§ (1) The annual profits and gains arising or accruing to a body corporate and chargeable to tax under Case I or II of Schedule D on the full amount of the profits or gains of the year preceding the year of assessment shall, as from the fifth day of April, nineteen hundred and sixty-one, be charged on the full amount of the profits or gains of the year of assessment, so however that no such charge shall be greater than it would have been but for this section; and the provisions of Part V of the Act of 1952 shall be amended accordingly.
§ (2) The Commissioners of Inland Revenue shall make regulations providing for all matters arising out of subsection (1) of this section including 1300 the collection of tax under provisional assessments calculated on the profits or gains of the year preceding the year of assessment.—[Mr. Diamond.]
§ Brought up, and read the First time.
§ The Temporary Chairman
I hope that hon. Members will be a little more silent than they are at present, because we want to hear what the hon. Member for Gloucester (Mr. Diamond) has to say.
§ Mr. Emrys Hughes (South Ayrshire)
Are we, with this Clause, to consider the Clause—(Liability of Sovereign to tax)—standing in my name?
§ Mr. Diamond
This new Clause is not likely to raise the passion which the last Clause evoked, nor indeed, the passion which the Clause which we are next to consider will evoke. But it is, I suggest, an extremely worth-while Clause and one which, although expressed in somewhat technical language, is simplicity itself.
I wish to strip it of all its technical verbiage and description and deal with it on a simple first principle basis. It is a Clause which seeks to put simplicity in the place of complexity in our taxing arrangements. It seeks Ito put relevance in the place of irrelevance, to put fair shares in taxation instead of unfair shares, to substitute justice where there is injustice. In addition to those qualities, it has the support of my right hon. and hon. Friends, of the Royal Commission and of the Institute of Chartered Accountants, and I am sure that it will commend itself both to the Committee and to the Government.
The Clause in the form in which it is drawn provides an alternative for taxing companies' trading profits. It is drawn in this way for a variety of reasons, not the least compelling of which is that it is in its present form in order, and it will be well understood that improvements will be welcome. I do not think I need say any more on that score.
Perhaps I should shortly describe the present method of assessment of companies' profits and the alternative provided by this Clause. The present method, as I am sure most hon. Members know, is that inasmuch as one does not know for certain what profits one is making until some time has elapsed and the accounts have been prepared, assessments are not based on the actual profits one earns, which is the natural and logical way of arriving at a tax liability and which is the way in which one arrives at one's tax liability if one is a salary earner, a Member of Parliament, a director of a company, a miner, a bus driver or whatever the case may be. They are based on the profits of a preceding year.
1302 Inasmuch as the accounting year is the year in which businesses take out their accounts—and this may vary from business to business—the profits are not those of a calendar year but the profits of a preceding accounting year. This results in the simple fact that no business ever pays tax on the profits which the business makes, except by the most curious fluke which I imagine happens once in 5 million times. Because complications arise out of the commencing years of a business and the closing years of a business, obviously in the commencing year of a business one cannot deal with it on the basis of a preceding year because there was not one. Because of the complications of the opening and closing years, the situation results that never during the lifetime of a business does it pay tax on the profits which it has made during its lifetime. That is the present system.
The alternative system provided in this proposed Clause substitutes the current year's profits for the previous accounting year's profits. That, I repeat, is the logic of the situation and is the method by which assessments are based in respect of all salary earners and Schedule E liability. That is the natural way, and many arguments in favour of this method have been advanced by most illustrious bodies. The most obvious argument is that one pays one's tax in respect of the profits that one is earning. It is right that if a person makes high profits he should feel the impact of high taxation at the time he makes those profits. Similarly, if a person makes no profits his tax should be low. It is not at all helpful that, having made very high profits perhaps close on two years ago, one may suddenly be called on to pay very high taxation in a year in which very low profits indeed are made.
That is the first substantial argument in its favour. Another very substantial argument is that his method closes many loopholes which exist for tax avoidance under the present method. The loopholes are well known to hon. Members, because from time to time in Finance Bills we have had to deal with closing one loophole or another on this very matter. The last one was, I think, about two years ago, when we had a Clause for this very purpose. Many loopholes still exist, and, as the Royal Commission has 1303 said, if this method were adopted the loopholes would be closed.
It gets rid of all the foreign complications which the Committee has already had to deal with on double taxation relief, complications arising from the fact that foreign countries sensibly have been taxing a company on one year's profits, whereas we in this country may have a very different basis of assessment. It has been impossible, therefore, simply to allocate one year's foreign tax against one year's British tax. There are great complications, to which this Finance Bill bears witness, which have had to be overcome or partly overcome by many complicated provisions.
A further argument in favour of the Clause is that it would not restrict a business from being reorganised, reconstructed, in the way which is thought fit and proper for the welfare of the business. At the moment there is a serious argument against doing this in many cases, because as a result of the arrangements for taxing profits of a business in the closing years, it may militate very considerably against the business that it should reconstruct at a particular time, and directors may wisely take the view that they should postpone reconstruction, postpone hiving off, whatever else they want to do, for perfectly good, solid business reasons. They postpone this in order to avoid being heavily assessed for tax because of the artificial system under which at the moment businesses are assessed in their closing years. The Clause would remove that inasmuch as every business would be assessed on the profits it makes, and nothing could be simpler than that.
However, obviously if there are all these arguments in favour—and they have been considered, among others, by the Royal Commission, and Clauses of this kind have been favourably thought of by such bodies—there must be some arguments the other way, and I will deal very shortly with the two main arguments the other way so as to show that, although they present difficulties, they are by no means insuperable difficulties.
The first obvious difficulty which will occur to the Committee is, how do we deal with the transitional period if, in previous years, a company has been assessed on the profits of the preceding 1304 year, and, as from 5th April, as proposed in the Clause, it is to be assessed on the profits of the current year? How do we arrange the change over? This poses a question, but not, I repeat, any insuperable difficulty.
It is a well-known difficulty facing many businesses which have changes in their accounting period. For one reason or another a business may decide to change its accounting period. When it does change its accounting period exactly the same situation results as if all businesses change their accounting periods, which, in effect, will be the result of this Clause. When the accounting period does change there are provisions, with the details of which I need not bother the Committee, in the Finance Acts under which by and large justice is done, so that a company does not pay much more nor much less tax than it would have done if it had not changed its accounting date. For that purpose, obviously more than one year has to be taken into account. A number of years are taken into account and a sensible formula applied.
If it were done in the same way with this change-over the effect would be that a company would be assessed for tax on a current-year basis, compared with what it would be on the previous-year basis, and justice, not rough justice, would be done in accordance with a formula very similar to that which exists already and which presents not so many difficulties to the practitioners. That, therefore, is the answer to the first main argument used against the change.
The second main argument against the change, and a substantial one, is the problem of collecting the tax. Quite simply, if we do not know what the profits of a business are during the course of the year in which it is engaged in making those profits, and if we are to have a system of taxing the business upon the current year's profits, then we are in difficulty about the basis on which the tax can be collected.
This is a matter no doubt close to the heart of the Chancellor of the Exchequer, but equally close to his heart is the desire to simpify the tax structure, as he said with great feeling in his first Budget speech. Therefore, anything that 1305 has been fully considered and is a solid suggestion which will go a long way to simplify the tax structure is something which the right hon. and learned Gentleman will look at with care and sympathy.
The answer to this problem is simply that we have to have a provisional assessment. A business would be provisionally assessed, would pay the tax, and in due course when the profits for the year were known for certain there would be an adjustment upwards or downwards to make the tax paid equate with the tax payable. Admittedly, having a provisional assessment followed by an adjusting assessment creates a certain amount of additional work, but I suggest only a small amount. The total number of assessments of this kind is about 200,000. At least that used to be the right figure, but if the number has risen substantially no doubt the Government will say so. This is the total number of assessments of companies under cases I and II. This is a very small number when taken in proportion to the total number of assessments for tax purposes.
If it might be thought that to amend 200,000 assessments in this way was to create a certain amount of unnecessary labour, that could be cut down by saying that we should not bother about assessments for small amounts, for example, £2,000. It would matter very little whether a company was paying the exact amount of tax if its profits averaged £2,000. I suspect that there is a figure of £1,000 or £2,000 or £2,500 of profit-making by companies which would affect a large number of companies and a small amount of tax as a result of which the administrative difficulty of adjusting assessments would be much reduced without at the same time affecting the amount of tax collected very considerably.
If there is such a figure the Government will be aware of it and they could say that they would not bother to have adjustments made for this particular band below a certain figure. I say, therefore, that there is no substantial argument against converting the assessment of profits to a current-year basis as opposed to a previous-year basis and I would repeat the principles which I mentioned at the beginning of my remarks.
1306 The Clause introduces simplicity where there is at the moment complexity. There is great complexity in the opening and closing years of a company's business. Every company would now know quite simply what its liability was, although it would not know it immediately. It introduces relevance in the place of irrelevance. It is totally irrelevant to be paying tax on a very large profit two years later when one is making a small profit. It substitutes fair shares in taxation for unfair shares, because it would close up all the loopholes, which are quite substantial and much in use, as a result of which certain companies are able to avoid a fair proportion of their tax.
It substitutes justice for injustice where a company which, for perfectly good business reasons, alters and reconstructs its accounting year and finds itself under the present system penalised in having to pay a quite disproportionate amount of tax, which could not arise if the new Clause were adopted.
The new Clause has strong support in addition to that of my right hon. Friends, which I naturally rank first. It has the support of the Royal Commission. In paragraph 774 of its Report the Royal Commission says:there is no objection to transferring a company's profits to the current year basis, even though the profits of the individual or partnership have to be left, as we accept they must be, on the basis of the preceding year.The Committee will be aware that I have been dealing with companies throughout.
In paragraph 776 the Royal Commission comes out quite specifically and says:We have come to the conclusion that a change to the current year basis is both feasible and desirable in the case of companies.That is very strong support indeed from the Royal Commission, and the arguments have been supported by many people who have given careful thought to the matter over the years. The Institute of Chartered Accountants, one knows from its annual reports, has repeatedly pressed this on Chancellors of the Exchequer and has reminded successive Chancellors that the previous Chancellor had not yet thought fit to adopt it.
1307 With all that weight of support, with all the arguments in its favour and with a new Chancellor anxious to simplify our tax system, I have every hope that the new Clause will be given sympathetic consideration.
Mr. Bruce Milan (Glasgow, Craigton)
On the face of it, this is rather a technical point. I know that the Committee likes to deal with points of substance, either by putting taxes up or, rather, by taking taxes off—that is the sort of thing that interests the Committee as a whole—but it is useful that we should have an occasional discussion on a point like this which raises a good many issues of quite considerable principle.
I do not want to add very much to what my hon. Friend the Member for Gloucester (Mr. Diamond) has so competently put as the case for the Clause, but it is worth quoting one of the paragraphs from the Royal Commission Report. In paragraph 770, the Royal Commission says thatin so far as there is any general principle which can serve as a starting point for inquiry, we think that it suggests a preference for the current year basis. This for two reasons. One is that the preceding year basis is artificial and, being artificial, introduces complications and, sometimes, anomalies in the taxation of the opening and closing years of a source of income. The other is that the current year basis brings the weight of tax more immediately into relation with the income that it is taxing, and this we regard as an advantage in itself.That seems to me to sum up the arguments in principle for the current year basis. I imagine that the arguments which the Government put against the Clause are not so much arguments in principle as arguments of practical consideration, particularly with regard to the transitional provisions.
The new Clause is a restricted one in so far as in the first case it deals only with Case I or II of Schedule D, and, secondly, only with incorporated companies, of which, as my hon. Friend said, there are about 200,000 compared with about 1½ million individual traders or partnerships. That makes a considerable difference to the practical working of the current year basis of assessment.
My hon. Friend the Member for Gloucester admitted that, if we went over to a current year basis of assessment, we would be involved in provisional 1308 assessments, and then final adjustments when the actual profit of the year of assessment was finally known. But, of course, at present it is not unknown for there to be provisional assessments on company profits. Even on the basis of the preceding year of assessment, and even with the more generous arrangements allowed for getting assessments agreed, provisional assessments are still quite a common feature today.
There is nothing new in the principle of having provisional assessments on company profits. This proposal would simply be an extension of provisional assessments to the ordinary assessments for companies, rather than the restriction to those cases in which the assessment cannot be agreed before the actual liability is due to be paid. There is no extension of principle here, and it is possible to exaggerate the amount of work involved in giving provisional assessments. It does not have to involve any considerable amount of work, either on the part of the Inland Revenue or of the taxpayer.
Because of the complications of opening and closing years of assessment, and the other complications that one gets into about such things as double taxation, there is, in principle, a very considerable argument in favour of this change, and I hope that the Government will look at it with favour. The other day, in answer to a debate on another Clause, the Financial Secretary talked in terms of this sort of change involving the Government in the loss of about £100 million of tax revenue in the transitional period. I find it completely incredible that there should be a loss of anything like that amount, or, indeed, that there should be a loss at all if the transitional arrangements were properly drawn.
I hope that the Financial Secretary, if he is to use that as an argument for rejecting this Clause, will substantiate that figure and let us know how the Government have calculated it, and also tell us why, in any case, we should have to have a loss of any amount during the transitional period. It seems to me that there are no technical reasons why there should be a loss of anything like that amount. If the transitional arrangements were properly drawn there would be no need for the Treasury to suffer any loss.
§ Sir E. Boyle
As the hon. Members for Gloucester (Mr. Diamond) and Glasgow, 1309 Craigton (Mr. Millan) have clearly explained, the intention of the Clause is to introduce a current-year basis of assessment to Income Tax for the trading profits of companies, instead of the preceding-year basis which normally applies at the present time. I quite agree that this is an important subject, and it is very suitable, in the course of discussion on the Committee stage of the Finance Bill, that we should spend a little time considering the structure of the tax system and not devote attention only to reliefs. Thus, I make no complaint about this important topic being raised.
This idea follows a recommendation of the Royal Commission which is to be found in paragraphs 770 to 780 of the final Report. I hope that the Committee will not mind if I give an outline of the Commission's proposal, because it may be of help. That proposal was that provisional Income Tax assessments each year should be made on all companies on the preceding-year basis, and then the assessments should be adjusted to the actual profits of the Income Tax year, when the actual figures became available. The taxpayer would have to pay a commercial rate of interest on any amount by which the tax on the provisional assessment fell short of the final assessment. The liability for the last two years before the current-year basis of assessment came into effect would be adjusted to a 24 months' proportion of the profits for the last three years of trading before the new basis came into operation.
In the Royal Commission's plan, there would also have to be provision to ensure that in the transitional period, to quote from the Royal Commission Report:all expenditure which would have been admissible for investment allowance is taken into account as qualifying for tax relief.The Royal Commission preferred the current-year basis for a number of reasons. First and foremost, it preferred it on principle because it felt, as hon. Members who have spoken tonight have felt, that the preceding-year basis was artificial and consequently introduced complications and anomalies in the opening and closing years of a business. Correspondingly, a current-year basis would bring the tax into closer relation with the income which was taxed.
1310 Quite apart from the general principle, there were a number of more detailed considerations which impressed the Royal Commission. It pointed out, first, that under the preceding-year basis the general result was that companies paid for two years on the basis of the profits of a particular year in the early years of the business, while the profits in a period were omitted for assessment when the company went out of business. I will return to that later in dealing with what the hon. Member for Gloucester said about tax avoidance.
Secondly, there is the difficulty, to which the hon. Member for Gloucester alluded, that where a company has a genuine commercial reason to wish to amalgamate, or hive off part of its business to a subsidiary formed for the purpose, the existing rules might result in a double assessment. Thirdly, on the preceding-year basis a business may be deprived of one year's double tax relief because where one year's income is used twice as a basis for assessment, the law requires refusal of relief for the duplicate year. In passing, I remind the Committee that Clause 15 of this year's Finance Bill contains provisions intended to deal with this anomaly.
The Royal Commission accepted that individuals and partnerships should be left on the present basis of assessment and its scheme, if adopted, would therefore apply just to a large number of companies. The hon. Member asked about the number of assessments which would be affected, and the best figure which I can now give is about a quarter of a million assessments.
I recognise, and I am sure that the whole Committee recognises, that many of these arguments are strong. I agree that in theory there is much to be said for the case which the Royal Commission put forward. But I must advise the Committee that there is a number of very real and practical difficulties. I do not want to make too much of the technical defects of the Clause. It was quite a feat to keep it in order and I fully realise that the proviso thatno such charge shall be greater than it would have been but for this sectionhas been included merely for the purpose of keeping the Clause in order.
I also feel sure that hon. Members opposite are fully aware of the defects 1311 of subsection (2), which leaves all the necessary legislative provisions to be dealt with by regulations made by the Commissioners of Inland Revenue. I should certainly have thought that it would be common ground between us that matters such as the imposition of a provisional liability calculated on the preceding year's profits, provision for payment of interest and the provisions dealing with the changeover from the old to the new basis were all matters which ought to be settled as precisely as possible by Act of Parliament, after discussion in the House of Commons.
Instead of dealing with any technical defects in the Clause as drafted, I want to turn to the general difficulties which would result from any attempt to implement this recommendation of the Royal Commission. In the first place—and this is a point to which the hon. Member for Gloucester referred—I must leave the Committee in no doubt that this change would impose a very heavy additional burden on our tax machine. The need to make this very large number of provisional assessments based on the preceding year's profits, followed by subsequent adjustments to bring the assessments into line with the current year's profits, would involve a substantial amount of extra work for both the Inland Revenue and for the companies and their accountants. Certainly under the Royal Commission's scheme it would take us much longer than it does now to reach a final settlement of a company's liability for a particular year.
Secondly, the requirement that a company should pay tax on a provisional assessment, at the same time as it would have to find any extra tax due under an adjustment of the previous year's liability, could have very harsh results where that company's profits had risen sharply, only to fall off again. It would have at some stage to find tax on the high profits nearly twice over, because there would be an upward adjustment of the liability for the year in which the profits were earned, at the same time as the profits were taken as the basis of the provisional liability of the following year, the year in which the profits fell off again.
That is a serious difficulty about this scheme. It is a point which we 1312 ought to consider when considering the Royal Commission's proposal. It is true that the company would get the excess tax back about twelve months later, but meanwhile it would have had to make, in effect, a forced loan to the Government, and I think that it could prove seriously damaging to British industry if an enterprising company in temporary difficulties were, as a result of our tax system, forced to produce a balance sheet which made these difficulties look more serious than they were.
When we are considering our system of company taxation, do not let us ever underrate the power of company reports and public comment on these reports to influence our general rate of economic progress.
§ Mr. Diamond
I did not deal with this point, because I considered it completely invalid. The point assumes that a company will be taxed on the previous year's accounting profit. There is nothing in the new Clause which necessitates that the company should say, "We made X profit last year. This year we have made 2X profit. We want to pay twice the amount of tax".
§ Sir E. Boyle
I do not see how any new Clause could avoid the difficulty that where a company's profits had risen sharply only then to fall off later, it might at some stage have to find the tax on the higher profits nearly twice over, and would produce a balance sheet which made the company's affairs look much more serious than they were.
§ Mr. Millan
The question of provisional assessments already arises. If there is some delay in getting agreement on assessment, or perhaps becaue the accounts have not been lodged with the Revenue, it is common at the moment to have a provisional assessment. It is also common to get some sort of agreement between the Revenue and the taxpayer as to the amount of provisional assessment. The Revenue may in the first instance issue an assessment of a grossly exaggerated figure, but if that happens the taxpayer is normally able to come to an arrangement with the Revenue whereby he pays something far nearer what the actual result will be.
§ Sir E. Boyle
I see the hon. Gentleman's point, but I cannot help feeling that there is a difference between the 1313 present situation where there is often a long period of negotiation between the Revenue and the company where there is a provisional assessment, and the situation which would inevitably arise if we adopted the Commission's proposals. I will not pursue the point further except to say that this is a serious matter which we ought to consider before making any large-scale change in the system of company taxation.
The third point, and this is the most important consideration of all, is that launching the scheme would create in the short-term a serious budgetary problem. It is of the essence of the Royal Commission's scheme that all capital expenditure which would have qualified for the initial or investment allowance, but for its introduction, should obtain the benefit of that allowance. This would mean that allowances would have to be given not only for current qualifying capital expenditure but also for the qualifying capital expenditure incurred before the starting date of the new scheme which had not so far resulted in the grant of an initial or investment allowance—that is to say, on an average about fifteen months' capital expenditure.
To give allowances on this capital outlay at once, under a scheme coming into effect now, would cost about £200 million. Even if this cost were to be spread over three years it would cost about £55 million in the first year and about £65 million and £80 million in the second and third years respectively. Therefore, at present, considerations of cost alone rule out any change to a scheme on the lines recommended by the Royal Commission. Admittedly, the cost to the Exchequer for these initial years would be more than recovered in the long run.
§ Sir E. Boyle
But, as Lord Keynes once remarked, "In the long run we are all dead." My right hon. and learned Friend cannot possibly accept any large extra burden on the Budget during the current year, for the reasons which have so often been stated in these debates.
§ Mr. W. R. Rees-Davies (Isle of Thanet)
The argument which is inescapable from my hon. Friend's observations is that our tax structure is in such a mess that it is almost impossible to clear it up without there being two consequences. 1314 First, an immense burden will be placed on the men who have to clear it up—the officials of the Inland Revenue—and, secondly, there will be a loss of tax to the Inland Revenue during the period when it is being cleared up. Are not we led inescapably to the conclusion that although it is manifestly right that something on the lines of the Clause should be brought into effect at some time, not only in theory but in reality, it can never be done because our tax structure is so complicated that there would have to be a standstill in taxation to bring this change about?
§ Sir E Boyle
The answer to my hon. Friend's question is "No, Sir". If he listens to my concluding remarks he will see that I do not reach such a pessimistic conclusion as he has suggested. I know that some anxiety has been expressed about the possibilities of tax avoidance under our present system. These turn on the fact that in the closing years of a business one year's profits drop out of assessment. Under the present law, the assessment for the final year is on the actual profits; for the penultimate year the assessment is normally based on the profits of the year before that. In the ordinary way, therefore, the penultimate year's profits drop out of the charge to tax.
In the past, the most serious devices designed to exploit this situation have taken the form of "company reconstruction" on an occasion when a company, after a period of high profits, has run into a period of low profit. But this device was substantially counteracted by the provisions of Section 17 of the Finance Act, 1954. We certainly have the subject still in mind, and if ever remedial measures should be necessary my right hon. and learned Friend will not hesitate to take them.
Lastly, I want to make it clear to the Committee and to my hon. Friend the Member for the Isle of Thanet (Mr. Rees-Davies) that my right hon. and learned Friend has by no means closed his mind on the question of company taxation. He has already stated in his Budget speech that he proposes to examine further, before his next Budget, the idea of having one system of taxation instead of Income Tax and Profits Tax. Under such a system it would be natural to change the basis of assessment to a 1315 current-year basis. For various reasons the Royal Commission came down against this idea, and my right hon. and learned Friend has admitted that the difficulties mentioned in the Royal Commission's Report have not yet been resolved. My right hon. and learned Friend has no intention of introducing a new system which, in practice, proves to be more complicated and to present greater difficulties—and, perhaps, greater inequity—than the present one. For the reasons I have explained, he cannot advise the Committee to accept the new Clause.
I can, however, repeat his assurance that the matter of company taxation is still under review, and that he would like to examine very fully the possibility of having one system of taxation for companies instead of two, if such a system can be satisfactorily devised.
§ 10.15 p.m.
§ Mr. Houghton
I wish that hon. Gentlemen opposite had felt able to take a larger part in this most important debate.
§ Mr. Houghton
I know that the hon. Member for Kidderminster (Mr. Nabarro) is impatient to get on to the Schedule A lobby, but this is a matter which we have not discussed in the Committee so far as I can remember, since the Royal Commission's Report was published in 1955. We have certainly not given the attention to it which we are desirous of doing this evening. It is only 10.15. There is plenty of time. When hon. Members opposite really get their teeth into something, they do not mind going on through the night, and this matter is of such importance that I can assure hon. Gentlemen opposite that we shall co-operate with them very fully in debating it thoroughly.
It really is an important matter, and as the Financial Secretary said, it is as well that we should spend a little time discussing the structure of our tax system and not confine our debates solely to reliefs. There are hon. Gentlemen opposite who are businessmen and lawyers. I do not see the hon. Member for Brighouse and Spenborough (Mr. Shaw), who is an accountant, but I see 1316 the hon. Baronet the Member for Sheffield, Heeley (Sir P. Roberts), who occupies a very important and influential position in the business world. Has not the hon. Baronet views on the subject which he would care to give to the Committee? He murmured something from a sitting position while the Financial Secretary was speaking, but I was not sure what was receiving his approval.
§ Mr. Houghton
I understood that the hon. Baronet was indicating his approval, but I was not sure what it was that he was approving.
§ Mr. Houghton
The hon. Baronet is a faithful supporter of Her Majesty's Government, come what may. I am sure that his support will be greatly valued by the Government Front Bench.
Little reference has been made in the debate to the labours of the Millard Tucker Committee on this matter. That was the first Committee in recent years to devote a good deal of time and thought to this complicated problem. The Millard Tucker Committee came down against any change on the ground, as it said in paragraph 66 of its Report, that it was impractical in this country in present conditions.
The strange thing is that three members of the Millard Tucker Committee were also members of the Royal Commission. Sir James Millard Tucker himself was chairman of the Millard Tucker Committee and a member of the Royal Commission. Mr. George Woodcock, now the general secretary of the Trades Union Congress, was a member of both, and Sir William Carrington, past president of the Institute of Chartered Accountants, also was a member of both.
Both the Millard Tucker Committee and the Royal Commission had the same secretary. I am not suggesting that the secretaries of Committees necessarily decide policy, but they frequently influence conclusions. Anyway, he is now a member of the Board of Inland Revenue and has his part to play in formulating official opinion at Somerset House.
1317 Another thing is that the minority Report of the Radcliffe Commission also supported the majority of the Royal Commission on the question of the change in the basis year. So we have the Millard Tucker Committee, which was rather appalled by the difficulties and complications of the matter, reporting against a change, and three members—half of the membership of the Committee—serving also on the Radcliffe Commission, who joined with the Commission in recommending in a contrary sense to the findings of the Millard Tucker Committee. It is most significant that one half of the members of the Millard Tucker Committee apparently changed their view on the matter when, subsequently, they became members of the Royal Commission.
The difficulties are, no doubt, formidable, but it is interesting to note that both the Millard Tucker Committee and the Radcliffe Commission received more representations in favour of a change to the current year than they received in favour of retaining the preceding year basis. The Millard Tucker Committee confessed openly in its Report that it had received this rather overwhelming volume of evidence in favour of the change and was therefore disposed to find some way of making the change if it could.
We understand, as my hon. Friend the Member for Gloucester said, that the Institute of Chartered Accountants is in favour of this change. I see the President of the Income Tax Payers' Society, the hon. Member for Portsmouth, Lang-stone (Mr. Stevens) in his place. I rather think that the Income Tax Payers' Society is also in favour of this change.
I do not know what corporate opinion is in the business world, but it now seems that this unresolved question should receive examination from all quarters. I hope that in considering the major question of reconstruction of company taxation the Chancellor will bring into his consideration the basis year and take the widest opinions about it. There is no doubt that the chief drawback of the preceding year basis up to now has been the complexities and manipulations of the commencing and cessation provisions.
1318 The Financial Secretary, I hope with no particular sense of virtue, referred to the Finance Act, 1954, when an attempt was made to stop what was then appearing to be a scandalous form of tax avoidance by companies which were going out of business, transferring themselves to holding companies in order to take advantage of the cessation provisions and getting the benefit of taxation on falling profits after a period of sharply rising profits. My hon. Friend the Member for Ashton-under-Lyne (Mr. Rhodes) first drew the attention of the House and the Committee to the millions of pounds which were going down the drain on account of this manipulation of the cessation provisions. That stable door was closed after a good many horses had gone. It is by no means certain that it is foolproof even now.
The Radcliffe Commission drew attention, in paragraph 775, to the three points of argument in favour of the current year basis for business profits. One of them, as the Financial Secretary pointed out—sub-paragraph 3 of paragraph 775—referred to the complexities of the previous year basis for the purpose of double Income Tax relief of companies operating in countries where the current year basis was taken. He reminded the Committee that Clause 15 of this Finance Bill is an attempt—belated indeed—to implement a suggestion of the Royal Commission of 1955 to remedy anomalies on that score.
We pointed out when we were discussing Clause 15 that all that would be unnecessary, and a great deal else besides, had we adopted the current year basis. We feel that the Financial Secretary's reply is not sufficiently reassuring about the consideration which will be given to this matter by his right hon. and learned Friend. There is something very important here to be done. There is no sign yet of the determination to do it. I think that a bad thing for taxation, it is a bad thing for this Committee and for the House, to have weighty opinion, whether it is on one side or the other, on this question unresolved by further study and advice from all quarters where information should be sought.
Therefore, we shall ask the Committee to divide on the Clause. We do not think that that is an irresponsible act. 1319 There may be hon. Members opposite who feel as keenly as we do that something should be done. They may wish to join us in registering an opinion to that effect. I sincerely hope that, whatever happens as a result of the debate, the Committee and the Chancellor will appreciate that this is a most important question on which we shall certainly hope to receive from him the result of his further researches and consideration during the next twelve months.
§ Mr. Diamond
May I detain the Committee for just two minutes and, as the Chancellor of the Exchequer is here, invite him to reconsider the evidence submitted to him? He will recognise that the Institute of Chartered Accountants, which has members sitting on the benches opposite, has repeated its advice in this connection. As a practitioner, I cannot accept the fact that the right hon. and learned Gentleman has been fully and accurately advised with regard to the two difficulties he mentioned. They are the old difficulties of the provisional assessment and the collection of tax in the meantime.
§ A standard printed form goes out to every accountant saying with regard to every company of a substantial size, "What do you recommend that your client should pay in the meantime?" This is absolutely standard practice at this minute. There is nothing new. I repeat what my hon. Friend the Member for Glasgow, Craigton (Mr. Millan) has said already. Every practitioner finds—I invite any hon. Member opposite who is a practitioner to give the benefit of his experience if it is different from mine—that in the majority of cases, of large companies at all events, a first assessment has to be made and a revision later because of the complications resulting from a company's activities and the need for some tax to be paid in the meantime. In short, with regard to the two major difficulties which have been advanced against this, and which have always been advanced against it, the Chancellor is inadequately informed, because the practice already takes account of the suggestions made in the Clause.
§ Question put, That the Clause be read a Second time:—
§ The Committee divided: Ayes 138, Noes 210.1321
|Division No. 213.]||AYES||[10.28 p.m|
|Ainsley, William||Hamilton, William (West Fife)||Mapp, Charles|
|Allaun, Frank (Salford, E.)||Hannan, William||Marquand, Rt. Hon. H. A.|
|Allan, Scholefield (Crews)||Hart, Mrs. Judith||Marsh, Richard|
|Awbery, Stan||Hayman, F. H.||Mason, Roy|
|Bacon, Miss Alice||Henderson, Rt. Hn. Arthur (Rwly Regis)||Mellish, R. J.|
|Baird, John||Herbison, Miss Margaret||Millan, Bruce|
|Baxter, William (Stirlingshire, W.)||Hill, J. (Midlothian)||Milne, Edward J.|
|Blyton, William||Hilton, A. V.||Mitchison, G. R.|
|Boardman, H.||Holman, Percy||Monslow, Walter|
|Bowden, Herbert W. (Leics, S. W.)||Holt, Arthur||Moyle, Arthur|
|Boyden, James||Houghton, Douglas||Mulley, Frederick|
|Braddock, Mrs. E. M.||Howell, Charles A (Perry Barr)||Neal, Harold|
|Broughton, Dr. A. D. D.||Howell, Denis (Small Heath)||Oram, A. E.|
|Brown, Rt Hon. George (Belper)||Hoy, James H.||Owen, Will|
|Callaghan, James||Hughes, Emrys (S. Ayrshire)||Padley, W. E.|
|Craddock, George (Bradford, S.)||Hughes, Hector (Aberdeen, H.)||Parker, John|
|Crosland, Anthony||Hunter, A. E.||Parkin, B. T.|
|Crossman, R. H. S.||Irvine, A. J. (Edge Hill)||Pearson, Arthur (Pontypridd)|
|Cullen, Mrs. Alice||Janner, Sir Barnett||Pentland, Norman|
|Davies, Ifor (Gower)||Jay, Rt. Hon. Douglas||Popplewell, Ernet|
|Davies, S. O. (Merthyr)||Johnson, Carol (Lewisham, S.)||Price, J. T. (Westhoughton)|
|Deer, George||Jones, Dan (Burnley)||Probert, Arthur|
|Diamond, John||Jones, J. Idwal (Wrexham)||Roberts, Albert (Normanton)|
|Donnelly, Desmond||Jones, T. W. (Merioneth)||Roberts, Goronwy (Caernarvon)|
|Dugdale, Rt. Hon. John||Kelley, Richard||Robertson, John (Paisley)|
|Edelman, Maurice||King, Dr. Horace||Robinson, Kenneth (St. Pancras, N.)|
|Edwards, Rt. Hon. Nets (Caerphilly)||Lawson, George||Rogers, G. H. R. (Kensington, N.)|
|Edwards, Robert (Bilston)||Lee, Frederick (Newton)||Ross, William|
|Evans, Albert||Lever, L. M. (Ardwick)||Short, Edward|
|Fernyhough, E.||Lewis, Arthur (West Ham, N.)||Slater, Mrs. Harriet (Stoke, N.)|
|Fitch, Alan||Logan, David||Slater, Joseph (Sedgefield)|
|Fletcher, Eric||Loughlin, Charles||Small, William|
|Fraser, Thomas (Hamilton)||Mabon, Dr. J. Dickson||Smith, Ellis (Stoke, S.)|
|Gordon Walker, Rt. Hon. P. C,||MacColl, James||Soskice, Rt. Hon. Sir Frank|
|Gourlay, Harry||McInnes, James||Spriggs, Leslie|
|Grey, Charles||McKay, John (Wallsend)||Steele, Thomas|
|Griffiths, David (Rother Valley)||Mackie, John (Enfield, E.)||Stewart, Michael (Fulham)|
|Hale, Leslie (Oldham, W.)||Mallalieu, J. P. W. (Huddersfield, E.)||Stonehouse, John|
|Hail, Rt. Hn. Glenvll (Colne Valley)||Manuel, A. C.||Stones, William|
|Strachey, Rt. Hon. John||Thornton, Ernest||Willis, E. G. (Edinburgh, E.)|
|Stross, Dr. Barnett (Stoke-on-Trent, C.)||Tomney, Frank||Wilson, Rt. Hon. Harold (Huyton)|
|Sylvester, George||Wade, Donald||Woodburn, Rt. Hon. A.|
|Symonds, J. B.||Wainwright, Edwin||Woof, Robert|
|Taylor, Bernard (Mansfield)||Warbey, William||Yates, Victor (Ladywood)|
|Taylor, John (West Lothian)||Wigg, George|
|Thompson Dr. Alan (Dunfermline)||Wilcock, Group Capt. C. A. B.||TELLERS FOR THE AYES:|
|Thornton, G. M. (Dundee, E.)||Wilkins, W. A.||Mr. Sydney Irving and Mr. Redhead.|
|Agnew, Sir Peter||Green, Alan||Osborne, Sir Cyril (Louth)|
|Aitken, W. T.||Grimston, Sir Robert||Page, John (Harrow, West)|
|Allan, Robert (Paddington, S.)||Grosvenor, Lt.-Col. R. G.||Page, Graham (Crosby)|
|Atkins, Humphrey||Gurden, Harold||Pannell, Norman (Kirkdale)|
|Balniel, Lord||Hall, John (Wycombe)||Partridge, E.|
|Barber, Anthony||Hamilton, Michael (Wellingborough)||Pearson, Frank (Clitheroe)|
|Barter, John||Harris, Reader (Heaton)||Peel, John|
|Batsford, Brian||Harrison, Col. Sir Harwood (Eye)||Percival, Ian|
|Beamish, Col. Sir Tufton||Harvey, Sir Arthur Vere (Macclesf'd)||Pickthorn, Sir Kenneth|
|Bennett, F. M. (Torquay)||Harvey, John (Walthamstow, E.)||Pilkington, Sir Richard|
|Bennett, Dr. Reginald (Gos & Frm)||Harvie Anderson, Miss||Pitt, Miss Edith|
|Berkeley, Humphry||Hastings, Stephen||Pott, Percivall|
|Bidgood, John C.||Heald, Rt. Hon. Sir Lionel||Powell, Rt. Hon. J. Enoch|
|Biggs-Davison, John||Henderson, John (Cathcart)||Price, David (Eastleigh)|
|Bishop, F. P.||Hendry, Forbes||Prior, J. M. L.|
|Black, Sir Cyril||Hiley, Joseph||Prior-Palmer, Brig. Sir Otho|
|Borne-Arton, A.||Hill, Mrs. Eveline (Wythenshawe)||Proudfoot, Wilfred|
|Box, Donald||Hirst, Geoffrey||Pym, Francis|
|Boyle, Sir Edward||Hocking, Philip N.||Quennell, Miss J. M.|
|Braine, Bernard||Holland, Philip||Ramsden, James|
|Brewis, John||Hollingworth, John||Rawlinson, Peter|
|Brooman-White, R.||Hopkins, Alan||Redmayne, Rt. Hon. Martin|
|Brown, Alan (Tottenham)||Hornby, R. P.||Rees, Hugh|
|Browne, Percy (Torrington)||Hornsby-Smith, Rt. Hon. Patricia||Renton, David|
|Bryan, Paul||Hughes Hallett, Vice-Admiral John||Roberts, Sir Peter (Heeley)|
|Buck, Antony||Hughes-Young, Michael||Robinson, Sir Roland (Blackpool, S.)|
|Bullus, Wing Commander Eric||Hurd, Sir Anthony||Ropner, Col. Sir Leonard|
|Burden, F. A.||Iremonger, T. L.||Shaw, M.|
|Campbell, Gordon (Moray A Nairn)||Irvine, Bryant Godman (Rye)||Shepherd, William|
|Carr, Compton (Barons Court)||Jackson, John||Smith, Dudley (Br'ntf'rd A Chiswick)|
|Carr, Robert (Mitcham)||James, David||Smithers, Peter|
|Cary, Sir Robert||Johnson, Eric (Blackley)||Speir, Rupert|
|Chichester-Clark, R.||Johnson Smith, Geoffrey||Stevens, Geoffrey|
|Clark, William (Nottingham, S.)||Jones, Rt. Hn. Aubrey (Hall Green)||Steward, Harold (Stockport, S.)|
|Clarke, Brig. Terence (Portsmth, W.)||Kaberry, Sir Donald||Stodart, J. A.|
|Cleaver, Leonard||Kerr, Sir Hamilton||Studholme, Sir Henry|
|Cole, Norman||Kirk, Peter||Summers, Sir Spencer (Aylesbury)|
|Cooper-Key, Sir Neill||Lambton, Viscount||Talbot, John E.|
|Cordeaux, Lt.-Col. J. K.||Langford-Holt, J.||Taylor, Edwin (Bolton, E.)|
|Cordle, John||Legge-Bourke, Sir Harry||Thomas, Leslie (Canterbury)|
|Corfield, F. V.||Lewis, Kenneth (Rutland)||Thomas, Peter (Conway)|
|Costain, A. P.||Lindsay, Martin||Thompson, Kenneth (Walton)|
|Coulson, J. M.||Litchfield, Capt. John||Thompson, Richard (Croydon, S.)|
|Craddock, sir Beresford)||Lloyd, Rt. Hon. Selwyn (Wirral)||Thornton-Kemsley, Sir Colin|
|Critohely, Julian||Longden, Gilbert||Tiley, Arthur (Bradford, W.)|
|Crosthwalte-Eyre, Col. Sir Oliver||Loveys, Walter H.||Turner, Colin|
|Cunningham, Knox||Low, Rt. Hon. Sir Toby||Turton, Rt. Hon. R. H.|
|Curran, Charles||Lucas-Tooth, Sir Hugh||van Straubenzee, W. R.|
|Currie, G. B. H.||MacArthur, Ian||Vickers, Miss Joan|
|Dalkeith, Earl of||McLaren, Martin||Vosper, Rt. Hon. Dennis|
|d'Avigdor-Goldsmid, Sir Henry||McMaster, Stanley R.||Wakefield, Edward (Derbyshire, W.)|
|Deedes, W. F.||Macmillan, Rt. Hn. Harold (Bromley)||Walder, David|
|de Ferranti, Basil||Macmillan, Maurice (Halifax)||Walker, Peter|
|Donaldson, Cmdr. C. E. M.||Macpherson, Niall (Dumfries)||Walker-Smith, Rt. Hon. Sir Derek|
|du Cann, Edward||Maddan, Martin||Wall, Patrick|
|Duncan, Sir James||Maginnis, John E.||Ward, Dame Irene|
|Elliot, Capt. Walter (Carshalton)||Markham, Major Sir Frank||Webster, David|
|Elliott, R.W. (Nwcstle-upon-Tyne, N.)||Marshall, Douglas||Williams, Dudley (Exeter)|
|Emery, Peter||Matthews, Gordon (Meriden)||Williams, Paul (Sunderland, S.)|
|Errington, Sir Eric||Mawby, Ray||Wills, Sir Gerald (Bridgwater)|
|Fair, John||Maxwell-Hyslop, R. J.||Wilson, Geoffrey (Truro)|
|Finlay, Graeme||Mills, Stratton Montgomery, Fergus||Wise, A. R.|
|Fraser, Ian (Plymouth, Button)||More, Jasper, (Ludlow)||Wolrige-Gordon, Patrick|
|Freeth, Danzil||Morrison, John||Woodhouse, C. M.|
|Gammans, Lady||Nabarro, Gerald||Woodnutt, Mark|
|Gibson-Watt, David||Noble, Michael||Worsley, Marcus|
|Glover, Sir Douglas||Nugent, Sir Richard||Yates, William (The Wrekin)|
|Glyn, Dr. Alan (Clapham)||Oakshott, Sir Hendrie|
|Goodhart, Philip||Orr-Ewing, C. Ian||TELLERS FOR THE NOES:|
|Goodhew, Victor||Osborn, John (Hallam)||Mr. J. E. B. Hill and Mr. Whitelaw.|
|Grant, Rt. Hon. William|
|Grant-Ferris, Wg Cdr. R.|