§ The DEPUTY-CHAIRMAN
An Amendment has been handed in by the hon. Member for Torquay (Mr. C. Williams), but it does not read intelligibly. The Amendment proposes to leave out the words "and certain other Governments" which would make the Clause read "between the Government of the German Reich, including the Government of the United Kingdom."
§ Mr. CHARLES WILLIAMS
I recognise that the Amendment is wrongly worded, and I hope that, I may be allowed to put my point on the Question, "That the Clause stand part of the Bill."
Motion made, and Question proposed, "That the Clause stand part of the Bill."
I wish to ask, in the first place, what other Governments are included in this Clause. In the second place, it will be seen that certain funds are being relieved from any tax in respect of income or capital. Those funds may arise from investments in some form of security on which Income Tax is collected at the source. Is it possible that we may be placed in the position of having to pay back taxation which has already been collected? The third point which I wish to raise is whether the Government by this Clause are making any direct contribution. In other words, do we, as taxpayers, lose anything by giving this exemption?
§ Mr. HAMMERSLEY
This Clause raises a question of great importance. I assume it would be out of order to attempt to deal with the whole situation which has arisen in connection with the 1304 formation of the Bank for International Settlement, and I propose to confine myself to the wording of the Clause. We are asked to agree that the Bank for International Settlement should not be liable to any taxation, present or future, in respect of any income arising from any part of the funds or investments of the Bank which results from payments made by the Government of the German Reich, under what may be called the Young Plan. The Bank is essentially a private bank. It has a capital of 500,000,000 Swiss gold francs, subscribed as to 56 per cent. by the central banks of most of the important countries—France, Belgium, Germany, Italy—and by two institutions which are not central banks representing Japan and the United States. The Bank is to perform the ordinary normal functions of banking, and, in addition is to act as trustee of, and to deal with, reparation payments.
The question arises whether or not it is essential that the Bank should have been set up in order to deal with the question of paying the various reparation creditors.
§ The DEPUTY-CHAIRMAN
That is a matter that cannot be discussed. The hon. Member must keep himself to the contents of the Clause.
§ Mr. HAMMERSLEY
I bow to your Ruling and will confine myself to the Clause. Does, or does not, this particular institution make profits which may accrue to private individuals as a result of any capital amount or of any income arising from any part of the funds or investments of the Bank which results from payments made by the Government of the German Reich? Does, or does not, this International Bank make profits out of these reparation payments, and can these profits accrue to private individuals? If I could show that, in point of fact, the International Bank was in a position to invest, for example, in £10,000,000 of War loan and that that International Bank, by the passing of this Clause, would claim, and rightly obtain, repayment of Income Tax deducted at source, I think I should have proved my point that this Clause ought not to pass without careful consideration and scrutiny.
The creditor Governments are to allow remuneration to accrue to the Bank by 1305 means of leaving on deposit in this Bank a sum of £6,250,000, which is to accrue to the shareholders of the institution, and I have previously said that the shareholders may be, in respect of 44 per cent., individuals. This £6,250,000 is to be without interest, and if the right hon. Gentleman the Chancellor of the Exchequer wants chapter and verse for that statement, I am prepared to give it to him. It is to be found in Command Paper No 3,484, on page 8, and there also he will find that the Bank is entitled to charge to the creditor Governments a commission of one per mille, or one-tenth per cent., on all these German reparation payments which he proposes to exclude from Income Tax.
It is true that the annuity trust account is the only account which is covered by his proposal to free from Income Tax, but unfortunately, in my view, the annuity trust account can be used by the Bank of International Settlement, under the terms of the various Command Papers which have been published, as a means of profit to the Bank of International Settlement and to the shareholders. The annuity trust account, which is the account into which the German reparations are paid, is to be managed by the Bank, and there is a very definite safeguard in regard to the Bank, because it says that in no case are the trustees to allow any Government account to be overdrawn, but the Bank itself can use the account for several purposes, among which are all payments necessitated by the Young Plan, the payment of administrative expenses, the payment of deliveries in kind, and any other payment on account of the annuity account, so that the Bank of International Settlement is completely free from any necessity to run into debt, and at the same time it has the right to use this account to deal with and to pay all the necessary expenses, and it can use the funds of the Annuity Trust to conduct dealings in foreign exchanges.
This is a very important matter. I will not trouble to go into all the details, but I can refer the Chancellor to the pages from which I get this information. From my reading of the position, this Annuity Account can be used by the Bank of International Settlements to deal in foreign exchanges. When it is realised that the account is to be credited every 1306 year with amounts varying from £85,000,000 to about £120,000,000, according to the scale of the Young Annuities, that the Bank of International Settlements is allowed to deal in foreign exchanges, and that we can assume that that would result in a profit which is to return to private individuals, I think it will be agreed that we ought to examine the proposal a little more carefully than merely to pass it by our votes without any detailed consideration.
I have endeavoured to show that, in point of fact, the Bank of International Settlement has under its control this Annuity Account of extraordinary magnitude and is safeguarded against possible loss and that it can use the fund to make exceptional profits. Now we are proposing that these profits should be free from all Income Tax. It appears that only 56 per cent. of the shares is held by the Central Banks, and even these Central Banks are very frequently in the possession of private individuals, as, for instance, the Bank of England. We are invidiously singling out particular and specially favoured sections of the community for exemption from taxation.
There are many other factors in the situation, but I will refer to only one of them. It is the fact that in accordance with the Young Plan, the Bank of International Settlements can increase its capital. It has only to obtain a majority of two-thirds of the other banks. On the question of profits, it has been suggested to me by an hon. Member on this side of the House that it was quite untrue to suggest that this particular bank was proposing to make profits. Let me refer to Command Paper 3484 which deals with this matter, and in which it is stated quite specifically how the net profits of the bank shall be applied. It says the net profits shall be applied in or upon the payment of a dividend of 6 per cent. per annum on the amount of the paid-up capital of the bank, this dividend to be cumulative. Further, of the residue of any such net profits, 20 per cent. is to be paid to the shareholders until a maximum further dividend of 6 per cent., which is not cumulative, is reached. So clearly the possibility may arise that the shareholders of this particular bank will obtain 12 per cent. interest on their 1307 money, and we are asked, in respect of an institution which has not an important British official of British nationality in connection with it—the Chancellor of the Exchequer will correct me if I am wrong——
§ Mr. HAMMERSLEY
The right hon. Gentleman has corrected me, and perhaps he will explain the matter further. The Chairman and Vice-Chairman and the Manager of the Bank, to whom I was referring, are at all events not of British nationality. That being so, it seems to me that to ask the British House of Commons to enter into a precedent of this kind without a discussion of any character on the Floor of the House, on the question whether or not there should be an international bank, is stretching our patience too much. The Chancellor of the Exchequer will appreciate that I have put these points in no spirit of carping criticism, but in an anxiety to safeguard British industry, which is perturbed and anxious in observing these activities in respect of international finance, over which the British Parliament has no control.
§ Mr. P. SNOWDEN
The hon. Gentleman has strayed a little from the Clause, or at any rate he has assumed a good many things which are not included in this Clause. The Bank of International Settlement has two features; it acts as the agent of distribution of German reparations, and it can also use what we might call super central banking business. This exemption from tax applies only to its work in connection with the distribution of German annuities. If the bank make a profit on the other part of its work, it is not exempt from taxation. Perhaps the short answer which I can give to the hon. Gentleman is that this proposal implements a part of the Hague Agreement. The Agreement, which I signed on the 20th January, and which has since been ratified, provided that the contracting parties would take any steps and measures necessary to secure that the funds and investments at the bank resulting from the payments by Germany—and only to that extent—should be free from all national and local fiscal charges.
1308 This Clause is simply to implement that part of The Hague Agreement. It will be an obligation upon all the other creditor powers of Germany. Therefore it is absolutely necessary that this Clause should pass. The hon. Gentleman referred to the deposit which has been made with the Bank of International settlement of a sum of 125,000,000 German Reich marks. I had a good deal to do with that, and it was a very complex and difficult matter to settle the remuneration of the Bank for its work in handling the German reparations. It was finally decided that the best way to deal with it would be to put the deposit with the Bank. The Bank would, of course, invest it and get interest on it, and that should be their remuneration. It would be quite outside all reason to charge tax upon that. The short answer is that this is part of The Hague Agreement; all the other nations are conforming to it, and we must do the same.
§ 12.0 m.
§ Dr. BURGIN
It is somewhat fitting that the Chancellor of the Exchequer, who secured largely a personal triumph at The Hague, should submit this Clause for carrying through a part of the bargain. I welcome the Clause. Quite apart from the matters which have been discussed by the hon. and learned Gentlemen above the Gangway, there is a very important international question behind this Clause. It is a singular leap forward that we in Great Britain should say that a certain international concern, the Bank of International Settlements, shall be exempt from taxation in this country. I am speaking from memory and without having looked up the matter, but I do not think there is an exact precedent for a Clause like this. Certain loans, certain investments, are free from taxation, but that an institution, in respect of a certain portion of its income, should be free from taxation here, present or future, is, I believe, without precedent. Those of us who take the wide view in international affairs consider it is an extremely important attitude for this country to take, and we are most hopeful that every other institution of a similar character for carrying out one of the Peace Treaties may have a similar Clause in its favour. I shall hope to submit to the Chancellor of the Exchequer privately the name of another concern which 1309 does somewhat similar work. [interruption.] I cannot listen to irrelevant observations. I am thinking of an international company formed in this country to carry out obligations under one of the Peace Treats.
§ Mr. BRACKEN
Can the Chancellor of the Exchequer say whether all the other Governments which are represented on the board of this bank have agreed to give a similar concession in respect of the taxation in their countries.
§ Mr. ALBERY
I would draw the attention of the Chancellor of the Exchequer to the phrase in the Clauseincome arising from.Supposing part of the income were invested in, say, 4½ per cent. Conversion Loan, where tax is deducted from dividends at the source; would this international bank be entitled to reclaim that tax? If they are entitled to reclaim it, does not that mean, in a certain sense, that this will be a loss to us, because if anybody else had held that stock the tax would have been collected.
§ Mr. P. SNOWDEN
My answer to that is that I think the Bank of International Settlements will not invest in War Loan because——
§ Mr. ALBERY
I did not say War Loan. I specially avoided that, because certain War Loan dividends are paid without deduction of tax. I suggested a security where tax is deducted at the source.
§ Mr. SNOWDEN
The answer is that there is no likelihood that, any of the annuities, which they hold for a comparatively short time, will be invested in that way. They must hold them in a more mobile form. But apart from that I must confess that I do not quite see the point the hon. Member is driving at, because I have already explained that this exemption from taxation applies only to the handling of the German Reparation annuities——
§ Mr. ALBERY
But the Clause says, "And income arising from." These may become quite large funds, and they will have to be invested and there would be nothing unusual in this bank choosing British Government securities as an investment. If they invested in 4½ per cent. Conversion Loan, or 3½ per cent. Conversion Loan, they would find the tax 1310 deducted from the dividend at the source, and it seems to me that under this Clause they would be entitled to reclaim that tax, though if anybody else held those loans we should get the tax.
§ Mr. HAMMERSLEY
The Chancellor of the Exchequer suggested that the annuity account was only a temporary matter and that under the Government plan there were arrangements whereby postponed payments could be arranged. In the circumstances, something like £80,000,000 is involved. The bank has a right to invest in this country or in any other country. The Chancellor of the Exchequer has made a general reply to this discussion, but my remarks were strictly according to the Ruling of the Chair. They were precisely limited to the banking activities dealing with the annuity account. I made no reference to the activities of the bank as an overriding central bank. I addressed myself to the point as to what might happen to the fund of payments by Germany in respect of reparations. I would like it to be placed on record that the Chancellor of the Exchequer has not given a reply to the points which I put.
§ Mr. C. WILLIAMS
We are now dealing with a matter of considerable importance, and I should like to put my point once more. Is it possible under this Clause that money can be invested in British securities on which Income Tax has to be paid at the source, and is it possible that there may be an actual repayment of that by the British Government? I admit that it is possible that they may not invest in those securities, but can this bank arrange for the money to be returned? I think we are entitled to have a clear and definite answer on that point.
§ Mr. ALBERY
We are now discussing some very important matters, and we are dealing with some entirely new Clauses. I understand that some arrangement has been arrived at between the two Front Benches. We have been kept here quite recently until a late hour discussing matters of minor importance at great length, and I think it is improper, when we come to more important Clauses, that they should be rushed through without proper attention. The point which has just been raised is one of substance and of considerable importance, 1311 and, unless the Chancellor of the Exchequer is able to give a reply to that question, I shall move to report Progress.
§ Mr. P. SNOWDEN
In reply to the hon. Member for North Paddington (Mr. Bracken), I understand that all the countries who were signatories have already ratified. Whether they have since incorporated a similar provision in their financial arrangements I do not know. Ratification imposes on them the duty of carrying out the terms. With regard to the point put by the hon. Member for Gravesend (Mr. Albery), the position is that any profits received, or interest earned by the International Bank, as I said before, resulting from its handling of German Reparations, will be exempt from taxation, and, if this Bank of International Settlement invested in stocks from which Income Tax had been deducted, I assume it would be the net income that they received which would be free from taxation. It may be such an investment that the Bank of International Settlement has taken into consideration what the net income from the investment would be.
§ Mr. CHURCHILL
This is a matter of very great importance, but we cannot carry the discussion much further tonight. There is always criticism as to whether any sort of arrangement should be come to, but we have come to one, and, in order to carry it through, I hope the Chancellor of the Exchequer is not going to go back on what he said previously. We have only a few minutes more, and, as we cannot do justice to the matter now, I trust that on the Report stage we shall be able to deal with it. Let it be recorded now that this point has emerged, a very grave and serious point, and on the Report stage of the Bill we must have it dealt with. I suggest that we really must conclude the debate now.
§ Mr. P. SNOWDEN
I thank the right hon. Gentleman for expressing his view that we should wind up the debate according 1312 to the understanding arrived at earlier in the evening, but I must protest against one of his remarks. I hope he is not going to attempt to make up for the saving of time we have effected to-day by prolonging the discussion on the Report stage. There is no point outstanding upon this Clause. The point raised by the hon. Member is perfectly simple. The Bank, under this Clause, would be in the position to reclaim Income Tax.
§ Mr. ALBERY
Then I must carry the right hon. Gentleman further. He will be obliged to admit that within a short time, within a few years, there may be no British Government securities on which the tax is escapable. Therefore, any bank wishing to invest in British Government securities will be compelled to invest in securities where the tax is deducted at source. I therefore emphasise what the Chancellor of the Exchequer said, and I maintain the right to raise this matter on Report.