HC Deb 18 July 1927 vol 209 cc175-99

I beg to move to leave out the Clause.

I make no apology for moving this, because there has been so much confusion of thought, not merely in this House but outside, as to what the Chancellor of the Exchequer is really proposing, even at this late hour, that I think the best thing that can be done is to leave it out of the Bill altogether and for the right hon. Gentleman to get in touch with the business community, who really know the difficulties, and to approach the matter once again. It does not matter in the slightest what the Chancellor of the Exchequer intends to do. It is what the Bill really proposes that matters. If I or any of my friends, or any of the hon. Gentlemen opposite for that matter, had to appear before the Lord Chief Justice and tell the Lord Chief Justice that the Chancellor of the Exchequer on the Finance Bill said so-and-so, he would immediately reply that he did not care what the Chancellor of the Exchequer had said, and that the matter of importance was, what was in the Statute itself. I submit that this House has reason to complain, because we have on the Order Paper a long string of very technical Amendments which only appeared there on Friday last. I submit that it is rather discourteous to the House that important matters like this, which have to be considered, sometimes by legal opinion, should appear at such a late date, when it is practically impossible for anyone except the Government advisers to give a real opinion as to what they may mean.

I do not wish, at this late hour, to reinforce the arguments, but I can give a further argument in following up the argument which was used by my hon. Friend the Member for Reading (Mr. H. Williams). My hon. Friend during the last Debate mentioned the case of Lever Brothers. The late Lord Leverhulme was the owner of all the ordinary shares in the firm of Lever Brothers, and my hon. Friend showed how this Clause would cause great disadvantage to the progress of that concern. I will quote another example. I will quote the concern of Morris Motors Ltd. Mr. William Morris floated this concern only about 12 months ago. The only public issue in connection with this concern was in preference shares. Mr. William Morris took as his portion of that business the ordinary shares. When the first year was being completed, Mr. Morris decided that he would take nothing out of that concern, that he would use the whole of the profits that bad been made—which were considerable—for building up the concern, and building it on progressive lines in order to find more work for the workpeople, and, incidentally, to increase the profits for himself. I have never held the view which is so vociferously used by hon. Members opposite that profits are wicked. I have always held the view that profits are a good thing. Profits are a good thing, because the more profits there are the better the wages of the workpeople. I submit that it is no business whatever of the Chancellor of the Exchequer or of any Government official what portion of the profits of an industrial concern are distributed to the shareholders. The way in which business has been built up has been by retaining in business concerns a large proportion of the profits in order to keep works up-to-date and efficient.

For that reason, I submit that the Chancellor of the Exchequer should to-night be a brave man and should admit that he has played about with this subject to a very considerable extent. He has moved numerous Amendments, many of which it is utterly impossible for Members of this House to understand, owing to the late date at which they have been put on the Order Paper. If he is a brave man, as I know he is, he should have the courage to withdraw this Clause, and in the 12 months succeeding should consult fully the means by which the objects which he has so lucidly explained as being those which he desires to achieve can be framed in language which really defines those objects in the Statute.


I am sorry that I cannot follow the hon. Member for Macclesfield (Mr. Remer)—


I thought the hon. Member rose to second the Amendment.

Captain BOURNE

I beg to second the Amendment.

I do so, because I am afraid that this Clause, even with the Amendments of my right hon. Friend, may at some future date be interpreted in the Courts to go far beyond the intention of this House as expressed in the Committee stage. There is always a danger when we pass complicated Measures of this sort that the Court will pay no attention to the Debates in this House but will hold that the language means something which we did not intend. I am well awer that this Clause aims at evasion of Super-tax by what is known as the one-man company. That is an aim with which I am in full sympathy, but I am very much afraid that the language of the Clause will go far beyond that, and my object to-night is to ask my right hon. Friend to see whether between now and next year, which is the earliest date that this Clause can possibly become operative, it will not be possible to devise some better means of dealing with what is an acknowledged evil.

I suggest that what matters is not the amount that the company puts to reserve but what use it makes of the reserves. If the reserves are used for the purpose of making bogus loans to the directors of a private company, that is a thoroughly undesirable thing, and I suggest that in such cases probably the best thing would be to give power to the Treasury or the Inland Revenue to appeal to the Court to revoke the Charter of Incorporation, because it is obvious that any company dealing on those lines has no business whatever to remain on the list of companies having a charter of incorporation.

Another point to be considered is whether it would not be better to assess the reserves for Super-tax if and when they are distributed. It is quite contrary to our Common Law that a company should be charged Super-tax. Super-tax has always been a tax on the individual and not on a concern. I feel that in this Clause and in the Act of 1921 we are attempting to stop an acknowledged evil by taking completely wrong lines. I hope my right hon. Friend will be able between now and next year to see if he cannot get a Departmental or other Committee together to consider if it is not possible to frame legislation which will achieve his object without doing the positive damage to legitimate business which I am afraid will arise from this Clause.


The mover of this Amendment has cast his remarks in a somewhat controversial form, but I do not intend to adopt that method in dealing with this subject, and I hope, in avoiding anything which may be calculated to raise an atmosphere of controversy, I may count on the assistance of hon. Members in all parts of the House. There has been a great deal of agitation and some irritation about this Clause, formerly Clause 29, now Clause 31, and in addition to this there has been an immense amount of apprehension and alarm and misconception which in my honest opinion is absolutely unjustified. This Clause does nothing but extend the area of the provisions which, five years ago, were passed through this House by my predecessor the right hon. Member for Hillhead (Sir R. Horne). It extends them from an area of 40,000 companies to an area of approximately 75,000 private companies. That is all it does. It in no way menaces the development of private company business in a way different from the conditions under which that business has lived and flourished during the last five years. During the whole of those five years only 550 cases have been challenged, out of 40,000 companies, by the Board of Inland Revenue, and in only 250 cases has actually a claim for payment of the tax been made, and in less than that number of cases has that claim been paid.

It is now proposed, roughly speaking, to double that area, and I dare say to double the application. But the idea that this extension of these processes will be injurious to the proper building up of reserves and the development of company business is absolutely without foundation. I have accepted Amendments with great readiness, and have accepted the cooperation of those Members of this House who have made a sincere and profound study of this complicated question. The reason why our Amendments have been late in appearing on the Order Paper is not because of idleness or slothfulness on our part but because of the careful and painstaking attention to the details of this matter, so that we should really represent the ultimate possible reassurance to bona fide business that it will not be interfered with by anything that is done. I have spoken of private company business, but all private company business does not come within the ambit of this Clause, although very nearly all. But let us see what a small place private company business occupies in the general economic productivity of this country. I fancy the figures will astonish the House. I am dealing now with concerns making a profit exceeding £2,000 a year. Of these there are 15,000 public companies making £418,000,000 profit. There are 15,000 private companies making £55,000,000 profit. Then we come to the firms and individual traders, of whom there are 20,000, making £100,000,000 profit, and professional men, numbering 5,000, making £25,000,000 profit. Thus you see out of about £600,000,000, only £55,000,000 is made by private companies.


The Clause is not limited to that.


The Clause is less than the total of the private companies and more limited than the private companies. If you come to undertakings making profits not exceeding £2,000 a year the figures are about in the same proportion. There is £252,000,000 profit made other than by private companies and £25,000,000 by private companies. Thus the House will see we are dealing with a portion of business which is less than 10 per cent. of the total national business, but all the arguments which have been used would lead one to think that the entire fund of enterprise and ingenuity in Britain would be for ever killed and cut off! It is in comparing private companies with private firms and partnerships and private individuals that the greatest interest in this subject resides. Taking concerns having profits of over £2,000, there are 15,000 private companies yielding £55,000,000 profit, and 20,000 private firms and individual traders yielding £100,000,000 profit—that is nearly double in importance. What is the position of these private firms and partnerships? They pay the whole taxation, Income Tax and Super-tax, on the net profits of the year. They pay the whole of it. The right hon. Gentleman opposite told how the poor shippers in the North with small fishing fleets had built them up by savings and so on, and how they would be ruined if Super-tax was exacted from them. Nearly all the strongest businesses in this country have been built up by private firms and individuals bearing the whole brunt of the taxes. That is so.

I will give some illustrations of the way in which some private firms have built up their businesses. Firm A, for the four years ending 1925, paid full taxes, Income Tax and Super-tax, on £2,600,000, and, notwithstanding that, they put to reserve £1,150,000, or 44 per cent. Firm B, in the five years ending 1926, paid full taxes on £670,000, and, notwithstanding that, they put £250,000 to reserves, or 37 per cent. Is it not right that they should? I am showing it is possible with the full burdens of the State nevertheless to put substantial sums of money away and build up reserves. I have a number of instances here but I will not weary the House with any more, because I altogether demur to the suggestion that this Clause, with its corrective influence, will in the slightest degree hamper the building up of proper reserves, which is of the utmost importance to industry, by the private companies who come within its ambit. On the contrary, it is my submission to the House that after all the thought and argument which these weeks have produced, Clause 29, which is now Clause 31, so far from being an injury is going to be a great protection and support to private company business.

It is a very small area, not much more than 10 per cent. of business, which is becoming pervaded with this particular form of tax evasion. At present it is very small—the evil has only just begun—but if it came to pass that over a period of ten years it was found that private company business was being so used on a scale which does not exist now, and, if there were this evasion, apart from legitimate business, and we did not deal with it—if that came to pass and the whole field of private company business came to be brought into disrepute by the fact that it was vitiated by this particular practice, then I say the privileges which private companies enjoy compared to the much more important and more numerous private traders, would, as a whole, be brought into question. Undoubtedly they would be called into question.

It is to my mind a very slight thing that we should ask that the private companies of this country, in return for the great privileges and advantages which they enjoy over the more important and more numerous private firms and partner-ships, should accept and acquiesce in the carefully guarded provisions of this Clause in order that private company business may continue to enjoy those privileges and advantages without being vitiated by continued imputation of abuses. I cannot hold out any hope of accepting the proposal to withdraw the Clause, as my hon. Friend so ingenuously suggested. I said in the Debate on the Committee Stage that if there is any better way of achieving the necessary purpose that the Government had in hand, it is a way which we shall be ready to follow. I make no objection to officials assisting any responsible body of Members of Parliament who seek to investigate an alternative method. I am quite ready, if it can be found possible, to adopt an alternative method. I admit quite frankly that it is unfortunate that the declaratory form of our legislation should proceed, in form at any rate, by an examination of the reserves. I would have preferred that it should have proceeded by an examination of the conditions of exceptional withdrawal from the reserves.

I put this point, not in any hurry but weeks ago, to my expert advisers on this extremely technical matter, and they assured me that, great as have been the difficulties and complications of the method that we have adopted, the alternative method would have produced another set equally and probably more formidable. The whole question of liquidation of companies and bonus shares and so forth would have been raised, and we would have fallen into another thicket equally thorny and more impenetrable— I should not say more impenetrable, but more resistant, than that through which we are now successfully making our way. Nevertheless, I am prepared to say, not for the purpose of keeping this controversy alive, because I shall regard the vote to-night as a vote of serious decision by the House, but for the purpose of any improvement that can be suggested—I am quite ready to adhere to what I said upon the Committee stage, if there is a better way that can be found. I cannot say that I am very sanguine that a better way will be found. Under pressure of this discussion every avenue has been explored, and I am now in a position to say that all that can be done in the way of reassuring the bona fide traders and of dispelling the alarm which has been spread and needlessly spread, has now been done.

11.0 p. m

I have put down Amendments which have been most carefully considered. I do not think I shall be able to go any further at all if in the course of this year better methods can be suggested before these taxes come into operation, there is still another vote to be taken in 1928 on the Resolution, and I shall be quite ready to profit by any advice I may receive and to consider bona fide suggestions from any inquiry that may be set on foot. But so far as this particular Clause is concerned, I am confident that it will do no harm whatever to legitimate business and that the vast mass of private companies, themselves only a small part of the business of the nation, will not be aware of any change whatever in the way in which their relations with the tax-collecting authorities are disposed. I am certain that this will, in fact, strengthen the position of private companies by freeing them from an abuse which, growing with their growth and strengthening with their strength, might ultimately have choked them entirely.


I think Members of the House who are endeavouring to view this problem impartially will agree that there has been a great deal of exaggeration in much of the criticism of and opposition to these proposals. To those of us who were members of the Royal Commission on Income Tax in 1919, it will appear that a great deal of this exaggeration has been due to failure to recall the terms of the Section of the Act of 1922. It is the duty of the House to remember to-night that what is really before us is the question of evasion. It was asserted in the last Debate on this subject that such was not the real issue before the House and that we were not engaged in dealing with people who tried to practice evasion, but the plain, simple truth of this controversy is that if we go back to the work of the Royal Commission and to the Section of the Act of 1922, we find that this is mainly a problem of evasion. In the discussion of recent weeks numbers of people have forgotten that Section 22 was itself a compromise which was reached in this House when very much stronger proposals were intended. Many of us can recall those Debates and, in fact, during the passage of that Section of the Act through this Chamber, important safeguards were introduced.

In a great deal of the discussion of the past month no attention whatever has been paid to some of the preliminary words in that Section which were directed to this problem of the avoidance of the payment of Super-tax and numbers of people have written and spoken as if no provision at all has been made for the current needs of business and no recognition of the amounts to be placed to reserve, although those were very important ingredients in the Section of the Act of 1922. It has also, apparently, been forgotten by some, that those safeguards in the Act of 1922 remain there and what we have to emphasise to-night is that the attempt which was then made to deal with the problem of the evasion of Super-tax has not proved its efficiency, that, in the intervening time, individuals have found a way of getting round this Section and that, as the Chancellor of the Exchequer plainly demonstrated, considerable sums—I do not say much in the aggregate having regard to our total revenue, but still considerable sums and sums which we urgently require—have gone beyond the reach of the Revenue authorities. Accordingly, these better provisions are required.

What is the real objection to this proposal? It appears to me to be two-fold. It is suggested that there is going to be interference with the proper provision of reserves in normal, well-conducted businesses, and that in the process of trying to prevent tax evasion, you are going to do injury to a large number of well-meaning and thoroughly honest people. In reply to that objection I think we have said sufficient already to show that not only do all safeguards of the Section in the Act of 1922 remain, but that there are all the additional safeguards which the Chancellor of the Exchequer has now imported into these proposals. These include the safeguard of the declaration and the Special Com- missioners or the Court of Referees, and all the rest, so that I think that objection has been largely met. The other objection is an objection to what is called the interference of the bureaucrat in privately-run business. Very well, on that we have simply to make up our minds whether or not we are going to deal with the problem of evasion. I do not dispute, as a member of the Royal Commission in 1919, that there are other ways of dealing with this difficulty, and to those other ways I hope to refer in a minute or two. But taking a line through the Section in the Act of 1922 and the experience of the Revenue since, there is not the least doubt that a plain duty confronts us to strengthen that Section now, and, for reasons which will be best known to themselves, the Chancellor and the Government have taken the line of strengthening the proposal in the legislation of 1922.

On this side, we are bound to support the right hon. Gentleman in that course. Although we do not agree with this particular system of industry and commerce, we fully recognise that business must provide reserves for the purpose of development and for many other purposes upon which, I have no hesitation in saying to-night, the progress of business as presently constituted depends. We know very well, and everybody knows who has gone into this behind the scenes, that sums have been employed in this way, not for a legitimate purpose at all, but for the express purpose of putting the individual beyond the reach of a rate of duty which was admittedly high, but was nevertheless the law of the land and, as such, should be enforced in this Chamber and everywhere else. It is that interference which I find is the important point among hon. Members opposite in a great deal of this discussion, but if we make up our minds at all to deal with evasion, some kind of inquiry of that description is absolutely essential, and accordingly we can plead to-night that there are all the safeguards of 1922 and the additional safeguards in the Clause which the right hon. Gentleman has introduced.

The last word, and a very hurried word indeed, which I would offer to the House is this: The objection which many of us take to this method of dealing with the problem does not turn on the at- tempt to prevent evasion at all. We would be much more drastic than the right hon. Gentleman in a course of that kind. Our objection is that you are dealing here piecemeal with individual items in the structure of Income Tax and Super-tax in this country. If any hon. Member will turn to the Report of the Royal Commission in 1920, he will find that, in point of fact, the whole Report was designed to be one comprehensive whole, I do not say to be adopted at once, but, at all events in this matter of evasion, to be adopted very largely in that form if it was to be adopted at all.

Moreover, it was an integral part of that scheme that you should try to rewrite this legislation in terms that would be understood by human beings. That, of course, has not yet been attempted. The Chancellor of the Exchequer, I know, is not a lover of these extreme technicalities, and there are very few people who could lay their hands on their hearts and say they understand what all these Sections in the Act of 1918 and all this legislation by reference mean. The fundamental thing is to rewrite this in terms that people can understand. You will then get a straightforward proposition, and I would make that the basis of the scheme in dealing not only with the problem of evasion, but with the many other forms of Income Tax and Super-tax. I merely want to add that this is the line which, I believe, any fresh investigation should pursue. So far as we on this side of the House are concerned, we think that the Chancellor of the Exchequer has done everything that should be done on this Clause by way of declaration and appeal. Accordingly, to-night, if he should have any slight embarrassment with his followers, I think it would be our duty to side with him against those who would abuse our Income Tax and Super-tax system.


It occurs to me that even at this late hour the right hon. Gentleman the Member for Central Edinburgh (Mr. W. Graham) does not yet understand, if I may be permitted to say so, the weight of the objection to this Clause. There is no difference of opinion at all between us and him as to the keenness of our pursuit of the evader. The whole question is, what is evasion? Some of us who have listened to his argument think that that which he considers to be evasion is not evasion. It appears to me that the Chancellor of the Exchequer to-night made really the most promising statement as to the future of this legislation which we have heard, and I, for one, value it a good deal more than I value his Amendments. It appears to me that his statement to-night does point forward on the path of hope, whereas his Amendments do not.

I have criticised this Clause on two main grounds. In the first place, because it is unsound legislation to try to define the province of evasion by setting out the category of companies which come within the scope of the legislation, and to try and define that category by the nature of the control of the company, the number of members, the character of the issue of shares, and so on. That involves you in a perfectly impossible task, where you will always have too wide a borderland of hard cases. That is unsound legislation. The hon. and gallant Gentleman the Member for Oxford City (Captain Bourne) hit the nail on the head when he said that if you had a company which was defrauding the Revenue the proper remedy was not to put that company into a special category, but to deprive it of the privileges of registration altogether. The other and the main ground on which I criticise this Clause is because of the introduction of the idea that the officials of the Inland Revenue should have the right to say what ought and what ought not to be put to reserve. The right hon. Gentleman the Member for Central Edinburgh naturally views the interference of public officials with private business without abhorrence, but we view it with abhorrence. We are most unwilling to assent to any extension of it.

I view with some suspicion the latest Amendment which the Chancellor of the Exchequer proposes, because it again introduces the idea that the officials of the Inland Revenue are to say whether sums have been rightly put to reserve or not. On a previous occasion I defended the definition of evasion in this matter by the adoption of the test that one is to consider, not whether sums have been properly put to reserve, but whether they have been improperly drawn out of reserve. One ought to look on sums put aside bona fide for capital purposes as not evasion, and only those transactions as evasions by means of which money which is in fact income comes back into the hands of the Super-tax payer in some form of capital payment.

The impression which the Chancellor of the Exchequer's statement produced on my mind to-night is that he considers that the question as to whether the proper test is not drawing from reserve, rather than putting into reserve, is open theoretically to the answer that that is a possible course, and that he has been turned aside from it only by the practical difficulties, and that if he could be convinced that the practical difficulties of that course were no greater than those of the other, that it might then be possible to adopt that as a basis for legislation. I find myself so much encouraged by the fact that is recognised, and not only recognised, but now acclaimed, by the Chancellor of the Exchequer—that gives me so much hope of a fruitful outcome of those further inquiries which he has promised in the coming year, that it reconciles me to the passage of this Clause.


I want to say quite frankly that though I do not recede in principle from my objection to this Clause, in view of the Chancellor's speech to-night, in view of the way in which he has met us, in view of his pledge that he will consider any proposals that are put forward in the coming year, and in view of the fact that the Clauses do not come into operation until next year, I propose to support the Chancellor in the Lobby to-night. There is one technical point on which I should like to get a reply from the Government to-night. On page 18 of the Bill between lines 25 and 40, certain companies are put into certain categories. In one of the categories are companies whose shares have been quoted in the Official List on a stock exchange. I want to ask the Attorney-General why only the Official List has been included, and not the Supplementary List. The requirements of the Stock Exchange Committee in regard to including companies in the supplementary list are substantially the same as in the case of the Official List. The difference in the requirements is only in respect of certain things which are physically impossible when an early application is made for permission to deal. Where no prospectus has been publicly advertised the Stock Exchange Committee require all the material conditions to be fulfilled, and those conditions have been taken from the Companies Acts. The Stock Exchange Committee do not give permission to deal in the securities of any private company. I would say in conclusion that I have no axe to grind in this matter, but if securities which appear in the Official List are to be included, I can see no reason, and those in the City who know about these things can see no reason, why the securities in the Supplementary List should not also be included.


The Chancellor of the Exchequer has been very definite in his assurance that no one need have any apprehension about the operations of Clause 31. Whatever may be the feeling of the Chancellor of the Exchequer himself, he must be aware of the fact that, whether they are right or wrong, there are very many people who have been filled with apprehension, and quite rightly. They are alarmed at what they regard as an entirely new departure with regard to company law and company operations. They are unable to see in the Clause and the Amendments exactly what the Chancellor of the Exchequer is driving at, and, while they read everything the right hon. Gentleman says with respect, just as we listen to him with respect, they occasionally hear, as we have heard to-night, a slight contempt for the small concerns which have grown into large concerns. He spoke of fishing-boat companies which had grown into large merchant fleets, but it is an exaggeration of which nobody connected with the shipping industry would ever have been guilty. It is no use overlooking the fact that a very large number—I do not know the exact proportion, and I do not think the officials know at Somerset House—of successful businesses have grown up by the operation of small concerns which are not included in the Stock Exchange Supplementary List whose benefits have been restricted to a small number of people, but nevertheless they have done a great service to British industry and commerce. The suggestion of the Chancellor of the Exchequer is that there are only 15,000 companies who made £55,000,000, whereas a smaller number of private firms made much more.


There were 20,000 firms that made £100,000,000 and 15,000 companies that made £55,000,000 only in the area of firms yielding profits of over £2,000 a year.


The Chancellor of the Exchequer must have observed that during the last three or four years a considerable number of companies have made no profits at all, and he must be aware of what happened in the coal trade, the iron trade, and the cotton trade. A large number of companies in Lancashire have made no profits since 1922, and it is impossible to take any scale of profits as providing a scientific division. In some trades it has become the custom to conduct the operations through small private companies which are not quoted on the Stock Exchange.


The same conditions of trade will have the same effect on private firms.


The private firm system is restricted to a comparatively large number of miscellaneous trades but not basic trades, and it is in the basic trades where there has been the greatest depression during the last few years. The Chancellor of the Exchequer, in his Budget statement called attention to the fact that it is the basic trades that have suffered. Some private firms have been showing large profits, and the Chancellor of the Exchequer has drawn a large proportion of his income from these subsidiary concerns. The reason I draw attention to these facts is to show that what is suggested is an unscientific way of dividing up the trades of the country, and it has no bearing on Clause 31 or the Amendments which the Chancellor of the Exchequer has put down. I do not think the right hon. Gentleman has paid half enough attention to the trouble that comes from absolute uncertainty. The 5,000 companies to which attention has been drawn may or may not come within the purview of this legislation, and in every one of those companies they will have to go very slow during the next twelve months, for it will be impossible for them to be assured of their position. If the Chancellor can say definitely what are the 5,000 companies that are left out, he will give a great deal of comfort to a large number of business people all over the country, but when they get this Clause, which now covers no less than four pages of print, I do not believe they will even then be assured as to whether they are in or out. The Chancellor talked about getting into a thicket if he adopted any other method. This is a thicket. We have, since last Friday, when the Amendments were put down, been trying to find out from our legal advisers what exactly the Clause means. I challenge even the Attorney-General to give us a short and simple account of what is to be found in these four pages. He himself will not know for years to come. If the Clause remains unaltered, it will provide ample employment for the lawyers for many years to come. Case after ease will go into the Courts, and there will be all sorts of decisions as to what it means, apart altogether from the decisions which will be arrived at before the Board of Referees. I do press on the Chancellor of the Exchequer the necessity for putting the business community in a position to know whether they are in or whether they are out. That, really, is the important consideration. It is impossible for men to undertake obligations unless they know whether or not one-third of the, reserves they set aside are to be in jeopardy. If they know that they have to provide definitely that one-third of the reserves they set aside—


In jeopardy of what?


Of coming within the meshes of this Clause, and finding that they have to pay, not only Super-tax on the amount they have withheld from division, but on their whole gross profits. That is the penalty which the Chancellor of the Exchequer imposes upon those who come within this Clause, and who, under the decision of the Special Commissioners and the Board of Referees, are stated to have put too much money aside for reserves. The standards that are going to be applied as to what is sufficient or insufficient have never been defined, and I venture to say that it is quite impossible for any Government Department to lay down any rule which will guide the Special Commissioners as to what is or is not sufficient.

I have before me a sample of scores of cases that have come to my notice. It is a case in which the reserves of a company have been used for some six purposes, and, of those six purposes, as far as I can tell—I do not think anyone can be sure, on the Clause as it now stands—five would be permissible, but the sixth would certainly be in question, for it provides for the building up of the financial security of the concern with a view to meeting set-backs in trade. Who is to decide what is a sufficient amount for that? The experience of businessmen who have been in the trade all their lives is the only guide. Some men take a conservative view, while others take a more adventurous view as to what is or is not sufficient, and we all know that during the last few years only those who have taken the most conservative view with regard to reserves have been able to survive successfully. Then come a lot of doubtful provisions. There is a provision made for what is called the workers' savings bank and division of employés' profits. We know nothing about what is to happen to that. No rule has been laid down for the guidance of the Inland Revenue Department. If the Chancellor of the Exchequer is going to do it, by all means let it be known as soon as possible, because some profit-sharing schemes will be brought at once under the purview of the Act unless he assures us that in no case will they be affected.

I could give a number of other doubtful points, but I would only say that if the Chancellor is going to carry out during the next 12 months what he has stated—I think he took rather too severe a view of the business community, and talked a little harshly about those who have objected to this legislation—if he is going to carry out what he has stated, not only to-night but in a previous Debate, I think the House would be well advised to leave the next twelve months to be a period for reconsideration, for I am quite certain that, if the Chancellor and his advisers will get into close and intimate touch with all the best authorities on business of the kind that will be affected by these provisions, they will not be able to come before the House 12 months hence with a Clause like this. If the Chancellor of the Exchequer wants assistance in getting at evaders, he will get it from all honourable business organisations in this country, and they will tell him a great deal more than he will ever learn from his officials. The proper way to get that co-operation is to regard those with whom you are dealing as perfectly honest, honourable men, and, if you take them into collaboration as such, they will co-operate. But, if they are to be dealt with, as they are now, under an immense Clause the meaning of which they do not understand, it will mean that during the next 12 months a definite brake will be put on the enterprise of a good many people who will be bound to play for safety, and that will have a detrimental effect on the trade of the country. So far as I am concerned, I shall not vote against the Clause, because, as I said in the last Debate, I am in agreement with its general object, but it is only on the definite assurance given by the Chancellor of the Exchequer that during the next 12 months he will confer with those who are in very close touch with these affairs.


I have not changed my view that this whole scheme is bad. But if the Chancellor of the Exchequer is going to do anything to check the spread of tax avoidance in this way, he is bound to proceed on the lines of patching the legislation of 1922. The great trouble about this matter has been the alarm which it has caused in business circles and the hindrance to business caused by apprehension. That arises from the fact that the legislation is directed, not against the shareholder who avoids taxation, but against the company, and many innocent companies are within the class of company affected. But the Chancellor has put forward such a strong case that I do not think the House would be doing rightly if they were to persuade him to drop this Clause altogether this year and thus encourage the man who is attempting unfairly to avoid taxation. He has met criticisms which have been made to an extent which, in the opinion of myself and others who are far more competent to judge than I am, have this result, that it is at least a matter of a hundred to one that no company that is not controlled by men who are endeavouring to avoid taxation will be interfered with in the very least in practice by this legislation.

If that be the case, I think we are justified in supporting the passage of this Clause with the Amendments which the Government have down on the Paper. People who do not understand this legislation, and who grossly misrepresent it, are doing far more harm to business than the Government is in making these proposals. The misrepresentation—I do not say for a moment that it is willful—of people who do not understand these Clauses has done, and is likely to do, very much more harm by the destruction of confidence than the passing into law of this Clause with the Amendments to it. One-ship companies and other companies of that kind, if they go to any experienced lawyer and take proper advice, are likely to be advised, under the Amendments now on the Paper, that there is no practical risk whatever of their being interfered with in the slightest degree. I would only add this. The right hon. Gentleman the Member for West Swansea (Mr. Runciman) has fallen into the same mistake as many others in considering that this particular Clause proposes to put to the Commissioners that they are to decide what is the right amount to put to reserve. It does not do so at all. What the Commissioners have to decide is this. Has there been an unreasonable withholding from distribution? If they decide that there has been an unreasonable withholding from distribution, they can bring the law into operation, notwithstanding the fact that the taxpayer has made use of a particular system of reserves in order to pretend that he is living on capital instead of on income. It is only when the Commissioners find there has been unreasonable withholding that they can interfere in any way with the amount which has been placed to reserve.


I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.


Perhaps I should be meeting the wishes of the House if I were to ask the Chancellor of the Exchequer how far he proposes to go to-night. I think he will agree that we have made quite unexpected progress. Very little remains on the Paper. If I may make a suggestion, it will be that Supply business might be put down for to-morrow, and then, in something like two hours or so, we might finish the remaining Amendments on the Paper. I hope it may be within the discretion of the Chancellor of the Exchequer to acquiesce and that he will adopt the suggestion I have made.


I think there is a great deal to be said for the suggestion the right hon. Gentleman has made. I agree that we have made extremely good progress to-day. The House has shown commendable facility in dealing with essential points in a comparatively short time. I certainly should not attempt to set the will of the Government against that of the Official Opposition or against the House as a whole in any way, and, therefore, what, I am going to make is in the nature of a counter suggestion. It is certainly of great advantage that we should put down Supply for tomorrow, count it as a Supply day, and devote a portion of it to finishing the Report stage of the Finance Bill. It will enable us to save one day which may be a great convenience if anything unforeseen should arise. It may be a matter of great convenience to Members generally without in any way affecting the conduct of public business. I suggest that we should finish Clause 31. The general Debate is approaching its conclusion. The Amendment has been withdrawn. There are certain Amendments to be moved, which I do not think will take very long, and then we should start with the next Clause at such time that Supply is concluded to-morrow afternoon. I think it is entirely in accord with the suggestion of the right hon. Gentleman, and the Government will give their accord to the proposition if it should commend itself to the House.


May I ask whether a Motion will be put down declaring that to-morrow shall count as a Supply day, even if other business be taken?

The PARLIAMENTARY SECRETARY to the TREASURY (Commander Eyres Monsell)

There is a Motion already on the Paper to safeguard the Supply day. The Supply will be taken first Order, and there is a Motion allowing the House to take other business before Eleven o'clock.


With respect to the Supply day, I cannot accept the suggested arrangement, and, if my colleagues were here, we would endeavour to upset it. The Prime Minister has already announced the business for this week. I understand that the Supply to-morrow will be the Colonial Office Vote. Those hon. Members who wished to discuss Colonial questions have had no notice that the Colonial Office Vote will be on to-morrow. It is unfair, at eleven o'clock at night, to say that tomorrow the Colonial Office Vote will be taken, thereby giving hon. Members no reasonable opportunity of preparing their case. While I have no wish to set myself against the will of the House, I cannot accept that arrangement, which I regard as a very bad arrangement.

Amendments made:

In page 17, line 22, leave out the word "whether," and insert instead thereof the words "otherwise than."

In line 23, leave out the word "any," and insert instead thereof the word "an."

In line 23, leave out the words "binding on the company or not," and insert instead thereof the words entered into by the company before the fourth day of August, nineteen hundred and fourteen.

In line 26, after the word "property," insert instead the words which the company was formed to acquire or which was the first business, undertaking, or property of a substantial character in fact.

In line 32, leave out the word "the," and insert instead thereof the words "any such."

In line 39, leave out the word "the," and insert instead thereof the words "any such."

In page 18, line 4, at the end, insert the words

Provided that the addition to the said section twenty-one of the foregoing new paragraph shall not operate so as to make the said section apply as respects any company unless it appears to the Special Commissioners, not only that income of the company has been or is to be expended or applied for one or more of the purposes mentioned in the said paragraph, but also that the company has not in fact distributed a reasonable part of its actual income in such a manner as to render the amount distributed liable to be included in the statements to be made by the members of the company of their total income for the purposes of super-tax.—[Mr. Churchill.]


I beg to move, in page 18, line 4, after the words last inserted, to insert the words: (2) Sub-section (1) of the said section twenty-one shall have effect as if after the words "apportioned among the members," there were inserted the words "and super-tax shall be assessed and charged under the provisions of this section in respect of the sum so apportioned after deducting in the case of each member any amount which has been distributed to him by the company in respect of the said year or period in such manner that the amount distributed falls to be included in the statement of total income to be made by that member for the purposes of super-tax. If I am right in hoping that the Government will accept this Amendment, it will be unnecessary for me to do more than to explain very shortly its object. It is to correct an injustice in the Act of 1922. Hon. Members who are well acquainted with this subject will understand that Super-tax under this particular legislation was made chargeable against, and payable by, the company and not by the shareholder; and, if a company was convicted, if I may use that expression, then under Section 21 of the Act of 1922 Super-tax was charged against the company on the whole profits, whether distributed or not, and there was a scheme under which the particular shareholder could afterwards claim relief as against the tax in respect of the profits which had been distributed to him. That had this hardship; that the tax was charged, not against the offending shareholder, but against the company and was borne by the funds of the company, in which there might be interested persons who were not Super-tax payers at all. The Amendment also simplifies the charge of the Tax under Section 21 of the 1922 Act.


I beg to second the Amendment.


The Government accept this Amendment.

Amendment agreed to.

Further Amendment made: In page 20, line 43, at the end, insert the words— (8) The following shall be substituted for paragraph 9 of the First Schedule to The Finance Act, 1922:— '9. The income apportioned to a member of a company, so far as assessable and chargeable to super-tax under section twenty-one of this Act, shall for the purposes of that tax be deemed to have been received by him on the date to which the accounts of the company for the year or period were made up or, if an application in that behalf is made by the company to the Special Commissioners at any time within the period limited by this Schedule for giving notice of appeal against the direction to the Special Commissioners, on such date as those Commissioners determine to be just, having regard to the dates on which distributions of income have been made by the company and so as to avoid, as far as possible, the inclusion for the purposes of super-tax for any year of income referable to more than one year.'"—[Mr. Churchill.]


I beg to move, in page 20, line 43, after the words last inserted, to insert the words: (g) If a company is dissatisfied with the determination of the Special Commissioners and appeals to the board of referees in accordance with the provisions of the First Schedule of The Finance Act, 1922, for a rehearing of the case, and the board of referees are satisfied on the evidence placed before them that the whole of the income of the company for that year or period could not reasonably have been distributed, they shall state the amount which in their opinion could have been so distributed, and notwithstanding anything in section twenty-one of The Finance Act, 1922, the amount so stated shall be deemed to be the income of the members of the company, and the amount thereof shall be apportioned among the members. This is a point I raised in Committee, though in a somewhat different form. When I moved it in Committee the hon. Member for Hereford (Sir S. Roberts) put up a strong case which so impressed me that I withdrew the proposal, and I have brought it forward again now in a different form, because it seems to me a great hardship on people who, quite innocently, have offended against the law should find themselves involved in penalties far greater than the offence they have committed. The Amendments accepted to-day have modified the scheme very materially, and, of course, have met many of the objections to it. I should like to say how much I appreciate the way in which the Chancellor of the Exchequer has carried out the promises he gave to me in the Committee stage, and I believe that honestly conducted companies will now be able to carry on with the certainty that they are not going to be hampered in a way they felt they might have been. I say that deliberately, because great alarm has been caused, and it is only right that those who have now come to the view that the position is perfectly safe should say so and contribute their share towards allaying the alarm that has existed. The Chancellor of the Exchequer, when he gave the House masses of statistics, appeared to be justifying the whole Clause on the same ground that the illegitimate baby was excused; that it was only a little one. He said that private companies did not make a great deal of profit. This Clause deals with many public companies, and for that reason his statistics not so pertinent.


I am not sure about the hon. Member's Amendment. Is it proposed in substitution for paragraph (5) of the First Schedule of the Finance Act, 1922, or is it a new paragraph?


It is a new paragraph.


I beg to Second the Amendment.


The Government are unable to accept the Amendment. The hon. Member for Reading (Mr. H. Williams) said it was designed to protect those who, in perfect innocence, had not distributed or had put aside rather too much to reserve from undue penalties, but I think he himself will recognise, and I hope the House will reecognise, that the Clause, especially as amended, does not deal with people who in perfect innocence put aside a little too much. What it does deal with, certainly as now amended, is the person who, with the express intention of trying to escape the burdens which other people have to bear, deals in a certain manner with money which ought legitimately to have gone into his pocket and paid Super-tax, in order that by another means he may get it into his pocket without paying the tax. The only effect of the Clause as it now stands will be that the company which is convicted of that sort of tax evasion shall for the year be deprived of the privilege of company immunity and thereby be put in the same position as every private firm in the country.

The hon. Member for Oxford City (Captain Bourne) suggested that the right course was to deal with these private companies who were trying to avoid taxes by depriving them of the privilege of incorporation. What we are in effect doing, as the Clause stands, is to deprive them of the privilege of non-liability to Super-tax for the one year and, to that extent to deprive them of the privilege of incorporation for that year and that year only. I think that is not an undue penalty to be imposed on people who are trying to use the Company law for illegitimate purposes. To go further would involve very great complication in deciding what was a proper distribution of money and would also really put a premium on people trying to escape having to pay if they felt that they suffered no penalty for it.

Amendment negatived.

Ordered, "That further Consideration of the Bill, as amended, be now adjourned.—[Mr. Churchill.]

Bill, as amended, to be further considered to-morrow.