector of the community. I thought it ill became the right hon. Gentleman to say that people had been inciting my hon. and gallant Friend the Member for Knutsford (Sir W. Bromley-Davenport) to declare his views which he holds very strongly, when we have drawn attention to the fact that not only has there been no Transport Minister on the Government Front Bench through- out the whole of this debate which has last for two hours, but also that there have been very few Government supporters present during almost the last two hours and the Whips had to be sent out to fetch them in.

Every time they came in we cheered them and approved the fact that at last, willy-nilly and reluctantly, they were showing some interest in this matter, which arouses very deep feelings in the House. [Laughter.] The hon. Member for Bilston (Mr. Robert Edwards) is pleased to laugh at this, but he is one of those who supported the Travel Concessions Act, brought in by his former Chief Whip. Concessionary fares will be eroded by the withdrawal of investment allowances.

The former Secretary of State for Scotland, the right hon. Member for Clackmannan and East Stirlingshire (Mr. Woodburn) came in, pushed in by his own Whips, then interrupted, with his hands in his pockets and talked about a tax. We are talking about an allowance, not a tax, and that is something which I hope he will accept.

I reiterate to the Chief Secretary that our purpose is absolute opposition in principle to withdrawal of investment allowances. But if he, as a senior Minister of the Government, will give the assurance that he will give the investment incentive to the bus companies, we shall withdraw the Amendment. We have an absolutely rooted objection to the exclusion of bus companies from both investment allowances and investment incentives. Why are they singled out?

I see that hon. Members opposite are going back now to their cups of cocoa and various things like that, which probably are very tasty. But these are important matters. Why is the industry singled out? I notice that the Chief Secretary was looking unhappy when he came in at the beginning. He had to make an Amendment, which he did with very good grace, to give away Government money, as he said. That is a complete misconception. It is returning to the industry its own money. This is a matter of principle which I hope that the Chief Secretary and his friends will immediately take into account.

Photo of Mr David Webster Mr David Webster , Weston-Super-Mare

It is a matter of principle that the hon. Gentleman would do well to learn.

Photo of Mr Robert Sheldon Mr Robert Sheldon , Ashton-under-Lyne

I always consider this to be a quibble—the double return of money is the same thing as giving money. These quibbles and semantics impress few people outside the House.

Photo of Mr David Webster Mr David Webster , Weston-Super-Mare

I remind the hon. Gentleman that the duty of the House is to withhold the taxpayer's money until we are sure that a grievance is redressed and that the country is properly administered. It is the taxpayer's money, and it is the taxpayer that hon. Members on both sides of the House—and I hope that he will remember this—are here to serve and protect.

We have seen the industry suffer first the 6d. on the gallon fuel duty. Later, it was given a concession, and was grateful, but now it has suffered the loss of investment allowance. Today it has been given a concession, and is grateful, but it is bemused; it is being treated like Pavlov's dog, and at the end of the day the concession is very much less than the original impost. That is what is going wrong with this unfortunate industry.

We have heard statistics from my hon. Friends the Members for Worcester (Mr. Peter Walker) and Manchester, Withington (Sir R. Cary) showing that the bus companies will have to earn 40 per cent. more when investment allowances are withdrawn in order to keep the profit level the same as it is today. With that profit level, they have to plough back money to buy more vehicles, because all the time they are being exhorted by the Minister of exportation and transportation to invest in new equipment and new buses.

What help are they being given in this respect? As we know, the Minister of Transport is not interested in looking after these people. Today she is talking to the N.U.R. She talks about social needs and removing congestion from the streets of the Metropolis and our major cities. Yesterday we had the report of the G.L.C., showing that if something is not done immediately there will be crippling congestion.

What is being done today to assist public transport, to assist in moving the traffic in and out of our cities so that people are encouraged to leave their cars in their garages and go by bus? This is something that the House and the Minister of Transport approves of. But what pressure is the right hon. Lady making on this, and what interest is she taking in it, to ensure that something—not simply lip service—is done to assist in reducing the congestion in our great cities?

There is the problem of regional development. The whole of the development areas lack capital investment, and they are the areas that are, broadly, dependent on the bus services.

Photo of Mr David Webster Mr David Webster , Weston-Super-Mare

I heard a Welsh voice behind me, and I was glad to hear the voice of Wales on this matter. What is being done to help regional development? My hon. Friends have talked today on behalf of the West Country, and will later talk, I hope, on Scotland and Wales. Those are the regions that have been particularly promised regional development, and there is now a Secretary of State for Wales and so on. In all the regional developments, rural transport is a key point that has been totally neglected.

Withdrawal of investment allowances, without the balancing investment incentive about which the Chief Secretary has spoken, proves that the whole of the Ministry of Transport's policy is simply lip-service and exhortation. There is nowhere a case for taking away the investment allowance from the public transport and the bus industry, unless one gives them an investment incentive as well.

I hope that my right hon. and hon. Friends will explore this matter thoroughly in the important debate that still lies ahead of us, and when they have done so I would advise them to divide on behalf of the Amendment so ably moved by my hon. Friend the Member for Worcester.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

The reason why rural transport has entered largely into our lengthy debate this afternoon, almost entirely from my hon. Friends and myself, is that nearly all the rural constituencies of England are represented on this side of the House, and the Ministers on the Treasury Bench sit almost entirely for industrial and urban seats. They have no appreciation of the influences on the rural constituencies of removal of investment allowances on buses.

The right hon. Gentleman the First Secretary sits for Gloucester. Hm! Not a blade of green grass in Gloucester. The hon. and learned Gentleman the Financial Secretary sits for a Derby seat. Not a blade of green grass in Derby. My hon. Friend who opened the debate, the hon. Member for Worcester (Mr. Peter Walker) sits for a county constituency.

Photo of Mr Brian Walden Mr Brian Walden , Birmingham All Saints

Gloucester and Derby pay more in taxes.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

The hon. Gentleman displays his ignorance of English constituencies. My hon. Friend sits for a constituency comprising 68,000 acres, of which the city of Worcester is the major part and there are vast adjoining rural areas. The Parliamentary Private Secretary should remain quiescent.

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

Order. If the hon. Gentleman who has the Floor does not give way, the hon. Gentleman must keep his seat.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I am always generous in these matters, Mr. Speaker. I should be delighted to allow the hon. Gentleman to make his maiden speech as a Parliamentary Private Secretary.

Photo of Mr Brian Walden Mr Brian Walden , Birmingham All Saints

I rose simply to inform the hon. Member, as he well knows, that it is a convention that keeps Parliamentary Private Secretaries silent. I have just as much right to speak on this Amendment as the hon. Member has, since he made a comment on what I said. I did not say that Worcester was not a county seat. I said that it is possible that the constituencies of Gloucester and Derby pay far more taxes than the City of Worcester.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I should immediately incur your displeasure, Mr. Speaker, if I followed that entirely irrelevant intervention.

I complete the trinity of speakers from the County of Worcestershire this afternoon. My hon. Friend the Member for Worcester opened the debate and my hon. Friend the Member for Bromsgrove (Mr. Dance) spoke a little later.

An Hon. Member:

Not many blades of grass there.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

The hon. Gentleman intervenes—

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

Order. There are 630 constituencies. I hope that the hon. Gentleman will not mention them all.

7.0 p.m.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I have no wish to respond in detail on that point, Mr. Speaker. I am talking of one two hundred and tenth part of the 630, namely, the three contiguous Worcestershire county constituencies, Worcester, Bromsgrove and Worcestershire, South, my own constituency. They are contiguous and they have certain features in common. They cover widespread rural areas and they all return Tory Members. They are largely denuded of rural transport. That is why our three voices have been heard in unison in this important connection.

I turn now to the fiscal technicalities of the Amendment. The Chief Secretary said that he was dealing with a narrow point. So he was, a narrow but critically important point. There are three forms of capital allowance to which the House has become accustomed in the 21 years since capital allowances were first introduced by the late Sir John Anderson at the end of the last war. The three forms of capital allowances are the initial allowance, the investment allowance and the cash grant.

The initial allowance has disappeared almost entirely from the industrial fiscal scene. The investment allowance is in process of disappearing, and in its place we have the cash grant, but with certain important exclusions. Public transport vehicles and goods vehicles are specifically excluded, and the only method which my hon. Friends and I have for securing the retention of a form of capital allowance on the narrow but critically important sector of public service vehicles is by moving this Amendment for the retention of investment allowances for public service vehicles. This is entirely relevant and we are entirely justified in calling in aid three important supporting arguments.

First—we have heard from practically every speaker on this side—that the rural areas are being progressively denuded of transport services. We have practically none left in Worcestershire. There are vast areas of the countryside now where the railway lines have been closed and the stations have disappeared. There is even a threat now to shut the station at Pershore, a famous Worcestershire town the centre of an important horticultural area. There are hardly any bus services left at all, and we fear that added costs resulting from the withdrawal of the investment allowance will sound the death knell of the residual rural bus services.

If anyone challenges me on what the increased costs will be, I respond at once. Does the House understand what an investment allowance, as introduced by former Tory Governments, did? It paid 130 per cent. of the historical capital cost of an asset over the working life of the asset. It gave a premium of 30 per cent. less Income Tax at the standard rate, on the value of the asset purchased. If that investment allowance is removed, it follows that on all capital assets purchased by bus companies there will be a commensurate increase in the cost of operation spread over the life of the working asset, the omnibus. This is critically important in the context of rural bus services. That is the first point.

The second point I cannot do better than emphasise once more on behalf of my hon. Friends the Members for Worcester and for Bromsgrove and myself, in Worcestershire, South—these three widespread, contiguous, and largely rural constituencies.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

The hon. Gentleman sits for Ebbw Vale. Not a blade of green grass there either. No rural bus services in Ebbw Vale. The hon. Gentleman ought to sympathise with me in the plea I am making, for his industrial workers come to my constituency to enjoy good clean fresh air and the Worcestershire countryside.

Photo of Mr Michael Foot Mr Michael Foot , Ebbw Vale

I was not complaining of the anthem. I was inviting the hon. Gentleman not to repeat the chorus every time.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

It is not a question of a chorus. It is a question of alliteration and of emphasis, both very apposite to these arguments.

I return to the trinity of Worcestershire Members, and I am coming to the second point. The fuel duty was mentioned. The Midland Red Omnibus Company, which covers these three Worcestershire constituencies, has estimated that the fuel duty alone cost it £900,000 in operating rural services in the West Midlands. My hon. Friend the Member for Yeovil (Mr. Peyton) mentioned the Jack Report. He spoke first of the Jack Report on Rural Bus Services in 1959. Bringing the matter up to date, the investigation in 1965, six years later, in four sample areas, again brought out this figure of £900,000 for Midland Red fuel costs. That is the second factor.

The third factor has been mentioned, namely, the export market for buses. I hope that the Chief Secretary will not laugh at this point. It was his Administration which appointed Sir Donald Stokes to promote additional overseas sales, and Sir Donald Stokes, deputy chairman and managing director of Leyland, is the most successful bus salesman, overseas. Leyland earns huge sums in foreign exchange, but if the rate of output of buses for the home market is slowed down, it vitiates and undermines export promotion capability. [Laughter.] Those are the three factors. They should not be treated with levity by my hon. Friend the Member for Knutsford (Sir W. Bromley-Davenport).

Photo of Lieut-Colonel Sir Walter Bromley-Davenport Lieut-Colonel Sir Walter Bromley-Davenport , Knutsford

I am sorry that my hon. Friend misunderstood. I was not treating what he said with levity. What I like about all his speeches is that they are so tremendously fluent and full of so many facts that the dumb Lobby fodder opposite dare not interrupt.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

As always, I am grateful to my hon. Friend for his stimulating intervention.

The Chief Secretary inquired whether my right hon. and hon. Friends and I wished to put buses into a special category for capital allowance purposes. My answer is an unequivocal," Yes ". He put buses into a special category in a negative sense by withdrawing the investment allowance and refusing in substitution the cash grant. He unilaterally discriminated against omnibuses.

Photo of Mr Robert Sheldon Mr Robert Sheldon , Ashton-under-Lyne

Will the hon. Gentleman allow me?

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

No, I will not. I told the hon. Member yesterday that he is a pest.

The right hon. Gentleman discriminated unilaterally against buses by withdrawing the capital allowance upon them and refusing to substitute a cash grant. I seek in my speech, delivered with the utmost seriousness, to restore capital allowances to omnibuses, thereby helping rural services and helping our export trade, and that is the purpose of the Amendment. I hope that all my right hon. and hon. Friends, together with the Liberal Party, will join in the Lobby and vote unanimously and enthusiastically against the retrogressive step taken by the Treasury this day.

Photo of Mr Robert Sheldon Mr Robert Sheldon , Ashton-under-Lyne

The hon. Member tor Worcestershire, South (Sir G. Nabarro) did not show what I thought he always considered to be his usual courtesy in giving way. Otherwise I should not have risen now to make the only point that I wished to make when he referred to capital allowances and the need for their continuation in the form of investment allowances for buses.

The Industrial Development Bill sought to replace investment allowances by investment grants. In passing the Second Reading of the Industrial Development Bill, the House accepted, as the Chief Secretary tried to make plain, that the two systems could not go side by side, that one cannot have investment grants side by side with investment allowances. Not only is the hon. Member for Worcestershire, South trying to get them going side by side but he is even trying to get them for one special category only, public service vehicles. This makes nonsense of the whole system of the Industrial Development Bill, which has been accepted by the House.

Photo of Sir Raymond Gower Sir Raymond Gower , Barry

Although the Chief Secretary is not primarily responsible for transport and is a Treasury Minister, it was hardly creditable that he should have spoken in reply to the Amendment with an apparent disregard of the plight of the bus services. The position here is in a special category because it is so des- perate. It is desperate in the South-West, in Worcestershire and certainly in the Principality of Wales. It is desperate in the case of rural services. The position is only slightly better in some of the municipal services where the loss-making capacity is much the same as in the rural areas but the position is disguised by rating precepts.

The Chief Secretary must appreciate that we are pressing this point because it is the final straw, the culmination of many things which have made the difficulties of the industry so much greater. I am astonished that he should apparently have been so relatively unconcerned about the survival of bus services in some of the least accessible parts of the country.

Photo of Mr Eric Lubbock Mr Eric Lubbock , Orpington

I was tempted to intervene by what was said by the hon. Member for Worcestershire, South (Sir G. Nabarro) and the hon. Member for Ashton-under-Lyne (Mr. Sheldon). The hon. Member for Worcestershire, South asked whether the Liberals would support the Amendment. We expressed our views forcibly on the subject during the Committee stage of the Finance Bill, and I thought that I could save time if I did not reiterate the views that I expressed then.

The hon. Member for Ashton-under-Lyne has missed the whole point of the argument, which is that the Chief Secretary has refused to include buses in the proprosals for the investment grants. That is why some of us on this side are seeking to apply the investment allowance system to them.

We believe that a result of the proposals which the Chief Secretary has brought before us very great harm will be caused to the rural bus industry and also to buses in constituencies such as mine in the outer parts of the big conurbations, where, I am sorry to say, we are not very well served in all respects by the London Transport Board.

So in talking about the Amendment we should not limit our remarks purely to the people who live in rural areas. I believe that the bus companies about which the hon. Member for Manchester, Withington (Sir R. Cary) spoke serve a very large area in the City of Manchester as well as outside it. So we are talking about services which affect perhaps the majority of the inhabitants in the United Kingdom and not just one small section of the population. I wish the Chief Secretary would think again even at this late hour.

Question put, That those words be there inserted in the Bill:—

The House divided: Ayes 138, Noes 204.

Gourlay, HarryMcGuire, MichaelRoberts, Gwilym (Bedfordshire, S.)
Greenwood, Rt. Hn. AnthonyMcKay, Mrs. MargaretRobertson, John (Paisley)
Gregory, ArnoldMackenzie, Gregor (Rutherglen)Robinson, W. 0. J. (Walth'stow, E.)
Grey, Charles (Durham)Mackie, JohnRodgers, William (Stockton)
Griffiths, David (Rother Valley)Mackintosh, John P.Roebuck, Roy
Griffiths, R t. Hn. James (Llanelly)McMillan, Tom (Glasgow, C.)Rose, Paul
Hamilton, James (Bothwell)McNamara, J. KevinRoss, Rt. Hn. William
Hamilton, william (Fife, W.)MacPherson, MalcolmRowlands, E. (Cardiff, N.)
Hamling, WilliamMahon, Peter (Preston, S.)Ryan, John
Hannan, WilliamMahon, Simon (Bootle)Sheldon, Robert
Hattersley, RoyMallalieu, E. L. (Brigg)Shinwell, Rt. Hn. E.
Hazell, BertManuel, ArchieShore, Peter (Stepney)
Heffer, Erie S.Mapp, CharlesShort,Rt.Hn.Edward(N'c'tle-u-Tyne)
Herbison, Rt. Hn. MargaretMason, RoySilverman, Sydney (Nelson)
Hobden, Dennis (Brighton, K'town)Miller, Dr. M. S.Skeffington, Arthur
Hooley, FrankMitchell, R. C. (S'th'pton, Test)Slater, Joseph
Houghton, Rt. Hn. DouglasMorgan, Elystan (Cardiganshire)Small, William
Hoy, JamesMorris, Alfred (Wythenshawe)Spriggs, Leslie
Hughes, Emrys (Ayrshire, S.)Morris, Charles R. (Openshaw)Steele, Thomas (Dunbartonshire, W.)
Hughes, Roy (Newport)Murray, AlbertSummerskill, Hn. Dr. Shirley
Hunter, AdamNewens, StanSymonds, J. B.
Hynd, JohnNoel-Baker, Francis (Swindon)Thomas, George (Cardiff, W.)
Jackson, Colin (B'h'se & Spenb'gh)Noel-Baker,Rt.Hn.Philip(Derby,S.)Thomas, lorwerth (Rhondda, W.)
Jackson, Peter M. (High Peak)Norwood, ChristopherThornton, Ernest
Jeger, George (Goole)Ogden, EricTomney, Frank
Jenkins, Hugh (Putney)O'Malley, BrianUrwin, T. W.
Jenkins, Rt. Hn. Roy (Stechford)Oram, Albert E.Varley, Eric G.
Jones, Dan (Burnley)Orme, StanleyWainwright, Edwin (Dearne Valley)
Jones, J. Idwal (Wrexham)Oswald, ThomasWalden, Brian (All Saints)
Judd, FrankOwen, Will (Morpeth)Walker, Peter (Worcester)
Kelley, RichardPage, Derek (King's Lynn)Wallace, George
Kenyon, CliffordPannell, Rt. Hn. CharlesWatkins, David (Consett)
Kerr, Dr. David (W'worth, Central)Parkyn, Brian (Bedford)Wellbeloved, James
Kerr, Russell (Feltham)Pearson, Arthur (Pontypridd)Whitlock, William
Lawson, GeorgePentland, NormanWilliams, Clifford (Abertillery)
Leadbitter, TedPerry, George H. (Nottingham, S.)Williams, W. T. (Warrington)
Ledger, RonPrice, Christopher (Perry Bar)Willis, George (Edinburgh, E.)
Lestor, Miss JoanPrice, Thomas (Westhoughton)Wilson, William (Coventry, S.)
Lever, Harold (Cheetham)Probert, ArthurWinnick David
Lewis, Ron (Carlisle)Pursey, Cmdr. HarryWinterbottom, R. E.
Lomas, KennethRandall, HarryWoodburn, Rt. Hn. A.
Luard, EvanRankin, JohnWoof, Robert
Lyons, Edward (Bradford, E.)Redhead, EdwardYates, Victor
McBride, NeilRhodes, Geoffrey
McCann, JohnRichard, IvorTELLERS FOR THE NOES:
MacDermot, NiallRoberts, Albert (Normanton)Mr. Joseph Harper and
Mr. Walter Harrison.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I beg to move Amendment No. 105, in page 40, line 9, after "expenditure", to insert or be made by virtue of section 332(3) of the said Act of 1952 in respect of a proportionate part of any contribution towards that expenditure". This Amendment deals with a possible defect in the application of Clause 35 to capital allowances which a trader may claim in respect of contributions he makes towards another trader's capital expenditure. The present position is that expenditure in respect of which a relevant grant is paid does not rank for an initial or investment allowance but, as the Clause is drafted, there is nothing to stop one trader getting a grant in respect of expenditure and another contributing to its cost and claiming an initial allowance in respect of his contribution. The reason is that, under Section 332(3) of the Income Tax Act, 1952, a trader who, for the purpose of his trade contributes a capital sum towards another trader's capital expenditure, can claim allowance as if his contribution had been expenditure on the provision of a similar asset.

Of course it follows that the recipient of the contribution is to that extent debarred from claiming allowance himself on his expenditure. But the Board of Trade does not propose to take any account of contributions made by one trader towards another's capital expenditure. The contributor's expenditure under this Clause, therefore, is not expenditure that is taken into account for the purposes of a relevant grant. The duplication must be cured and the Amendment does so by providing that no initial or investment allowance shall be made under Section 332(3) for a proportionate part of any contribution towards the expenditure for which a relevant grant is paid.

Amendment agreed to.

Clause 36.—(TERMINATION OF FREE DEPRECIATION IN DEVELOPMENT DISTRICTS.)

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

I beg to move Amendment No. 32, in page 41, line 1, to leave out Clause 36.

This is a dramatically worded Amendment, inasmuch as it asks the House to delete the Clause completely. I believe that it is unusual for an Amendment in this form normally to be selected at Report stage, so I am hopeful that the fact that it has been selected may help us persuade the Government that they should accept it.

The main point to be made is that it is not intended to be a destructive Amendment but a constructive one. We believe that the system of free depreciation introduced by the Conservative Government has been extremely successful in encouraging investment in development districts. Indeed, the Minister of State, Board of Trade, replying to the debate on the Clause in Committee, said that the system had been extremely helpful in furthering regional policy.

We on this side—and, I am sure, the House as a whole—are clear that, if we are to solve our economic problems, maintaining a high level of employment and stabilising the cost of living, it is vital in the long run to encourage investment in development districts because only if we do can we hope to keep the economy in balance and avoid deflating it, which would create more unemployment in areas of intrinsically high unemployment or else, as we tried to mop up such unemployment, would create an inflationary situation in the South and the Midlands. It will, therefore, be generally agreed that it is essential to have the right kind of regional policy which will encourage investment in development districts and areas.

7.30 p.m.

We pointed out in Committee that the system of free depreciation which enable people in development districts to write off immediately the assets against tax, as against the situation elsewhere where they can only write off the asset over the life of the asset has been instrumental in encouraging firms to go to the development districts. We on this side feel that this is a preferable system to the system of cash grants which the Government now propose to introduce.

In the debate in Committee, however, we pointed out that the Government's proposals for the Selective Employment Tax have had, or are likely to have, a serious effect upon the distribution of industry between the regions, for the reason that the Selective Employment Tax will have the most favourable effect on the area of the West Midlands, which is the area which tends to overheat whenever the economy begins to gain momentum.

Conversely, I quoted at column 708 on 22nd June the National Institute of Economic and Social Research Report, which pointed out that the effect of the tax, on the other hand, on areas such as Scotland would be far less favourable than on the West Midlands, and similarly for the north of England. Therefore, the Government are introducing in the Selective Employment Tax what is essentially a counter-regional policy. For that reason, we suggested in Committee that there would be a strong case for continuing to maintain the system of free depreciation incentives to offset the Selective Employment Tax.

That, in essence, is why we have tabled the Amendment. It means that if the Government wish to continue the system of free grants, they will continue but, on the other hand, the system of free depreciation will continue alongside it and will do something to offset the adverse effects which the Selective Employment Tax is likely to have on the regions which naturally suffer from a high level of unemployment.

When I made this point in Committee, the Minister of State, Board of Trade, agreed that it was an interesting proposition and that he would certainly pass it on to his right hon. Friend the Chancellor of the Exchequer. I am hopeful that the House will consider the point and agree that it is essential that we should do everything possible to encourage a regional balance and that, for that reason, we should be prepared to continue this existing incentive in addition to the incentives which the Government now propose in their Bill, which will give cash grants.

It is also important to stress that since the Committee stage there have been further developments which make this all the more necessary. We now have a rather clearer idea of the view of the Chancellor of the Exchequer on the state of the economy over the next six months or year. This will have important effects on investment intentions, particularly in development districts, which would be affected by the deletion of the Clause.

It now seems clear that in spite of the fact that the Chancellor was reluctant to give a clear view of the economy in the "regulator" debate, the right hon. Gentleman envisages a situation in which he will introduce measures in the autumn —namely, the Selective Employment Tax —which will take out of the economy £1,100 million. This inevitably will have a serious deflationary effect upon the economy, unless some of it were offset by some other method of increasing credit and easing things up. From the answer given yesterday by the Chancellor, however, it is clear that he has no intention of easing up credit restrictions, so that the interest-free loan which industry will be making to the Government in the period between September and next February will be covered by bank loans. In these circumstances, it is clear that the liquidity of firms will be severely squeezed. This inevitably will have an impact on their investment decisions.

As the Chief Secretary has agreed on a number of points, people making investment decisions are open to be influenced by short-term measures, and this is likely to affect the decisions which they make. If, however, we wish to continue to encourage investment, and particularly in the development districts, I suggest that in the present economic climate, and in view of the prospects now facing the country, we need to take additional measures to offset those which the Chancellor has introduced and, apparently, proposes to introduce during the next year or so.

Unless we do this, there is a grave danger that the country will get the worst of both worlds in the way of stop-go policies. Hon. Members opposite have constantly stigmatised previous efforts by Conservative Governments as stop-go policies, but, at least, in those circumstances, when we felt it necessary to adopt policies to reduce the increases in costs and in prices which were making our exports less competitive and foreign imports more competitive, they had a generalised effect on consumption, on investment and on Government spending, throughout the whole pattern of activity.

The situation which the Government are now pursuing is in danger of having the bad effect which the previous policies had upon investment decisions, for the reasons which I have mentioned. At the same time, it is having very little effect upon consumption, prices or wage increases. This is the worst of all possible worlds. We cannot allow ourselves to be in a position where investment is deterred. Particularly, we cannot put ourselves in a position where investment in the development district is deterred. For this reason, we on this side feel that the Amendment is one which the House should accept.

When we discussed this matter in Committee, we referred to the Press release which had been issued by the Board of Trade on 21st June and which was concerned with investment intentions. This confirmed the view which I have just expressed that industry's intentions with regard to investment are apparently declining. I asked the Minister of State, who replied to the debate, whether he could provide us with figures broken down by regions. He agreed that this was certainly an important point. He had not then had an opportunity of studying other than the Press release made by the Board of Trade, but he said that he would endeavour to ascertain whether such figures for investment intentions by regions were available.

Those figures are clearly relevant to the Amendment and I hope that the Minister of State has been able to provide them for the Chief Secretary. It is only in the light of those figures that the House can fully appreciate the situation concerning development districts. I certainly hope that the figures will be produced. If they are not available, I hope that the Chief Secretary will ensure that the study which is to be taken into 1966 and 1966 intentions on investment will cover this regional problem, because we are very short of statistics in this sector and it is extremely difficult for us to appraise the effect which the various incentive schemes are having if we do not also have corresponding statistical inquiries of the kind which I have just mentioned.

The essential thing here is that investment intentions are likely to be deterred by the Government's present measures and forecasts. Therefore, we need to take measures which will offset that. It may be that the Government feel quite unable to meet the cost of this. If, however, one looked at in terms of the total impact of all the taxation problems of the regions, in terms of the development areas and districts as against other areas, we would find that the development districts are not gaining significantly if one takes into account all the tax changes as a whole. We on this side very much hope that something of this kind can be done to help industry to invest in those areas.

There was some debate in Committee on whether one system of giving incentives was better than the other, whether the system of cash grants was more likely to encourage industry to go to the development districts and invest there. In proposing this Amendment, I want to raise this query with the Chief Secretary. If we have two alternative systems about which the Minister of State said in his reply that it is open to doubt, when one looks at the arithmetic, which is the greater incentive, is there not a case for giving business firms the option as to which system they will adopt? It would seem that if we do that we shall have some real basis for deciding which system is likely to encourage firms to go to development districts and, more particularly, over a period of years which appears to have produced investment which is remunerative and helping the national economy.

I add that point in parentheses, because the main point is that we need to do everything possible to encourage investment in the development districts. It is not sufficient merely to take the measures which are now proposed because of other actions which the Government are taking in the taxation field.

I hope that the House will see fit to approve the Amendment on the lines which I have suggested.

Photo of Mr John Biffen Mr John Biffen , Oswestry

I am not an enthusiast for interventionist measures, even when they are sanctified by the description of a balanced regional economic policy. I rise only to ask the Chief Secre- tary if he can give me some information in dealing with an Amendment which seeks to abolish Clause 36, concerning the termination of free depreciation in development districts.

Does the Treasury have any evidence of the effect which free depreciation has had in the past in attracting to development districts investment which would not have taken place there in any case?

One appreciates that this kind of concession of free depreciation is quite expensive, and perhaps the Chief Secretary will be able to give us some figures on that point. But the matter of real interest for all who seek to make up their minds on the cost of our regional policy is the knowledge of how much additional investment has come to those districts on account of this concession, and how many jobs did that represent.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

We are at one in our desire to help the development districts, now to be called development areas.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

They are not the same, and that is a defect in the Amendment. The hon. Member for Worthing (Mr. Higgins) wants to leave in development districts, and development districts will cease to exist when the new Bill calls them development areas, which are of a larger area. But it does not matter. The point that I want to make is that we are at one in our desire to help.

The only question is, which is the best way of helping as between alternatives? I gather that the alternatives which the hon. Gentleman suggests are two. The first is that we should give a choice of free depreciation as opposed to investment grants in the development areas, and the other is that we should have free depreciation instead of investment grants in the development areas. I was not sure whether at one time he was suggesting that we should have free depreciation as well as investment grants in development areas.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

If the right hon. Gentleman reads through the debates on the Committee stage, he will see that we were suggesting "in addition to", in order to offset the counter-regional policy of the Selective Employment Tax.

7.45 p.m.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I am glad to have that clear, because I thought that was what the hon. Gentleman was saying at one point.

He has asked me to indicate the effect of free depreciation in encouraging firms to move into development districts. It is not possible to pinpoint the particular incentives which have had an effect on a particular firm. One can only say that the total effect of our policy and that of previous Governments has been to encourage firms, and the latest figures would indicate that. Recent indications are quite encouraging, particularly in one area. One has to have regard to the totality of all the things which help to make sure that there are not areas where economic resources, human and otherwise, remain unused. That is the purpose that both sides of the House seek to serve.

We have had many debates on White Papers, on Second Readings and on the Bill which specifically deals with the problems as to which is the better method of encouraging investment in and encouraging firms to come to these areas. I have no doubt that free depreciation is an attractive freedom, and I willingly confess that I have made speeches from where the hon. Gentleman is now sitting in favour of the concept, always being told in reply that it cannot be done and that it is much too expensive for the Treasury.

Although I am at one with all those who feel that free depreciation is a great encouragement, nevertheless a greater encouragement is a cash grant, not necessarily in terms of the final arithmetic, though I do not dispute what the hon. Gentleman has said about the final arithmetic; an incentive is not a matter of accountancy alone, although that enters into it. It is the feeling which the potential investor gets and what excites his investing appetite. That may be more than the arithmetic at the end of the discounted cash flow exercise.

My own feeling about a cash grant is that, admittedly, the sooner one is in a position to get the cash grant more nearly in cash than in credit, the more will the incentive be effective.

Photo of Mr John Biffen Mr John Biffen , Oswestry

That is all very metaphysical. Surely what the right hon. Gentleman is saying is that he does not know how much additional investment and how many jobs have gone to these districts on account of free depreciation, although I am sure that he is able to tell the House how much it has cost the Treasury.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

No, I have not got the figures. I can perhaps get them for the hon. Gentleman. I have no figures in front of me of the cost of free depreciation as far as it has gone. What I am saying is that I agree entirely with the hon. Gentleman that it is metaphysical. The arguments which have gone on have gone on as to which is the better kind of incentive, and, as I say, incentive is more than a matter of arithmetic.

The view which has been taken by the Government is that the incentive which we are proposing, expounded in the White Paper on Investment Incentives (Cmd. 2874), is the most helpful one that we can provide. It is more helpful than the one which is being forgone, and we believe that the allowance of 40 per cent. in the newly expanded development areas will be a great inducement, together with all the other items that I do not list now which form the Government's development area policy.

The only question which remains is whether there should be a choice and/or, failing that—and I am glad the hon. Gentleman does not pursue the point—whether, in addition to a 40 per cent. cash grant policy, we could afford a free depreciation policy as well. The answer to that is, certainly not. The whole thing has been geared, and the Budget has been balanced, on the basis of the present proposed method of a cash grant, and one does not want to interrupt that.

All the arguments put to us are that we must encourage investors to feel that they are safe in the knowledge that the present encouragement will continue until the investment is not only decided upon but has been made and the relief granted. We could not possibly consider the concession of free depreciation as well as. the very great encouragement which we are giving in the development areas.

I do not hide my feeling that perhaps. this is a matter which is more easily discussed fully on the appropriate Bill. But it certainly has its relevance to the removal of free depreciation. Its removal is a corollary to the White Paper and the Bill which was fully discussed and to which the House agreed. I hope that the House recognises why I am dealing with this matter, although sympathetically, somewhat shortly. I do not want to go over the arguments which we have had many times. We have an established policy which has been fully explained on several occasions and which does not permit of free depreciation in the development districts continuing side by side with cash grants—a most expensive suggestion. I cannot recommend the Amendment to the House.

Photo of Mr John Boyd-Carpenter Mr John Boyd-Carpenter , Kingston upon Thames

As I was in the Chief Secretary's position when my right hon. Friend the Member for Barnet (Mr. Maudling) introduced the system of free depreciation, I should like to register my protest at what seems to me to be the wanton destruction of a most effective instrument in helping the development disticts. The right hon. Gentleman said very fairly that the question of the correct incentives to stimulate industrialists was not a matter of accountancy or precise calculation but, to some extent, metaphysical. I agree with him. But all the evidence is that this has been a most powerful instrument.

The Chief Secretary and the Government underrate the strong effect of tax concessions of this sort in inducing the business community to make particular arrangements. The stimulus of a tax concession of this kind has always been underrated by right hon. Gentlemen—at any rate when they are in office. The Chief Secretary very fairly wondered whether this proposal was put forward by my hon. Friend the Member for Worthing (Mr. Higgins) as an alternative to the system of cash grants or in addition to it. As my hon. Friend rightly said, it is put forward in addition to the system of cash grants.

The Chief Secretary sought to reject this proposal on the traditional and obvious grounds of expense. His rejection would have carried a good deal more weight if he had been in a position, as he was not, to say what was the cost of the system of free depreciation—in other words, what cost on top of the system of cash grants would be involved in running both these systems together. It is treating the House a little casually for him merely to say that the whole Budget is geared on this basis unless he is able to give the magnitude of the additional cost.

The system of free depreciation has proved a most powerful stimulus and has worked well. This kind of tax concession has been tried not only in this country but somewhat differently in other countries. I do not know whether the Chief Secretary has seen the wonderful work which successive Italian Governments have done through the Caissa di Mezzogiorno in regenerating the south of Italy and dealing with the appalling poverty which used to exist in that part of the world. I have studied it on the spot. It has arrangements, not precisely in this form—this is a unique form—but having broadly this kind of effect which, according to Italian industrialists with whom I have discussed the matter, have been one of the major factors in getting them to invest in the south of Italy and to regenerate almost miraculously what used to be one of the most poverty-stricken areas of Europe.

The question which arises on this Amendment is this: are we so sure that we shall never need this instrument to help our development districts that we can safely allow it to be abolished? I thought that my hon. Friend the Member for Worthing made a very powerful point when he drew attention to the fact that a situation seems to be developing which is likely to raise the same difficulties which the development districts have known in the past.

At Question Time yesterday, the Chancellor of the Exchequer, by what he said and, more significantly, by what he did not say, gave to many of us a very grave impression of his views of the nation's economy and of the restrictive steps he was likely to take in the near future. It is common gossip that Bank Rate is to be raised. Whether tomorrow or the following week is a matter of argument, but it is coming soon. The right hon. Gentleman certainly gave the impression that other severe measures will be necessitated by, among other things, the appalling trade figures which the right hon. Gentleman knew yesterday and which we learned about today.

In those circumstances, if the right hon. Gentleman, rightly or wrongly, is to apply further restrictive measures in the near future, since on every past occasion when they have been applied they have bitten particularly sharply on the development districts, it is a very considerable thing to ask the House to abandon what has been proved to be one of the best instruments—perhaps the best —for helping the development districts.

My right hon. Friend the Member for Barnet was rightly applauded by both sides of the House on a new and imaginative concept in using taxation and fiscal measures to help the development districts when this instrument was produced. There was much reaction in old-fashioned circles against it. It proved a triumphant success in the circumstances in which it was introduced. The question for the House is whether, in view of what the Chancellor of the Exchequer suggested and against the background of these impending measures, this is the moment to abandon an instrument which has proved to be effective in maintaining investment and, therefore, employment, in the most vulnerable districts. We should be acting dangerously rashly so to abandon it.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

If I may have the leave of the House to speak again, I must stress that the Chief Secretary has failed completely to answer our points. They were naturally an extension of the debate in Committee. It was abundantly clear from that debate that the Minister of

Division No. 112.]AYES[8.0 p.m.
Abse, LeoCarter-Jones, LewisFletcher, Ted (Darlington)
Allaun, Frank (Salford, E.)Coe, DenisFloud, Bernard
Alldritt, WalterCorbet, Mrs. FredaFoley, Maurice
Archer, PeterCraddock, George (Bradford, S.)Foot, Michael (Ebbw Vale)
Armstrong, ErnestCrawshaw, RichardFord, Ben
Atkins, Ronald (Preston, N.)Cronin, JohnFowler, Gerry
Bacon, Rt. Hn. AliceCullen, Mrs. AliceFraser, Rt. Hn. Tom (Hamilton)
Baxter, WilliamDavidson, Arthur (Accrington)Galpern, Sir Myer
Beaney, AlanDavies, Dr. Ernest (Stretford)Garrow, Alex
Bennett, James (G'gow, Bridgeton)Davies, G. Elfed (Rhondda, E.)Ginsburg, David
Bessell, PeterDavies, Harold (Leek)Gourlay, Harry
Bidwell, SydneyDelargy, HughGreenwood, Rt. Hn. Anthony
Bishop, E. S.Dempsey, JamesGregory, Arnold
Blackburn, F.Dewar, DonaldGrey, Charles (Durham)
Booth, AlbertDiamond, Rt. Hn. JohnGriffiths, David (Bother Valley)
Boston, TerenceDickens, JamesGriffiths, Rt. Hn. James (Llanelly)
Bowden, Rt. Hn. HerbertDoig, PeterHamilton, James (Bothwell)
Braddock, Mrs. E. M.Donnelly, DesmondHamilton, William (Fife, W.)
Bradley, TomDunn, James A.Hamling, William
Brooks, EdwinDunwoody, Mrs. Gwyneth (Exeter)Hannan, William
Broughton, Dr. A. D. D.Dunwoody, Dr. John (F'th & C'b'e)Harper, Joseph
Brown, Hugh D. (G'gow, Proven)Eadie, AlexHarrison, Walter (Wakefield)
Brown,Bob(N'c'tle-upon-Tyne,W.)Edwards, Robert (Bilston)Hazen, Bert
Brown, R. W. (Shoreditch & F'bury)English, MichaelHelfer, Eric S.
Buchan, NormanEnsor, DavidHerbison, Rt. Hn. Margaret
Buchanan, Richard (G'gow, Sp'burn)Evans, Albert (Islington, S.W.)Hobden, Dennis (Brighton, K'town)
Butler, Herbert (Hackney, C.)Evans, loan L. (Birm'h'in, Yardley)Hooley, Frank
Butler, Mrs Joyce (Wood Green)Fernyhough, E.Houghton, Rt. Hn. Douglas
Cant, R. B.Finch, HaroldHoy, James
Carmichael, NeilFitch, Alan (Wigan)Hughes, Emrys (Ayrshire, S.)

State, Board of Trade would represent to the Chancellor of the Exchequer whether this proposal could be included to offset the counter-regional effect of the Selective Employment Tax in addition to the cash grant system. It is clear that the cost would be comparable with the premiums introduced in the Selective Employment Tax.

But the more important point which we must consider is what is likely to happen to the revenue in the longer run. If we can balance up the regions in the way in which I had suggested, the level of income will go up faster than otherwise and the revenue obtained from that income will be greater because of our progressive system of taxation, and the whole economy will be stronger and better.

Standing in for the Minister of State, Board of Trade, the Chief Secretary might have done the House the courtesy of reading the earlier debates and being quite clear what it was that we were getting at with this Amendment. On those grounds, I hope that my right hon. and hon. Friends will support the Amendment in the Lobby.

Question put, That the words proposed to be left out, to the word "any in line 20, stand part of the Bill:—

The House divided: Ayes 208, Noes 131.

Hughes, Roy (Newport)Manuel, ArchieRyan, John
Hunter, AdamMapp, CharlesSheldon, Robert
Hynd, JohnMason, RoyShore, Peter (Stepney)
Jackson, Colin (B'h'se & Spenb'gh)Miller, Dr. M. S.Short,Rt.Hn.Edward(N'c'tle-u-Tyne)
Jackson, Peter M. (High Peak)Mitchell, R. C. (S'th'pton, Test)Silkin, John (Deptford)
Jeger, George (Goole)Morgan, Elystan (Cardiganshire)Silverman, Sydney (Nelson)
Jenkins, Hugh (Putney)Morris, Alfred (Wythenshawe)Skeffington, Arthur
Jenkins, Rt. Hn. Roy (Stechford)Murray, AlbertSlater, Joseph
Johnston, Russell (Inverness)Newens, StanSmall, William
Jones, Dan (Burnley)Noel-Baker, Francis (Swindon)Spriggs, Leslie
Jones, J. Idwal (Wrexham)Noel-Baker,Rt.Hn.Philip(Derby,S.)Steel, David (Roxburgh)
Judd, FrankNorwood, ChristopherSteele, Thomas (Dunbartonshire, W.)
Kelley, RichardOgden, EricSummerskill, Hn. Dr. Shirley
Kenyon, CliffordO'Malley, BrianSymonds, J. B.
Kerr, Dr. David (W'worth, Central)Oram, Albert E.Thomas, George (Cardiff, W.)
Kerr, Russell (Feltham)Orme, StanleyThomas, lorwerth (Rhondda, W.)
Lawson, GeorgeOswald, ThomasThornton, Ernest
Leadbitter, TedOwen, Will (Morpeth)Thorpe, Jeremy
Ledger, RonPage, Derek (King's Lynn)Tomney, Frank
Lestor, Miss JoanPannell, Rt. Hn. CharlesUrwin, T. W.
Lever, Harold (Cheetham)Parkyn, Brian (Bedford)Varley, Eric G.
Lewis, Ron (Carlisle)Pearson, Arthur (Pontypridd)Wainwright, Edwin (Dearne Valley)
Lomas, KennethPentland, NormanWainwright, Richard (Colne Valley)
Luard, EvanPerry, George H. (Nottingham, S.)Walden, Brian (All Saints)
Lubbock, EricPrice, Christopher (Perry Barr)Walker, Harold (Doncaster)
Lyons, Edward (Bradford, E.)Price, Thomas (Westhoughton)Wallace, George
McBride, NeilProbert, ArthurWatkins, David (Consett)
McCann, JohnPursey, Cmdr. HarryWellbeloved, James
MacDermot, NiallRandall, HarryWilliams, Clifford (Abertillery)
McGuire, MichaelRankin, JohnWillis, George (Edinburgh, E.)
McKay, Mrs. MargaretRedhead, EdwardWilson, William (Coventry, S.)
Mackenzie, Gregor (Rutherglen)Rhodes, GeoffreyWinnick, David
Mackie, JohnRoberts, Albert (Nortnanton)Winstanley, Dr. M. P.
Mackintosh, John P.Roberts, Gwilym (Bedfordshire, S.)Winterbottom, R. E.
McMillan, Tom (Glasgow, C.)Robertson, John (Paisley)Woodburn, Rt. Hn. A.
McNamara, J. KevinRobinson, W. O. J. (Walth'stow, E.)Woof, Robert
MacPherson, MalcolmRodgers, William (Stockton)Yates, Victor
Mahon, Peter (Preston, S.)Roebuck, RoyTELLERS FOR THE AYES:
Mahon, Simon (Bootle)Rose, PaulMr. William Whitlock and
Mallalieu, E. L. (Brigg)Ross, Rt. Hn. WilliamMr. Charles R. Morris.
Rowlands, E. (Cardiff, N.)
NOES
Alison, Michael (Barkston Ash)Fortescue, TimMathew, Robert
Allason, James (Hemel Hempstead)Galbraith, Hn. T. G.Mawby, Ray
Astor, JohnGilmour, Ian (Norfolk, C.)Maxwell-Hyslop, R. J.
Atkins, Humphrey (M't'n & M'd'n)Glover, Sir DouglasMills, Stratton (Belfast, N.)
Awdry, DanielGlyn, Sir RichardMitchell, David (Basingstoke)
Baker, W. H. K.Goodhart, PhilipMonro, Hector
Batsford, BrianGrant-Ferris, R.Morgan, W. G. (Denbigh)
Beamish, Col. Sir TuftonGurden, HaroldMorrison, Charles (Devizes)
Bell, RonaldHall, John (Wycombe)Munro-Lucas-Tooth, Sir Hugh
Bennett, Dr. Reginald (Gos. & Fhm)Hall-Davis, A. G. F.Murton, Oscar
Biffen, JohnHarris, Frederic (Croydon, N.W.)Nabarro, Sir Gerald
Birch, Rt. Hn. NigelHarrison, Brian (Maldon)Nicholls, Sir Harmar
Boyd-Carpenter, Rt. Hn. JohnHarrison, Col. Sir Harwood (Eye)Noble, Rt. Hn. Michael
Braine, BernardHarvie Anderson, MissOrr, Capt. L. P. S.
Brewis, JohnHawkins, PaulOsborn, John (Hallam)
Brinton, Sir TattonHay, JohnPage, Graham (Crosby)
Brown, Sir Edward (Bath)Heald, Rt. Hn. Sir LionelPearson, Sir Frank (Clitheroe)
Bruce-Gardyne, J.Heseltine, MichaelPeel, John
Bryan, PaulHiggins, Terence L.Peyton, John
Bullus, Sir EricHill, J. E. B.Pike, Miss Mervyn
Burden, F. A.Hirst, GeoffreyPink, R. Bonner
Campbell, GordonHolland, PhilipPounder, Rafton
Carlisle, MarkHordern, PeterPowell, Rt. Hn. J. Enoch
Cary, Sir RobertHunt, JohnPyrn, Francis
Chichester-Clark, R.Hutchison, Michael ClarkQuennell, Miss J. M.
Clegg, WalterIrvine, Bryant Cadman (Rye)Renton, Rt. Hn. Sir David
Cooke, RobertJenkin, Patrick (Woodford)Ridsdale, Julian
Corfield, F. V.Joseph, Rt. Hn. Sir KeithRossi, Hugh (Hornsey)
Costain, A. P.King, Evelyn (Dorset, S.)Russell, Sir Ronald
Crawley, AidanKitson, TimothySharpies, Richard
Cunningham, Sir KnoxKnight, Mrs. JillShaw, Michael (Sc'b'gh & Whitby)
Currie, G. B. H.Lewis, Kenneth (Rutland)Smith, John
Dance, JamesLongden, GilbertSummers, Sir Spencer
Dean, Paul (Somerset, N.)Loveys, W. H.Talbot, John E.
Deedes, Rt. Hn. W. F. (Ashford)McAdden, Sir StephenTaylor, Sir Charles (Eastbourne)
Dodds-Parker, DouglasMacArthur, IanTaylor, Edward M.(G'gow,Cathcart)
Elliot, Capt. Walter (Carshalton)Maclean, Sir FitzroyTaylor, Frank (Moss Side)
Elliott, R.W.(N'c'tle-upon-Tyne,N.)Macleod, Rt. Hn. lainTeeling, Sir William
Errington, Sir EricMcMaster, StanleyTemple, John M.
Eyre, ReginaldMadden, MartinThatcher, Mrs. Margaret
Turton, Rt. Hn. R. H.Weatherill, BernardWylie, N. II.
van Straubenzee, W. R.Webster, David
Walker, Peter (Worcester)Whitelaw, WilliamTELLERS FOR THE NOES:
Walters, DennisWilson, Geoffrey (Truro)Mr. Anthony Grant and
Ward, Dame IreneWood, Rt. Hn. RichardMr. Peter Blaker.

Amendments made: In page 41, line 20, after" of ", insert: or of any contribution towards".

In line 22, leave out "thereof" and insert "of that expenditure".—[Mr. MacDermot.]

Clause 39.—(CANCELLATION OF TAX ADVANTAGES FROM CERTAIN TRANSACTIONS IN SECURITIES.)

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

I beg to move Amendment No. 108, in page 46, line 6, at the end to insert: (8) Section 28 of the Finance Act 1960 shall be amended by the addition after proviso (ii) to subsection (10) thereof, of the following further proviso:—(iiA) in the event that the Commissioners do not notify him that they are so satisfied as aforesaid, he shall have right of appeal to the Special Commissioners in like manner in all respects (with such modifications as may be required) as provided under subsections (6), (7), (8) and (9) of this section". I should find it most agreeable if the House accepted this Amendment with the same celerity as it accepted the last two. I hope that I shall be forgiven by the House in raising this very complex point if I make a few introductory remarks of explanation. The Amendment intends to add a proviso of benefit to the taxpayer, not in respect of any Clause in this Bill but in respect of Section 28 of the 1960 Act, which deals with tax avoidance and confers upon the Revenue the right to nullify for tax purposes transactions entered into that result in a tax advantage to the citizen.

I ought to start by assuring the House that when a citizen obtains a tax advantage he is not necessarily engaged upon any kind of nefarious or complex duel with the Inland Revenue; he might be conducting his affairs in a quite normal way and still obtain a tax advantage. For example, a man who sells a ground rent obtains a tax advantage, in the sense that he gets the capital, which is tax free, instead of receiving the future income, which is taxable. It is the most innocent thing in the world for people to get tax advantages. A man who gives up smoking obtains a tax advantage.

I hope that when the House examines the proviso it will not start on the assumption that only a certain group of people who are not worthy of the House's sympathy are affected by Section 28 of the 1960 Act. That Act gives the widest power to the Inland Revenue to decide that certain transactions come within the Section, in which case the direst and most penal consequences may follow. When I use the words "penal consequences" I merely echo words used by a learned law lord in a recent decision, where he described the consequences of the decision that he was reluctantly compelled to come to in a case where Section 28 was applied to a taxpayer.

I can assure the House that there are many innocent and wholly acceptable transactions which could come within that Section. This was recognised by the House when those provisions were enacted, and a number of safeguards were put in to assist the taxpayer. One provided that if he was about to enter upon any kind of transaction which could conceivably come within the Section he could go to the General Commissioners of Inland Revenue and submit a statement of the transaction or transactions that he intended to enter into, whereupon the Commissioners would be obliged to tell him within a specified period— after obtaining all the necessary information—whether or not, in their opinion, the transaction came within the provisions of that penal Section.

This was a well-intentioned protection and was received with approval by the House. The trouble is that it is largely nullified in practice, because the very nature of the transactions concerned lead to the Commissioners of Inland Revenue, when cases are submited to them, on most occasions to come to a decision unfavourable to the taxpayer unless the transaction is as innocent as taking over Aunt Millicent's poodle stud. Unless it is as simple as that the Revenue is apt to say "No". The Statute provides that a taxpayer who wishes to be sure that he is not within the penal provisions can apply to the Revenue for a certificate that the transaction was in order, and it was expected by the House that the Revenue, in many cases, would say "Yes" and in some cases "No".

8.15 p.m.

The defect arises from the fact that no provision is made for those cases where the taxpayer finds that the Revenue has said "No" and he is of the opinion that the Revenue is wrong. There should be some provision for this, and my Amendment would provide it. If a taxpayer submits to the Commissioners details of a transaction into which he proposes to enter and they say "No, this is within the Section", and refuse him a clearance, the least right he should have if Parliament's intention is not to be largely frustrated is to appeal to an impartial tribunal of a judicial character to decide whether or not the Commissioners were right in saying that he was entitled to a clearance for his transaction.

The first point is that when a person applies to the Commissioners to have a transaction certified as being outside Section 28 he is not applying to an impartial body. I hope that no words of mine will be held in the least to reflect upon the entirely honourable way in which the Commissioners discharge their functions. On the other hand, they are the trained watchdogs of the Revenue and their natural reflex is to presuppose that almost anything that a taxpayer is getting up to which may conceivably advantage his tax position is something which ought not to be assisted.

Therefore, owing to the present defective words of the Section, the unfortunate taxpayer who applies for the protection that Parliament intended, can apply only to the very people who are, by habit and training, occupationally suspicious of every transaction put to them. It is quite right that they should be, but the least protection that the taxpayer should have if the Section is to have any meaning is a right of appeal to the Special Commissioners of Inland Revenue or to the Board of Referees from a decision of the General Commissioners of Inland Revenue.

The right which I propose to give the taxpayer by the Amendment is exactly the same as that which he receives in connection with another part of the Section. I am not asking for any intoxicating or revolutionary relief for the taxpayer; I am merely asking for the same sort of relief as is already given him in another part of the Section, whereby he is enabled to appeal to the Special Commissioners or to the Board of Referees.

The Special Commissioners are of a judicial character. Although they are employed by the Revenue their habit, training and duties are such that they approach every case in a judicial manner and they do not have the reflexes to which I have referred. Unless we amend the law in the sense that I recommend we are sending the taxpayer who applies for relief before a biassed body, who, if they say "No", leave him without any remedy. With a little thought we can easily test how the protection we intended to give under the Section is valueless, or largely valueless, when we realise that most of these cases are of necessity complicated and perhaps permit of some dubiety.

Obviously, when the Special Commissioners consider a case in which there is any kind of doubt, why should they clear it when they have the simple remedy of saying "No", in the blissful confidence that the taxpayer has no means of challenging their refusal. When in doubt, they must say, "No". They are hardly to be blamed: they cannot be expected to say, "Yes, this is certified for ever as a clear transaction", when they are in some doubt in the matter.

That means that in any case where there is the smallest doubt they understandably turn it down. My hon. Friend shook his head or made some inclinations of his head which I wrongly inferred to be indicating dissent, but I have spoken to many of the leading institutions in the City whose duty it is, often on behalf of clients, to conduct these transactions and they tell me that it is their experience that transactions are often turned down when counsel has advised that, in his opinion, there is little doubt that the Section ought not to apply.

However, if the clearance were not obtained, the citizen would be in great danger if he went ahead. I hope that I may be forgiven for going into some detail, because hon. Members may not be familiar with some of the technicalities on this point. It will be understood that when Parliament enacted this safeguarding proviso, it intended that account should be taken of the very precarious and dangerous situation in which a citizen would find himself if he were about to embark on transactions which may bring Section 28 into operation against him. Once the die is cast and the transaction undertaken, there is no going back and the citizen's tax position can be fraught with immense peril and serious and penal consequences

I am explaining this at some length because I hope that I may be fortunate to catch your eye, Mr. Deputy Speaker, on other Amendments, when it will not be necessary to rehearse the same arguments. The recent case of Parker gave rise to a strange situation. Although we are always hearing complaints by the Revenue about adroit taxpayers who turn income into capital and escape tax, in this case the. Revenue succeeded by the use of Section 28, in turning capital into income and making it liable to Income Tax and Surtax. That shows the dangerous consequences which face a taxpayer who goes ahead with his transaction notwithstanding that he has not had a certificate of clearance.

I am not asking for an alteration by this Amendment of the full rigour of a very rigorous and even dangerous Section —Section 28. What I am asking is that the taxpayer should have a simple ordinary right dictated by common justice. Before he commits himself to the penal liabilities of a transaction in which Section 28 may be invoked against him, he should have the right to go before some form of judicial tribunal—the simplest form, the Special Commissioners of Inland Revenue or the General Commissioners. That right is denied him at the moment.

Another consequence follows. I would invite hon. Members who are restless of night to pass the weary hours of sleeplessness by attempting to read Section 28 in its entirety. Anyone who gave it even a casual glance would soon see the very difficult, intricate and almost incomprehensible nature of its provisions for the average man. The result is that when the Commissioners turn down his application, nothing in the world will make him go ahead with an ordinary, prudent transaction if he is told that this famous Section is likely to be applied to him without his having the opportunity of seeing what a judicial mind says about the transaction which he proposes to undertake.

Another point to be considered, of course, is the numbers turned down. I invite my hon. and learned Friend—as this is of some consequence—to tell us how many applications have been made under this Section and how many turned down. I know of one which was accepted —the Trafalgar House case, I think, which was reported in the newspapers. But that was accepted only because, a few weeks later, the Chancellor intended to enact another Clause in the 1966 Finance Bill which would nullify the transaction.

It would be interesting to know from the Financial Secretary what sort of percentages of refusals occurred to these applications. Nobody makes such applications frivolously. If one is engaged on a blatant form of tax avoidance, one does not go to the immense expense of hiring accountants and lawyers to prepare one's statement of case to put before the Commissioners, because one knows in advance that it will be turned down. I should be interested to hear the percentages of cases which are turned down without appeal.

Most of the cases put up to the Revenue must be, almost ex hypothesi, innocent cases. I am also aware, and have been informed to this effect by leading City institutions and merchant bankers, that transactions which to them and their legal advisers seem completely innocent and without the Section, as long as they cannot give the assurance that the transaction is in order because the Commissioners, being in some doubt for some reason have said, "No", the unfortunate taxpayer is unable to engage in this transaction. This means that, for no good reason, he is intimidated from conducting his affairs prudently and reasonably.

The fatal effect of the Section is that a man is done out of his rights without any judicial mind being applied to the case. Most taxpayers cannot afford to go ahead just the same and say, "When the Revenue assaults ' us for this we will go to the courts and have it decided." Such a man probably does not go through with the transaction, which means that a judicial mind has never been brought to bear on the question of whether the transaction is permissible.

The effect of this subsection, as we thought it was in 1960, was to say," We are enacting a very penal, general and, from the average taxpayer's point of view, very dangerous and costly Section. The least that the citizen is entitled to expect from the House when it enacts such a section is that they will provide him with the mechanism for knowing his rights." This is done in a general way in many other countries.

It would be no loss if we accepted the Amendment. It provides only some elementary justice for a taxpayer, in entitling him to know his rights. It would be far from setting a bad example in other areas of tax law. It might turn the Revenue's mind to the desirable idea that many taxpayers in other sections should have the mechanism for having their rights decided.

In these circumstances, I submit that the case is made out for this modest Amendment to what is admittedly a very unusual innovation by way of tax legislation. I am concerned with the duty of the House. It is the duty of the House to hold the balance between the taxpayer and the Revenue in a fair way. In my submission the balance is at present in favour of the Revenue and against the taxpayer because of the formidable consequences of the taxpayer putting a foot wrong, because of the complexity of the law, because of the difficulty of his knowing his rights, because of the expense of litigation if he has to undertake it and if he cannot get the clearance—and also because of the great consequences to his personal fortune if the transaction comes unstuck and it is held, however reluctantly, by the courts that the Section applied.

This has been held to be the case by the House of Lords. The case which seems to me most persuasive from the point of view of the use of the Section was one in which the taxpayer won by the unanimous decision of three Lord Justices of Appeal. It was held that the Section did not apply to the transaction by three eminent Lord Justices of Appeal, but that decision was revoked in the House of Lords by a vote of three to two. I want the House to bear this in mind as an indication of the difficulty which the taxpayer has in knowing his rights. Can we be doing any harm by this modest assistance to the taxpayer in going about his affairs?

8.30 p.m.

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

My hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) has developed his argument in favour of the Amendment very clearly and very fully. He is asking for a right of appeal against a refusal by the Commissioners to give a clearance under Section 28 for a proposed transaction.

I begin by reminding the House that this Section has a limited effect. We are not concerned with whether the taxpayer has a general right to ask in advance what the attitude of the Revenue would be to a certain kind of transaction. That does not exist. But Section 28 gives the Revenue the power to counteract a tax advantage which has been obtained in specified circumstances—I admit that it is an involved Section—in consequence of a transaction or transactions in securities.

When that power was given to the Revenue it was thought right, and obviously was right, to give to the taxpayer this right to go to the Commissioners and to inquire in anticipation of a transaction which he was contemplating what the attitude of the Commissioners would be to it. Would they seek to take action under Section 28 or would they not? They have to commit themselves in advance. There was a rather similar clearance procedure in the general Profits Tax anti-avoidance provision in the 1951 Act, and I remind the House that that, too, was unappealable.

What the Amendment seeks to do is to introduce an entirely new concept into our tax administration in this country, aid that is to require the whole appellate machinery from the special tribunals to the courts to pronounce on the tax consequences of transactions that have not been carried out, in other words of a hypothetical situation. We know that in general our courts lean against being asked to decide such questions.

What my hon. Friend asks would have practical implications which I am not sure would be welcomed. One of the great advantages of the present system is that the taxpayer can know, and know quickly, what the attitude of the Revenue would be to a transaction which he is contemplating. He has to have a reply within 30 days from the Revenue or within 30 days of providing any further information which they may call upon him to supply before they can answer his question. When the provision was introduced, as a result of an Amendment proposed by the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), in 1960, he said, I feel that it is, therefore, all the more important that that clearance should be a procedure which would be liable to work reasonably quickly and efficiently".-[OFFICTAL REPORT, 25th May, 1960; Vol. 624, c. 615.]

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

Could it not work speedily and efficiently if it went to the Special Commissioners or the General Commissioners?

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

I was doubtful whether I should give way to my hon. Friend and I see that I was wrong in doing so.

Let me point out the result of what he proposes. First of all, against a refusal of a clearance there would be a right of appeal to the Special Commissioners. Supposing he wins before the Special Commissioners, the Revenue would have the right of appeal—indeed, either side would have the right of appeal—to the special appellate tribunal under this Section. Then, from there, there would be a right of appeal to the courts. It could be carried right up to the courts. One can argue both ways about this and say that it would be a very strong deterrent for anyone to seek to exercise the right of appeal in what was a hypothetical transaction in that he might find that he was taken up with expensive litigation in the courts.

Photo of Mr William Baxter Mr William Baxter , West Stirlingshire

If the right of appeal were granted it could be granted up to the Special Commissioners and no further.

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

That is not what the Amendment proposes. It proposes to apply the appeal procedure which exists in the case where the transaction has been carried out. All that we can do here is to consider the Amendment and I am pointing out what its implications would be.

However, to take my hon. Friend's point, if it is right to allow the point to be adjudicated upon, with all the implications that that would have—for establishing precedent and helping to build up case law on the subject—I do not see how one could limit that right of appeal.

My hon. Friend the Member for Cheetham suggested that under the present system Parliament's intention was being frustrated and that the Revenue applied this procedure in such a way that it would grant a certificate only if a transaction was as innocent as the disposal of Aunt Millicent's poodle stud. That is not the case. The Revenue's approach is that it will not refuse a clearance unless, having considered the transaction fully and all the circumstances of it, it would itself take action under the Section if the transaction were completed. That is the test which the Revenue applies and I assure my hon. Friend that there is no element of bluff in this. In other words, if, in spite of the decision of the Commissioners, a taxpayer went ahead, he would be confronted with action being taken under Section 28.

About 200 applicants a year have been dealt with since this provision came into effect and, of those, clearance has been refused to about one-fifth. My hon. Friend is, therefore, right in thinking that the majority of applications obtain clearance. It is a large majority, with four-fifths of applications obtaining clearance.

In view of these figures, and hearing in mind the big departure that this would make in our tax administration, I hope, in view of what I have said, that my hon. Friend will not feel it necessary to press the Amendment.

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

I do not wish it to be thought that I do not regard Section 28 as requiring Amendment along the lines I have indicated. However, there is some force in some parts of the argument adduced by my hon. and learned Friend and, on that basis, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

I beg to move, Amendment No. 109, in page 46, line 6, at the end to insert: (8) Section 28 of the Finance Act 1960 shall be amended by the addition, after proviso (ii) to subsection (1) thereof, of the following further proviso:—(iiA) the tax advantage relates to tax which would have been chargeable in respect of any period ending before 5th April 1960". This Amendment also relates to Section 28 of the Finance Act, 1960. Perhaps I should have mentioned earlier that this is not in the least a party matter since it was a Conservative Government who enacted the 1960 Act. Nobody could doubt the enthusiasm for implementing that Measure, particularly Section 28 of it, and I am, therefore, happy to note that the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) has attached his name in support of the Amendment. I merely wish to make it clear that I am not seeking to make a party point out of this.

As I said when discussing the previous Amendment, under Section 28 people who gain a tax advantage are, in certain circumstances, brought within the ambit of that Section. Whatever else the House intended, it is clear from the wording of the Section that Parliament did not intend that it should apply retrospectively in any sense to anybody.

A proviso to that effect was inserted in the Section. I am not saying that the Section is retrospective; merely that it is exceedingly ambiguous. And if my hon. and learned Friend the Financial Secretary says that it is not retrospective and does not need amendment, I trust that he will give an explicit assurance that it is not the intention of the Revenue to treat as a tax advantage—to bring a man within that Section—where the tax advantage relates to tax which would have been chargeable before that Section was enacted.

If he intends to give an explicit assurance I will be very happy, because it makes such a refreshing contrast, sometimes, from being quoted as a precedent how other Sections of other Acts have been passed in an oppressive form, so that we can be assured that the same mistakes will be made in all future legislation. If I can have that assurance from my hon. and learned Friend, I will be happy to withdraw the Amendment.

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

I suspected that my hon. Friend's Amendment was in the nature of a probing Amendment, and I think that I can give him the assurance for which he is asking. It is our view that the object which the Amendment appears to be intended to achieve is already achieved, and that the Amendment is therefore unnecessary.

As it stands, Section 28 provides that it is not to apply if the relevant transaction, or transactions, in securities was carried out before 5th April, 1960, provided that any change in the nature of a person's activities, being a change necessary in order that the tax advantage should be obtainable, was effected before that date. But also, and this is the specific assurance that my hon. Friend seeks, it does not apply to years before 1960–61—the year in which it became law —and it does not apply to enable the Revenue to take counteraction against avoidance in 1959–60 or any earlier year. I do not think that I can put it clearer than that.

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

Before my hon. and learned Friend sits down, perhaps he will answer explicitly two questions. First, do I take it that what he says means unambiguously that a man who gets a tax advantage relating to tax that would have been chargeable in any period before April, 1960, cannot thereby be brought within the Section on that count? If so, why not remove the ambiguity? Everyone reads the Section; not everyone listens to my hon. and learned Friend's wise and conciliatory words on the point.

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

By leave of the House, I can only repeat that I do not think that my hon. Friend's Amendment is necessary; that there is nothing retrospective in the Section, and that the Revenue is not able, under the Section, to take counter-action against a tax advantage at a date earlier than that mentioned in the Amendment, namely, 5th April, 1960.

Mr. Patrick Jerkin:

I should like to take issue with the Financial Secretary on his statement that there is nothing retrospective in the Section. It may well be, as he has explained, that it is not open to the Revenue, under the Section as it stands, to make an assessment for any period before 5th April, 1960, but that is a very different thing from saying that there is nothing retrospective in the Section.

The Parker case, to which the hon. Member for Manchester, Cheetham (Mr. Harold Lever) has referred, was an example that many people thought really amounted to a restrospection—

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

The hon. and learned Gentleman shakes his head, but perhaps he will listen for a moment. What is suggested is that possibly the House of Lords erred. That error cannot be put right judicially, but it can be put right through the Legislature.

The order of events in the Parker case is worth recalling, because it is the retrospective aspect of the Section that has caused such a great deal of disturbance. The debentures were issued in 1953. Five years later, a so-called expert advised those concerned that they would be able to pay the Estate Duty that might become due if they were to redeem those debentures. In April, 1960, the then Chancellor of the Exchequer introduced the Budget and announced this new measure. On 14th July there was a notice to redeem the debentures. On 29th July, the new measure became law, and then, as the only stage after the measure became law, the debentures were actually redeemed, and the cash became payable.

It has been suggested, indeed the House of Lords held, that the last stage was the point at which the tax advantage accrued, but when one has regard to what was said in this House and in Committee while a Bill was going forward on the subject of retrospection, it must be clearly established that the House did not recognise the effect which the legislation would have.

8.45 p.m.

I will make one or two quotations from the Committee stage and the Report stage of the Bill on this particular point. An Amendment was introduced by my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) in Committee to deal with the question of retrospection. In his reply the Attorney-General. then Sir Reginald ManninghamBuller, asked my hon. Friend to withdraw the Amendment and indicated that the Amendment in fact would not be wholly effective. The Attorney-General said: The intention of this proviso is to ensure that Clause 26 should be in no way retrospective. There, we are on completely common ground."— [OFFICIAL REPORT, 25th May, 1960; Vol. 624, c. 504.]

At a later stage, on Report, the Attorney-General himself introduced a further Amendment to deal with the subject of retrospection and he said: I hope that this Amendment, which deprives the operation of this Clause of any retrospective effect will be satisfactory to my hon. Friend and to the House."—[OFFICIAT. REPORT, 6th July, 1960; Vol. 626, c. 603.]Any retrospective effect", yet we had the Parker case where it appeared that the issue of the debentures and the decision to use them for Estate Duty avoidance all happened years before the Act became law. It may be said, surely if the transaction was within the Section it was right that it should be caught, but one has to look to see what the Attorney-General said when he dealt with the question of issue of bonus securities and their subsequent redemption.

On 25th May he said: One of the devices aimed at here is, for instance, the creation of bonus shares"—

I emphasise the word "creation"— followed by a corresponding reduction of capital."—[OFFICIAL REPORT. 25th May. 1960; Vol 624, c. 511.]

He went on to make clear that it is not the creation itself which gives rise to tax advantage—of course not, it is the redemption—but the Clause struck at the creation. I cannot believe that the House would have accepted the Attorney-General's assurances which he gave in Committee if it had realised that a creation of bonus debentures seven years before would be the start of a series of transactions which would give rise to liability under the Section.

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

Perhaps the hon. Gentleman will allow me to ask him this. The House can hardly have supposed that that very Attorney-General would give the casting vote in the House of Lords which reversed the unanimous decision of the Court of Appeal.

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

This is a matter to which I have no doubt attention has been drawn in other places, and it would be wrong for me to comment on that. The fact is that the most explicit assurances were given in Committee and to the House that this Section was intended to have no retrospective effect whatever and the leading case, the Commissioners v. Parker, decided in the House of Lords in January this year, is one which clearly by any stretch of language would be regarded by the House at that time as having retrospective effect. Only the final stage of the transaction was completed after the Bill became an Act.

Perhaps this aspect of retrospection is not covered by the Amendment in the name of the hon. Member for Manchester, Cheetham (Mr. Harold Lever) and myself. I take what the Financial Secretary said on this but I think it would be right, if he should catch your eye, Mr. Deputy Speaker, that he should give an indication of what the Treasury thinking on that aspect of the matter is having regard to the very clear and explicit assurances given to the House in 1960.

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

In view of the explicit assurances which I take it my hon. and learned Friend has given, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

I beg to move, Amendment No. 111, in page 46, line 6, at the end to insert: (8) Section 28 of the Finance Act 1960 shall be amended by the addition of the following subsection:—12A. This section shall not apply where it is proved that the result of the transactions relied upon could reasonably have been obtained by transactions to which this section does not apply". The Section to which the Amendment refers is Section 28 which we have been discussing on the two previous Amendments. The intent of the Amendment is to direct Section 28 exclusively to those transactions which were regarded by the House when passing the Section as a mischief to be eliminated by action on the part of the Revenue.

If a man can undertake transaction A or B to the same effect and have the same tax advantage, and if transaction A would not bring him within the Section but, because he happens to do it by transaction B he comes within the Section, under the law as it stands he is caught by this penal Section. This must in all logic be clearly wrong.

What the Revenue is saying is, "You could have got the same tax advantage by taking any other similar commercial step that would not have brought you within the Section. Too bad, you have come within the Section." It should be remembered that we are not playing a game of croquet here where, if people go the wrong side of the hoops, they are penalised. We are dealing with very serious and substantial rights of the taxpayer which are liable to be infringed by the most penal Section of tax which has ever been enacted by Parliament. This House should be very jealous to see that only the kind of transactions and tax advantages which the House is anxious to stop should be stopped.

If a man gets a tax advantage that was open to him in a hundred innocent ways which would not be within the Section, it is ludicrous that the Section should be applied to him because he happens to have made some legal error or has been wrongly advised by his accountants in an area of law where the most skilful advisers are baffled by ambiguity. In those circumstances, the least the taxpayer ought to be able to say is," It is quite by chance that I am within this Section. What I was doing was so fundamentally innocent of the intentions which Parliament was anxious in 1960 to end, that I could well produce the same kind of tax result to myself by a transaction which nobody could complain about." But the Revenue says," We have got him. We want our pound of flesh."

Let me give an example. Leaving aside the retrospective character of what was done, because it would not be proper for me to emphasise it again, take the case of somebody who put herself in possession of a debenture before the 1960 Section came into being to confer these inestimable blessings upon the Inland Revenue and presumably upon the taxpayers as a whole. This lady had a debenture which was in existence before the Act was passed. She could have sold it to an institution or to a third party and got her money for it. She could not conceivably have come within the Section. By no kind of argument could she have come within the Section. That is not only my opinion. That was the express opinion of Lord Justice Salmon, the only judge who made an express comment upon it so far as I know, though other judges said that this was a general mischief.

I am sorry that my argument troubles my hon. and learned Friend the Financial Secretary to a point of tedium, but I cannot help it. I feel it my duty to advance the argument. In the Parker case the Lord Justice said that this lady could quite properly, normally and without any risk, have escaped the penal consequences of this penal Section had she sold the debenture to a third party. The third party could have had it redeemed by the company and there would have been no question of liability under the Section. Because she happened, in innocence, and precisely because she was innocent and thought herself to be outside the scope of the Section, to act in a direct and naive manner, she was caught by the Section and the Inland Revenue, and was penalised to the extent of losing probably the whole of the value of the capital asset that she had in being before the 1960 Act was enacted.

Unless the Section is amended in this way, the Revenue will collect tax that is not avoided by the transactions at which we were aiming but the liability is brought into being simply because of an error of judgment on the part of the legal advisers. The only people who could get any benefit by these transactions are people who have made a mistake of judgment based upon legal advice. In order to come outside the Section they would still have to prove that a perfectly normal commercial transaction would have produced the same tax advantage. I am really saying that the tax advantage must be basically innocent if it could have been obtained without performing any of the transactions hit at by Section 28. In the circumstances, I hope that I may have an encouraging answer from my hon. and learned Friend.

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

It is a long time—almost 12 months—since I have found myself in greater disagreement with my hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) than I do over the Amendment. Section 28 is an anti-avoidance provision. There is the clearance procedure which we were discussing a short time ago for the innocent kind of person on whose behalf my hon. Friend was speaking. The Section has a limited scope. It is not a general anti-avoidance provision; it operates only in certain specified circumstances, and in consequence of a transaction or transactions in securities. If, as a result of that provision, the Revenue is able effectively to take action against an avoidance measure., it seems to me to be a curious argument to say, "Well, of course, if the person who is indulging in the tax avoidance had been able successfully to achieve—

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

Will my hon. and learned Friend allow me?

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

I will not. I shall complete my argument before giving way to my hon. Friend, but I shall give way in a moment.

The effect of what my hon. Friend proposes is that the avoider against whom the Section is aimed, would be able to say of the avoidance results—" result" is the word that my hon. Friend uses in the Amendment—of the transaction, "I agree that you have caught me on this transaction, but if I had only thought of it in time or if my advisers had been sufficiently astute, they might have thought up some quite different, or slightly different, transaction which would have escaped the net of Section 28, and I should have been able to achieve my avoidance purpose in that way".

If, in those circumstances, the Revenue were to be told by the Amendment that it is not entitled to put into operation the power given to it by Parliament under Section 28, it would have to operate it with one hand tied behind its back. I shall now give way to my hon. Friend.

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

I am grateful to my hon. and learned Friend, who is always exceedingly indulgent to me. He keeps using the phrases, "tax avoidance" and "aimed at the tax avoider". He is utterly mistaken. The Section is not aimed at tax avoidance or the tax avoider. One does not have to be a tax avoider to come within the provisions of the Section. It is merely a question of tax advantage, which is a totally different matter. My hon. and learned Friend should look at the definition of tax advantage.

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

As my hon. Friend knows, many transactions of this kind are perfectly innocent and the person concerned can approach the Revenue and obtain a clearance beforehand. As I said a short time ago, four-fifths of such transactions obtain the clearance. But this was a power given to the Revenue effectively to prevent transactions being entered into the object of which was avoidance. It is an anti-avoidance provision and it was passed as such by Parliament.

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

That is a very unsatisfactory answer. I do not believe that the Financial Secretary and his advisers have taken account of the difference between the intention of Parliament when it passed the Section and the explanations given to it when it was asked to do so and the interpretation which has been placed on the Section by the courts.

9.0 p.m.

It is apparent that Section 28 opened a Pandora's box of measures to strike at all sorts of transactions, transactions which might be colourable or wholly innocent. To illustrate this, I will read to the House two quotations. The first is from the Attorney-General, on 25th May, 1960: It is wrong to say—some people have said it because they have misunderstood the Clause, which is not easy to understand that it is a wide general power exercisable at the discretion of the Revenue directed against tax avoidance. It does no such thing. Subsections (1) and (2) clearly limit the scope of the Clause to doing what the Chancellor said on 7th April….."—[OFFICIAL REPORT, 25th May, 1960; Vol. 624, c. 5101

There is a case now before the courts, which recently came before the Court of Appeal but which, I understand, is under appeal at the moment, so I shall not refer to it. I shall read only one passage from the judgment of one of the learned lords justices who heard the case

Division No. 113.]AYES[9.2 p.m.
Alison, Michael (Barkston Ash)Dance, JamesJohnston, Russell (Inverness)
Allason, James (Hemel Hempstead)Dean, Paul (Somerset, N.)Joseph, Rt. Hn. Sir Keith
Astor, JohnDeedes, Rt. Hn. W. F. (Ashford)King, Evelyn (Dorset, S.)
Atkins, Humphrey (M'en & M'd'n)Dodds-Parker, DouglasKitson, Timothy
Awdry, DanielElliot, Capt. Walter (Carshalton)Knight, Mrs. Jill
Baker, W. H. K.Errington, Sir EricLongden, Gilbert
Batsford, BrianFortescue, TimLoveys, W. H.
Beamish, Col. Sir TuftonGilmour, Ian (Norfolk, C.)Lubbock, Eric
Bell, RonaldGlover, Sir DouglasMcAdden, Sir Stephen
Bennett, Dr. Reginald (Gm. & Fhm)Glyn, Sir RichardMacArthur, Ian
Bessell, PeterGoodhart, PhilipMacleod, Rt. Hn. Iain
Bilfen, JohnGrant, AnthonyMaddan, Martin
Birch, Rt. Hn. NigelGrant-Ferris. R.Marten, Neil
Blaker, PeterGurden, HaroldMathew, Robert
Boyd-Carpenter, Rt. Hn. JohnHall, John (Wycombe)Mawby, Ray
Braine, BernardHall-Davis, A. G. F.Maxwell-Hyslop, It J.
Brinton, Sir TattonHarris, Frederic (Croydon, N.W.)Mills, Stratton (Belfast, N.)
Brown, Sir Edward (Bath)Harrison, Brian (Maldon)Mitchell, David (Basingstoke)
Bruce-Gardyne, J.Harrison, Col. Sir Harwood (Eye)Monro, Hector
Bullus, Sir EricHarvie Anderson, MissMorgan, W. G. (Denbigh)
Burden, F. A.Hawkins, PaulMorrison, Charles (Devizes)
Campbell, GordonHeald, Rt. Hn. Sir LionelMunro-Lucas-Tooth, Sir Hugh
Carlisle, MarkHeseltine, MichaelMurton, Oscar
Cary, Sir RobertHiggins, Terence L.Nabarro, Sir Gerald
Chichester-Clark, R.Hiley, JosephNeave, Airey
Clark, HenryHill, J. E. B.Nicholls, Sir Harmar
Clegg, WalterHirst, GeoffreyNoble, Rt. Hn. Michael
Cooke, RobertHolland, PhilipNott, John
Corfield, F. V.Hordern, PeterOrr, Capt. L. P. S.
Costaln, A. P.Hunt, JohnOsborn, John (Hallam)
Crawley, AldanHutchison, Michael ClarkPage, Graham (Crosby)
Cunningham, Sir KnoxJenkin, Patrick (Woodford)Pearson, Sir Frank (Clitheroe)
Currie, G. B. H.Peel, John

in the Court of Appeal. Lord Justice Danckwerts said: Its objects are clear"—

referring to the section— to enable the Commissioners of Inland Revenue to outmanoeuvre the ingenuity of wealthy taxpayers in arranging their business affairs so as to avoid or minimise tax. How delightful it must be to a taxing officer to have the power to counteract ' a tax advantage ' "—

the words "a tax advantage" are in inverted commas— which a person is in a position to obtain or has obtained by assessments or other adjustments. The section is indeed the tax collector's dream. Gone is the old principle that the citizen is entitled to arrange his affairs so as to minimise his liability to tax".

What would have happened if the Attorney-General had stood at that Box and used those words in describing the Section? What sort of response would it have had from Parliament then? I regard this as a matter of considerable constitutional importance, and I consider that, for those reasons, it is right that the House should register its protest and divide in favour of the hon. Gentleman's Amendment.

Question put, That those words be there inserted in the Bill:—

The House divided: Ayes 132, Noes 193.

Peyton, JohnSmith, JohnWard, Dame Irene
Pike, Miss MervynSummers, Sir SpencerWeatherill, Bernard
Pink, R. BonnerTalbot, John ErWebster, Davi
Pounder, RationTaylor, Sir Charles (Eastbourne)Whitelaw, William
Powell, Rt. Hn. J. EnochTayler,Edward M.(G'gow,Cathcart)Wilson, Geoffrey (Truro)
Pym, FrancisTaylor, Frank (Moss Side)Winstanley, Dr. M. P.
Quennell, Miss J. M.Teeling, Sir WilliamWood, Rt. Hn. Richard
Renton, Rt. Hn. Sir DavidTemple, John M.Wylie, N. R.
Ridsdale, JulianThatcher, Mrs. Margaret
Rossi, Hugh (Hornsey)TurtOn, Rt. Hn. R. H.TELLERS FOR THE AYES:
Russell, Sir Ronaldvan Straubenzee, W. R.Mr. R. W. Elliott and
Sharpies, RichardWainwright, Richard (Coine Valley)Mr. Reginald Eyre.
Shaw, Michael (Sc'b'gh & Whitby)Walker, Peter (Worcester)
NOES
Abse, LeoGregory, ArnoldNorwood, Christopher
Alldritt, WalterGrey, Charles (Durham)Ogden, Eric
Archer, PeterGriffiths, David (Rother Valley)O'Malley, Brian
Armstrong, ErnestGriffiths, Rt. Hn. James (Llanelly)Orem, Albert, E.
Atkins, Ronald (Preston, N.)Hamilton, James (Bothwell)Orme, Stanley
Bacon, Rt. Hn. AliceHamilton, William (Fife, W.)Oswald, Thomas
Beaney, AlanHamling, WilliamOwen, Will (Morpeth)
Bennett, James (G'gow, Bridgeton)Hannan, WilliamPage, Derek (King's Lynn)
Bidwell, SydneyHarper, JosephParkyn, Brian (Bedford)
Bishop, E. S.Harrison, Walter (Wakefield)Pearson, Arthur (Pontypridd)
Blackburn, F.Hazett, BertPentland, Norman
Booth, AlbertHeifer, Eric S.Perry, George H. (Nottingham, S.)
Boston, TerenceHerbison, Rt. Hn. MargaretPrice, Christopher (Perry Barr)
Bowden, Rt Hn. HerbertHobden, Dennis (Brighton, K'town)Price, Thomas (Westhoughton)
Braddock, Mrs. E. M.Hooley, FrankProbert, Arthur
Bradley, TomHoughton, Rt. Hn. DouglasPursey, Cmdr. Harry
Brooks, EdwinHoy, JamesRandall, Harry
Broughton, Dr. A. D. D.Hughes, Emrys (Ayrshire, S.)Rankin, John
Brown, Hugh D. (G'gow, Proven)Hughes, Roy (Newport)Redhead, Edward
Brown, Bob (N c' tie-upon. Tyne, W.)Hunter, AdamRhodes, Geoffrey
Buchan, NormanHynd, JohnRichard, Ivor
Buchanan, Ftichard (G'gow, Sp'burn)Jackson, Cohn (B'h'ss & Spenb'gh)Roberts, Albert (Normanton)
Butler, Herbert (Hackney, C.)Jackson, Peter M. (High Peak)Roberts, Gwilym (Bedfordshire, S.)
Butler, Mrs. Joyce (Wood Green)Urger, George (Goole)Robertson, John (Paisley)
Cant, R. B.Jenkins, Hugh (Putney)Robinson, W. 0. J. (Walth'stow, E.)
Carmichael, NeilJenkins, Rt. Hn. Roy (Stechford)Rodgers, William (Stockton)
Carter-Jones, LewisJones, Dan (Burnley)Roebuck, Roy
Coe, DenisJones, J. Idwal (Wrexham)Rose, Paul
Corbet, Mrs. FredaJudd, FrankRosa, Rt. Hn. William
Craddock, George (Bradford, S.)Kelley, RichardRowlands, E. (Cardiff, N.)
Crawshaw, RichardKenyon, CliffordRyan, John
Cullen, Mrs. AliceKerr, Dr. David (W'worth, Central)Sheldon, Robert
Davidson, Arthur (Accrington)Kerr, Russell (Feitham)Shore, Peter (Stepney)
Davies, Dr. Ernest (Stretford)Lawson, GeorgeShort,Rt.Hn.Edward(N'c'tle-u-Tyne)
Davies, C. Elfed (Rhondda, E.)Leadbitter, TedSilkin, John (Deptford)
Davies, Harold (Leek)Ledger, RonSkemngton, Arthur
Delargy, HughLester, Miss JoanSlater, Joseph
Dempsey, JamesLewis, Ron (Carlisle)Small, William
Dewar, DonaldLomas, KennethSpriggs, Leslie
Diamond, Rt. Hn. JohnLuard, EvanSteele, Thomas (Dunbartonshire, W.)
Dickens, JamesLyons, Edward (Bradford, E.)Summerskiii, Hn. Dr. Shirley
Doig, PeterMcBride, NellSymonds, J. B.
Donnelly, DesmondMcCann, JohnThomas, George (Cardiff, W.)
Dunn, James A.MacDermot, NiallThomas, lonverth (Rhondda, W.)
Dunwoody, Mrs. Cwyneth (Exeter)McGuire, MichaelTourney, Frank
Dunwoody, Dr. John (F'th & C'b'e)McKay, Mrs. MargaretUrwln, T. W.
Eadie, AlexMackenzie, Gregor (Ruthergien)Varley, Eric G.
Edwards, Robert (Bilston)Mackintosh, John P.Wainwright, Edwin (Deanne Valley)
English, MichaeMcMillan, Tom (Glasgow, C.)Walden, Brian (All Saints)
Ensor, DavidMcNamara, J. KevinWalker, Harold (Doncaster)
Evans, Albert (Islington, S. W.)MacPherson, MalcolmWallace, George
Evans, loan L. (Birm'h'm, Yardley)Mahon, Peter (Preston, S.)Watkins, David (Consett)
Fernyhough, E.Mahon, Simon (Bootle)Wellbeloved, James
Finch, HaroldMallalieu, E. L. (Brigg)Wkliams, Clifford (Abertillery)
Fletcher, Ted (Darlington)Manuel, ArchieWillis, George (Edinburgh, E.)
Floud, BernardMapp, CharlesWilson, William (Coventry, S.)
Foley, MauriceMason, RoyWinniek, David
Foot, Michael (Ebbw Vale)Miller, Dr. M. S.WinterbOttoM, R. E.
Ford, BenMitchell, R. C. (S'th'ptort, Test)Woodburn, Rt. Hn. A.
Fowler, GerryMorgan, Elystan (Cardiganshire)Woof, Robert
Fraser, Rt. Tom (Hamilton)Morris, Alfred (Wythenshawe)Yates, Victor
Galpern, Sir MyerMorris, Charles R. (Openshaw)
Carrow, Alex.Murray, AlbertTELLERS FOR THE NOES:
Ginsburg, DavidNewens, StanMr. William Whitlock and
Gourley, HarryNoel-Baker, Francis (Swindon)Mr. R. W. Brown.
Greenwood, Rt. Hn. AnthonyNoel-Baker,Rt.Hn.Philip(Derby,S.)

Clause 40.(ESTATE DUTY: INTERESTS LIMITED TO CEASE ON DEATH.)

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

I beg to move Amendment No. 112, in page 46, line 42, to leave out from "and" to end of line 5 on page 47 and to insert for the purposes of this subsection the following interests shall be deemed to include an interest limited to cease on a death—

  1. (i) an interest enjoyed under two or more titles one of which confers an interest limited to cease on a death,
  2. (ii) an interest so related to a death that it cannot terminate before the death, and
  3. (iii) an interest so related to a death that, except in contingencies not related to the death, it cannot terminate before the death".
This is a purely drafting Amendment to meet the point raised by the right hon. Member for Stafford and Stone (Mr. Hugh Fraser) in Committee. It makes no alteration in the sense of the subsection but improves its layout and to some extent its clarity. As I explained at the time, this is a highly technical subsection which must of necessity be cast in very technical language.

Photo of Mrs Margaret Thatcher Mrs Margaret Thatcher , Finchley

I recognise that this is purely a drafting Amendment but the hon. and learned Gentleman will recollect that a number of points were raised on this Clause in Committee and that the learned Solicitor-General agreed to look into them. Since that time I have sent the Financial Secretary details of a case which I think is caught by this Clause but which is not on all fours with either the Ralli or the Holmden cases, which proves that the Clause goes wider than either of them. I hope that the Financial Secretary will consider that case and the point I have put previously about protection for bona fide purchasers of interests affected by the Clause and let me know his conclusion in due course.

Amendment agreed to.

Clause 44.—(SELECTIVE EMPLOYMENT TAX.)

Photo of Mr Geoffrey Hirst Mr Geoffrey Hirst , Shipley

I beg to move Amendment No. 45, in page 52, line 27, at end to insert: Provided that in respect to any person who is blind the tax shall be one shilling. I am sure that the House will be grateful to the Chair for selecting