- (1) Section 9(1) and (2) of the Finance Act 1956 (which provides relief from income tax on certain savings bank interest), shall, subject to the provisions of the next following subsection, apply in respect of dividends on shares of a society registered under the Industrial and Provident Societies Acts 1893 to 1954, or under the Industrial and Provident Societies Acts (Northern Ireland) 1893 to 1955, and in respect of interest on deposits with such 4 society or with a registered friendly society, as they apply in respect of interest on deposits with the Post Office savings bank.
- (2) Where by virtue of the last foregoing subsection the amount of surtax payable by an individual would exceed the sum of—
- (a) the amount of surtax which would have been payable by him, if that subsection had not been passed, and
- (b) the amount of relief, if any, to which he is entitled by virtue of that subsection,
§ Brought up, and read the First time.
§ 6.59 p.m.
The Deputy-Chairman (Sir Robert Grirnston)
With this new Clause the Committee can also discuss the new Clause "Reduction of rate of profits tax on co-operative societies, etc.", the new Clause "Building societies to be exempt from profits tax", the new Clause "Exemption of building societies from income tax and profits tax", and the new Clause "Exemption of building societies from income tax and profits tax (except in respect of profits from special advances)". The Committee can divide, if required, on the second and penultimate Clauses.
§ Mr. Houghton
In moving this new Clause I should also like to deal in a preliminary way with the second and third Clauses that you have mentioned, Sir Robert.
1393 The Clause proposes that the concession now given to Post Office Savings Bank interest and interest in the ordinary bank of the trustee savings bank for Income Tax purposes should apply to share interest, loan interest of registered industrial and providence societies, and to deposit interest payable by registered friendly societies.
The Committee is fully aware of the fact that the first £15 of Post Office Savings Bank interest and of the interest on deposits in the ordinary branches of the trustee savings bank is exempt from Income Tax, but not from Surtax. The second new Clause proposes that the Profits Tax now levied on industrial and provident societies at the rate of 15 per cent. should be reduced to 3 per cent. The third new Clause proposes that complete exemption from Profits Tax should be granted to building societies on their residual surpluses. That Clause is one of three dealing with taxation on building societies.
The fourth and fifth of the new Clauses which we are discussing also deal with the taxation on building societies but propose to go further. Indeed, in the fourth the Liberal Party would go very much further than what is proposed in the Clause that I have moved.
I suppose that few topics have been so frequently and thoroughly debated as this. Royal Commissions and other bodies have considered them and debates on successive Finance Acts have gone over the ground again and again. What encourages my right hon. and hon. Friends and myself to persevere is that nothing that any Treasury Minister said last year, or the year before, or the year before that, or the year before that, will necessarily be Government policy today. That is a most comforting thought at this moment. No Government have performed more somersaults on the Floor of the Committee than this one during the course of our proceedings on this Finance Bill.
The Financial Secretary has the distinction of recommending to the Committee proposals which he opposed on earlier occasions. He has been quite unabashed, undaunted. He is, I think, a political jockey who is prepared to ride any horse from the Government stables, even if it 1394 runs this year in the opposite direction from last.
§ The Financial Secretary to the Treasury (Mr. Anthony Barber)
May I inform the hon. Gentleman that the horse I backed this afternoon did just that?
§ Mr. Houghton
I acknowledge at once that the hon. Gentleman is an extremely lucky man, otherwise he would not be sitting there. He has survived purges. His contradictions have not disturbed his repute on the Government benches. If he gets thrown in the course of the race, he will climb back in the saddle even if he finishes up back to front. With such a versatile horseman anything can happen, and we hope that something will happen on this new Clause tonight.
The Clause refers to interest on savings in co-operative societies and registered friendly societies. On a previous occasion, the then Financial Secretary, now Minister of Education, referred to the conditions under which the concession was first given, in 1956, to Post Office Savings Bank and trustee savings bank interest. He said that two conditions were laid down. The first one was that the rate of interest must be static at 2½ per cent. The second was that the money should be lent direct to the Government, that being the case in connection with Post Office deposits and, by arrangement, also with trustee savings bank deposits.
The Minister said:My right hon. Friend was not just seeking, in a general way, to encourage small saving. The whole point of the concession was to encourage small savers to make a kind of voluntary contribution to the Budget surplus at a time when, as now, budgetary policy was a factor of first-class importance for the management of the economy."—[OFFICIAL REPORT, 20th June, 1961; Vol. 642, c. 1258.]That was two years ago and referred to a concession given in the conditions of 1956.
We on these benches think that some fresh consideration should be given to the restrictions which have been maintained so far on this concession for Income Tax purposes. I cannot quote the Royal Commission in my support in this connection, because it was against this form of tax relief and recommended accordingly. Notwithstanding that, the Government introduced this concession within about a year of the final Report of the Commission.
1395 We think that now we should not stop at the limit of the 1956 concession. Nor do we believe that the arguments used in 1961 by the then Financial Secretary are necessarily conclusive today. The other day I came across an interesting little pamphlet which says thatA tax-free income of £15 per annum is permitted on interest from deposits in the Post Office Savings Bank and interest on National Savings Certificates is untaxed. This position should be rationalised in order to emphasise the need for investment in industry as well as Government-sponsored savings schemes. The tax-free level should be raised to £25 and extended to include all investment income.The committee may think that that is from a brash pamphlet issued by the Liberal Party. In fact, it is a memorandum by the Young Conservatives, who recently produced some very interesting and thought-provoking suggestions on the future of taxation. It is issued under the emblem of the Young Conservatives, which shows a blue lion rampant with tongue fully extended in the direction of his leaders. I think that that is an encouragement to go on, notwithstanding the disappointments of past years.
The Economic Secretary should address himself to this question. In the light of the Government's new economic policy, what is the rôle of small savings today? Does the Chancellor of the Exchequer want them, or does he not? The Chancellor recently delivered a rude shock to the National Savings movement when he suspended the last issue of National Savings Certificates. He says that the idea that he did it to interrupt the rhythm and flow of savings was nonsense. He still wanted people to save, but he had to stop them doing it while the printing presses got ready for the new and less attractive issue.
At a time when we are boosting the economy, when inducements are being given to consumer spending, when the concept behind the Budget is expansion and the raising of the level of demand, it would be as well if the Chancellor were to define in this situation the rôle of small savings. If he wants to encourage them, not only for Government sponsored projects, but for the expansion of the economy generally, he might well adopt the proposal that we make in the new Clause, "Extension of relief under Section 9 of Finance Act 1956".
1396 Further, in this situation the Chancellor should emphasise that saving is the policy of individual prudence, quite apart from economic considerations. Savings are encouraged through endowment insurance policies on a large scale. Institutions are amongst the biggest investors of small savings in the country today. Savings in co-operative societies and in friendly societies are merely another form of personal saving for prudence sake as well as for economic purposes. Therefore, they may serve two objects—to offer a degree of individual security to the saver, and, at the same time, to provide some resources upon which the Chancellor and others could draw for economic expansion at the present time.
I believe that the cost of the Clause would be about £2 million. The cost of the existing concessions as regards Post Office Savings Bank and trustee savings bank interest is about £12 million. But, as is customary on these occasions when the cost of the concession asked for is small, Ministers frighten the Committee by saying that it would not stop there. If the concession were applied to the extent proposed by the Young Conservatives in their interesting pamphlet, the total cost might be as much as £38 million. We are not asking for that. We are a little more realistic and a little more modest in our proposals.
I pass to the new Clause, "Reduction of rate of profits tax on co-operative societies, & c.", which I wish to bring into the discussion of the trio of new Clauses that I am sponsoring at the moment. The history of the taxation of co-operative societies is, in my opinion, a sordid one. The Industrial and Provident Societies Act was passed in 1893. They were not then liable to Income Tax. They remained exempt from Income Tax until the Royal Commission on Taxation of 1920 had a disagreement as to whether co-operative societies should be brought within the scope of taxation.
By a majority, the Royal Commission recommended that they should, but nothing was done about it. It was too controversial for anything to be done about it until in 1932 another Committee was set up—a departmental committee called the Raeburn Committee. It recommended that co-operative 1397 societies should be taxed on their profits just as if they were limited liability companies, without any deduction for interest on shares paid to their members.
In 1933—there are some hon. Members here old enough to remember 1933—when the most reactionary Government of all time came to office on the biggest artificially stimulated wave of panic that our political history has ever known, the late Mr. Neville Chamberlain decided to bring co-operative societies into the scope of Income Tax. The reactionaries had their day of triumph under a Tory Chancellor in a reactionary Government in 1933.
§ Mr. Houghton
Led by a Prime Minister. I do not think that we should affix labels on all Prime Ministers.
Then the Royal Commission of 1955 recommended applying the undistributed Profits Tax, or if a flat rate were introduced the flat rate of Profits Tax, to co-operative societies. The rate of Profits Tax charged on Co-operative societies went up from 3 per cent. to 10 per cent., then to 12½per cent., then to 15 per cent.; but in fairness I must add that in 1958, when the recommendation of the Royal Commission of 1955 was implemented, a change was made in the basis of the assessment of cooperative societies and share interest paid to members became deductible from the surplus for taxation purposes. The new Clause seeks to restore the rate of Profits Tax to 3 per cent., as it was before, but I candidly say that we do not propose to reverse the favourable change in the basis of assessment which was made in 1958.
In an earlier debate on this matter, so far as speeches by Ministers then are relevant today, the present Financial Secretary said this:However, the over-riding objection to giving cooperative societies the special relief of Profits Tax which is sought in these Amendments is that it would be most unfair to their trading competitors."—[OFFICIAL REPORT, 14th June. 1961;Vol. 642, c. 446.]How come? This concession would not lead to a price war with private shopkeepers and multiple shops. It would not mean a higher dividend to the share- 1398 holders, which, in any case, is taxed on the recipient. It might help to restore the dividend on purchases to a level more like it used to be. To suggest that this concession would be unfair to the competitors is to misunderstand the mutual aspect of a co-operative enterprise.
I should add that my hon. Friends will supplement the case that I am making at present, both in respect of co-operative savings and Profits Tax on co-operative societies. I am a sort of curtain-raiser to give my hon. Friends the opportunity of taking the measure of hon. Members opposite, seeing what substance they are made of, and deciding whether it is worth while expending too much eloquence upon the driblets of the Conservative Party opposite, or whether my hon. Friends should fix their gaze on the Economic Secretary and regard him as the only Member on the benches opposite worth while talking to in present circumstances. Before there is any comeback on that, I will pass quickly to building societies.
Here, the Committee has a choice of three: the realistic and more modest new Clause, "Building societies to be exempt from profits tax", the more radical proposal of the Young Conservatives in the new Clause, "Exemption of building societies from income tax and profits tax", and the more drastic—
§ Mr. William Clark (Nottingham, South)
That is the Liberal one. The hon. Gentleman must not confuse the Young Conservatives and the Liberal Party.
§ Mr. Houghton
I mixed them up.
Our new Clause deals with Profits Tax only. The other two new Clauses deal with Income Tax as well as Profits Tax, though they are not precisely the same in their effect on buildings societies. Profits Tax paid buy building societies in 1961–62 was about £3¾ million. Income Tax was nearly £10 million. That disregards the tax paid by the building societies to the Inland Revenue in the composite rate on share and deposit interest paid, so that over £14 million is blatantly extracted from a property-owning democracy.
There is nothing that hon. Gentlemen opposite—perhaps I had better not say what I was going to. This is not an occasion for invective. I want to put my case calmly and persuasively to the 1399 Economic Secretary. I want him to say that as usual I have made my case in my customary courteous and persuasive way, because then I shall know that I am to get nothing.
This is a proposal to relieve building societies of Profits Tax. I believe that there is a case—though I do not put it today—for relieving them of Income Tax as well. I think that in the light of this Finance Bill we have to get away from the conventional outlook of the Royal Commission on the principles of taxation. This Bill definitely leads us away from that. The abolition of Schedule A tax on owner-occupiers, reported against by the Royal Commission, has been adopted by the Committee and it has been put to the country as an act of social policy. Free depreciation in development districts, denied to the rest of the country and a radical departure from the concept of equality in taxation, is an act of economic policy.
Hon. Gentlemen opposite have come, belatedly, to accept discriminatory taxation for social, economic, and similar purposes in the national interest. Discriminatory taxation is now an instrument of social and economic policy. I do not often refer to what I said in the past, because I am never proud enough of it, but I said in 1961 that it was time to have a reappraisal of the rôle of building societies in the housing programme. The case for that is just as strong today, and I believe that we have to consider the rôle of building societies in the housing programme of tomorrow.
Look at the White Paper on Housing, the latest of the Conservative Party's electioneering pamphlets. Paragraph 39 refers to the importance of the rôle of the building societies in this new housing drive. The Housing Corporation will not be able to function unless building societies are prepared to pour money into the local housing associations, and in paragraph 39 we read what they are expected to do:…the expectation is that the greater part of the money required by the housing societies will come from the building societies and other private sources.In this connection, as in connection with the private owner-occupier buying his house through a building society, there is an urgent need to get interest rates 1400 down. How can the prospective home owner cope with the combined effect on a limited income, of rising interest rates and rising building costs, and the astronomical rise in the price of land? This is at the root of the problem.
I will not pretend that to relieve building societies of Profits Tax alone would enable them to reduce their interest rates. It would not. If they were relieved of Income Tax as well, however, I feel sure that it would, but I think that what is necessary now is a re-examination of the rôle of building societies in the housing situation of today in view of the heavy reliance now being placed on these societies for the fulfilment of the aspirations of right hon. and hon. Gentlemen opposite for a property-owning democracy. They should be taking the step which I am suggesting now, and we hope that this fresh look at matters which we have discussed in years gone by will bring forth a new point of view on these proposals.
We do not want the Economic Secretary merely to repeat what has been said in previous debates. He probably has a brief which is exactly the same as the brief of last year, and that of the year before, except that it is now duplicated on black-edged notepaper and is headed, "Death to Their Hopes". This is an opportunity for the Economic Secretary to make a different speech from that made by his hon. Friend the Financial Secretary. This is an opportunity for him to show that the Government are as forward looking as they claim to be. This is an opportunity for right hon. and hon. Gentlemen on the benches opposite to strike a new blow for the property-owning democracy which they love.
§ Mr. Houghton
All right. Let us have a response on that note. I shall spoil it if I say a single word more.
§ Mr. W. Clark
It is always a pleasure to follow the hon. Member for Sowerby (Mr. Houghton), even though on this occasion he mixed up the Liberals and the Young Conservatives. I am delighted that he appreciates that the Conservatives in this Committee are at least young in idea and in freshness of thought. 1401 I felt that the hon. Gentleman was inclined to accept the new Clause—"Exemption of building societies from income tax and profits tax (except in respect of profits from special advances)"—rather than the new Clause moved by him and that tabled by the Liberal Party—"Exemption of building societies from income tax and profits tax". As the hon. Gentleman said, there is a feeling in the country that the rise in mortgage rates is hitting the small owner-occupiers. Not all these people live on fixed incomes, but they are finding it difficult to meet these rising costs. Having entered into a commitment with a building society to pay interest at 4½per cent. or 5 per cent., because of the dependence of the building society industry on market rates the societies have to borrow money at higher rates, and, in turn, have to charge the owner-occupiers more for the money they lend them.
It is worth recording that although building society rates have gone up by about 20 per cent. since 1951, wages have gone up by 70 per cent. It is also fair to make the party point, following the example of the hon. Member for Sowerby, that under a Socialist Government it is true that mortgage interest rates were about 4 per cent. and they have risen since, but we must add that under a Socialist Government, up to 1951, only about 30,000 people a year were able to borrow money to go into owner-occupation of houses, whereas under the Conservatives the figure has risen to between 120,000 and 125,000 a year. More people are buying their properties despite the fact that mortgage interest rates have risen. 7.30 p.m.
I wish to refer in particular to the new Clause in my name and the names of my hon. Friends. We have tabled this new Clause deliberately not only to take in Profits Tax on surpluses but also Income Tax on surpluses. The cost, if the Clause proposed by the hon. Member for Sowerby were adopted, would be about £14 million. If the building societies were relieved in this way it would allow them to reduce their rates by about ¼ per cent. A quarter per cent. reduction is not much to the owner-occupier who is feeling the pinch, but in our new Clause we have gone further and said that Income Tax 1402 on the building societies should be absolutely abolished.
If this were agreed the composite rate which the building socities pay to the Exchequer would be abolisheed. It is fallacious to think that an investment is free of tax. They do not get interest free of tax. The tax gatherer collects his rate; he collected in 1961–62 about £39 million. If the revenue were to forgo that it would mean a loss of £39 million, plus the £14 million Profits Tax on surpluses, a total of just over £50 million. In logic it is very difficult to substantiate a plea to give one industry—the building society industry—relief of £53 million, but we have to look at our whole tax system and be more and more discriminatory. No one, particularly on these benches, will refute the argument that a property-owning democracy is good for the country.
One of the greatest advantages of owning one's house is, without talking airy-fairy nonsense, that it gives a person a sense of security and a sense of responsibility. I am sure that is a good thing. It is interesting to note, in parenthesis, that this makes the person a capitalist. My only criticism of the capitalist system is that in this country there are too few capitalists, and we want more of them. I said that I did not think that in logic we could possibly argue this case, but concerning social factors there is a very strong case for increasing the property-owning democracy.
If it is considered right for the public purse to pay out £80 million in subsidies to council house tenants—and I am not arguing that that should not be paid out —that is a political decision and does not bear logical analysis. It was a political decision made rightly or wrongly, and to exempt building societies from Income Tax on the composite rate and on the surplus and from Profits Tax on the surplus would have to be a political decision. No doubt my hon. Friend the Economic Secretary will say that the Chancellor in this Budget has relieved taxation to a tremendous amount. There is no question that he has. The Chancellor never gives anything away, because he has nothing to give; it is forbearance from taking so much from the taxpayer. Probably £50 million this year would be too much, but I urge him that a political decision must be taken soon 1403 to create in this country more and more property owners.
One way in which that can be done is to relieve building societies of Income Tax on surplus and Profits Tax on surplus. When my hon. Friend replies he may give us the "brush-off", but I want him to hold out hope that this may be done in the next Budget, or in the year after that.
§ Mr. Donald Wade (Huddersfield, West)
Personally, I am not expecting a "brush-off" although it would not be the first time we have had it. I do not think one should be quite so pessimistic.
You have indicated, Sir Robert, that we may discuss in this debate the Liberal new Clause "Exemption of building societies from income tax and profits tax". The object of that Clause is to relieve building societies from liability to Income Tax and Profits Tax on their surpluses. Those who have taken part in previous debates on this matter will agree that the existing tax on surpluses is not based on any logical principle but is due largely to fortuitous historical circumstances.
The debate tonight is an omnibus debate dealing with a number of separate subjects. The only common feature is the claim for some relief from the burden of tax, but that is common to most debates on the Finance Bill. I understand that the Clause moved by the hon. Member for Sowerby (Mr. Houghton) proposes that the first £15 of dividend and shares and deposits held by an investor in a co-operative society shall be exempt from Income Tax. The concession is similar to that granted on the first £15 of interest invested in savings banks which was intended to encourage savings. In previous years I have advocated an extension of the concession to other forms of saving. Therefore, I have no objection in principle to the proposal in the Clause, which, if adopted, would strengthen the case for considering other savings institutions such as building societies.
It must be remembered that building society investors at present receive no benefit whatever by way of relief from taxation. I stress that. It is important to appreciate the way in which building societies are taxed. Investors in building 1404 societies are not relieved from tax. They receive their interest free from any deduction of tax because the tax which would be payable has been accounted for by the building society to the Treasury by way of composite rate.
Account is, of course, taken of the fact that some who invest in building societies have incomes below the level of liability for Income Tax, but the Exchequer does not lose. The composite rate is calculated by reference to the total amount which the Exchequer would receive if each investor had to pay that Income Tax direct. The Exchequer gets its full pound of flesh. It may well be that the Treasury gains owing to the administrative saving resulting from the arrangement it makes with the building societies.
If relief were granted on the first £15 of interest for building societies also, this would alter the composite rate and would be of some benefit to the building society movement, that is to say, to those who invest in and borrow from building societies. Therefore, if the idea were extended it would be reasonable to apply it to building societies but I am not pressing that. In my proposal I am tackling the subject from a different angle.
In addition to paying the composite rate, building societies pay Income Tax and Profits Tax on the residual surplus. This surplus is not income in the strict sense. There are statutory provisions which have to be observed in investing the surplus. It must be remembered that there are no equity shareholders in a building society and no ordinary shareholders to whom any part of this surplus could be paid. The only persons who could benefit by a relief of taxation on building societies surpluses would be the home buyers. They would benefit in two ways if this relief were granted.
First, they would benefit by some reduction in interest charges. I agree that if it were only on Profits Tax, as proposed by the hon. Member for Sowerby, it probably would not be possible to bring about any reduction in interest rates. It is only if relief is granted from both Income Tax and Profits Tax that some reduction in interest rates would be possible. Secondly, they would benefit by the fact that building societies would be able to build up their reserves more 1405 rapidly and thus, by expanding their services, would help to meet the requirements of all those needing building society mortgages.
In view of the White Paper to which the hon. Member for Sowerby referred, there could scarcely be a more appropriate time to abolish Profits Tax and Income Tax on building society surpluses. The Government want the co-operation of the building societies, and their association has promised support for the programme of building houses both for home ownership and for rent through housing societies. In paragraph 32, on page 6, of Cmnd. 2050, it is stated,The Government have had discussions with representatives of the Building Societies Association about the possible need for giving more help to people in a sound position…who are anxious to buy a house.I understand that a public statement has been made to the effect that the building societies are very willing to co-operate in this programme. In paragraph 36, on page 7, we read,The building societies can play a major part in this new development. A few societies have indeed already shown willingness to lend money to housing societies building to let, and the Government now wants to enlist the support of the whole building society movement.
§ Mr. Wade
Housing association is the name used in the Bill, but in the White Paper there is a reference to housing societies, and I am quoting from the White Paper. It continues:Discussions have taken place with representatives of the Association and they have agreed to recommend that societies should co-operate in the following scheme.Proposals then follow about setting up housing corporations, and there is a reference to houses owned on a co-ownership basis. I think that this is the first time that the word "co-ownership" has appeared in an official document. My colleagues and I have been advocating co-ownership for many years. Obviously we are making some progress.
§ Mr. Wade
I will not argue whether the Government are being coy. I only draw attention to the fact that the word "co-ownership" is used. I understand the sense in which it is being used, and I have advocated this proposal in past years. But it would be out of order for me to dwell at length on the White Paper. I merely say that there is a certain amount of pie in the sky in it, and vague hope, but the objective, at any rate, is right.
This tax on building societies' surplus is in the nature of a penalty. The late Mr. Glenvil Hall, who I think all hon. Members agree always spoke with moderation, used quite strong words in the debate last year. On 30th May, 1962, he said:The Government, instead of penalising building societies, should recognise their value.He also said,Is it not grossly unjust to treat building societies in this way? They help people to save and provide houses for those who need accommodation. They assist the Government in every possible way. It is unfair that these societies should be mulcted in this fashion."—[OFFICIAL REPORT, 30th May, 1962; Vol. 660. c. 1379–80.]No satisfactory answer has ever been forthcoming from the Government to show why this tax on surpluses should continue. I am aware of the arguments which have been developed from time to time, but I do not think that they stand up to examination. The Government may say that they are anxious not to create a precedent, but I do not think that they would be doing so in relieving building societies of this burden. Indeed, I think that we have a new precedent which might well be followed, because by virtue of Clauses 42 and 65(4) the housing associations will be relieved from Profits Tax and Income Tax. As authority for that I can quote the observations of the Joint Parliamentary Secretary to the Ministry of Housing in the short debate on Clause 42. Referring to this Clause on 23rd May, 1963—he used the words co-operative housing association —he said:The Clause provides in effect that the associations are to be treated as collective owner-occupiers.—we have a variety of names—The relief, therefore, is twofold. In the first place, the association will not be charged with Income Tax or Profits Tax on the rents which it receives from its members. In the second place, each member will be allowed 1407 relief where appropriate on as much of the interest paid by the association as is attributable to the property which he occupies."— [OFFICIAL REPORT, 23rd May, 1963; vol. 675, c. 656.]7.45 p.m.
If one follows that to its logical conclusion, the rent which a co-owner pays is similar to the mortgage interest which a home buyer pays to a building society. There is a very close relationship between the exemption from Profits Tax and Income Tax of these housing associations and the case which I am making for relief for building societies.
It must be remembered that building societies are not engaged in trade and therefore it cannot be contended that they are in competition with some trading body. They are not operating in competition with any form of retail trade. They are in competition only with the national savings movement. Building societies are the only form of savings institution in which neither the investor nor the institution is accorded any Income Tax relief.
Some people may think of the building society movement in terms of attractive and substantial office buildings where the business is carried on, but it would be fairer to think of the movement as one which benefits large numbers of people who are buying their own homes and who would be unable to do so without the help of building society mortgages. Unfortunately, there are many thousands of people who either cannot find a house to buy or cannot afford to pay the price when they find it, and I regret to say that the prices of houses are still rising.
In an interesting leaflet published by the Building Societies Association, No. 38, there are figures of the index of house prices. I will not burden the Committee by reading out the figures, but they show a steady pattern of rising prices. It reads:it will be noted that the upward trend in the price of new houses continues. The provisional figure for the March quarter of 1963 has risen by four points over that for the December quarter of 1962, the biggest increase in a single quarter since the table was first compiled in 1956.It rightly points out that the index covers the whole of Great Britain and that similar indices for similar regions, such as the London area, would show marked variations. Even if the proposals in the 1408 White Paper were carried out—and obviously much of it is hope—and even if the hopes were fulfilled, the Government would be only too willing to take any practical steps which would be of assistance.
It is true that a number of proposals have been put forward to make it easier to own one's home, and some are already in operation. For example, there are cases in which 100 per cent. mortgages are available for which a long term is granted. but it is as well to remember that there are some disadvantages as well as advantages in this. It is not a complete solution.
If one pays a very small deposit and obtains a long-term loan, interest inevitably forms a very large part of the monthly repayments in the earlier years. For example, if a young couple buy a house on a 95 per cent, mortgage for a term of 30 years or over, they may find that in five years' time, when for some unforeseen reason, such as a change of occupation, they have to move, the monthly repayments will have had comparatively little effect on the total capital owing on the mortgage.
The amount of the deposit is also an important factor for anyone buying a house, but the aim should be to lessen the overall cost of home buying. There are three factors which contribute to this: one, the price of land; two, the cost of building; and, three, the amount of interest paid on the money which is borrowed. I should be out of order if I were to discuss the rising price of land or the methods of reducing building costs. I will only say that I hope that there will not be a scramble for land between the new housing corporations, the local authorities and private developers.
The matter of interest rates is very relevant to this Clause. The building society movement is in competition with the savings movement, and interest rates are, of course, affected by Government policy. Anything that could be done to reduce interest rates would be a useful step in the right direction. It is clear that if the tax, which I regard as an unjustifiable tax, on building society surpluses were abolished, it would make possible some reduction in interest rates. It would, at any rate, be of some real help.
1409 The Chancellor has, of course, to consider the loss of revenue. The figure of £14 million was mentioned. According to my calculations, in the last year over £11 million was paid in the form of Income Tax on the residual surplus of building societies and over £4 million in Profits Tax, making a total of £15 million. I shall not argue whether it is £14 million or £15 million. If this tax had not been imposed, the sum involved would either have been devoted to building up reserves or facilitating home buying. In either case it would be encouraging saving and would not represent any real loss of revenue. That is the crux of the problem.
We have had many debates on this subject and there is very little new to be said about it. We have heard the case from the Treasury Bench many times. I think that we have now reached the stage when the Government should give way. I hope that the Minister will do so graceully—and this year is the time when it should be done.
§ Mr. Philip N. Hocking (Coventry, South)
I do not want to follow the hon. Member for Huddersfield, West (Mr. Wade) into the realms of vocabulary and political slogans. Nor do I want to follow him in the delightful way in which he ran through my right hon. Friend's White Paper, which was published yesterday. I was, however, intrigued with one point which he made. I do not think that he quoted with due fairness from the building societies' publication with regard to the increase in the cost of housing from one quarter or another. He did not say, as I thought he ought to have said, that the increase in cost was directly attributable in the first quarter of this year to the increase in wages that had to be paid. This is a fact which is inescapable. I have seen the cost rise over the last 12 or 15 years by 100 per cent., and I think that it would have been worth while if he had mentioned this increased cost which has been largely attributable to increased wages paid.
§ Mr. Hocking
I do not want to give way because I want to pursue the argument with regard to building societies and support the case made by my hon. 1410 Friend the Member for Nottinghamshire, South (Mr. W. Clark).
This matter in regard to building societies has been debated over and over again, both by my hon. Friends and by hon. Members opposite. We all know the history of this taxation. We have had the facts given to us in this House and from people outside as to the whys and wherefores, and I think that it is true to say, as the hon. Member for Huddersfield, West said, that no one accepts that the tax charged on building societies is justifiable.
We know the importance of the building society movement, and it is significant that this matter has been debated every year since 1958 on every Finance Bill. In each of those debates it has been stressed that building societies are not trading undertakings as we know them. I believe that they are entitled to some special consideration, such as my hon. Friends on this side of the Committee have set down in their new Clause.
Building societies fulfil a unique service. They channel the funds or money from those people who have a surplus to those who need to use it to house themselves. Why should extra taxation be taken by the Exchequer in this processs? Last year the building societies paid some £4 million in Profits Tax plus the other sum, making a total of between £14 million and £15 million. It seems wrong to me that the Chancellor should take money in this way merely because it is being channelled from one section of the community to another and used in a worth-while cause. This work should be encouraged still further. It is obvious that it will need to be encouraged still further in the years that lie immediately ahead. I hope that home ownership will be encouraged by everyone who takes part in the political life of this country.
If we are to encourage home ownership, the cost to the borrower should be kept to the absolute minimum. It is perhaps not surprising, in view of what lies ahead in the next 12 or 18 months, that practically all parties at the present time are united in wanting building society interest kept to the absolute minimum and cheap money made available for those who wish to provide themselves with housing accommodation. I think now, and I have always 1411 thought, as I know that most hon. Members have on this side of the Committee, that the question of home ownership is most important. 8.0 p.m.
If my hon. Friend would give way now or on a future occasion on the lines suggested, the Building Societies Association has said that it would recommend to all its members a reduction of¼per cent. in the interest charged to borrowers. This may not be very big, but it would be a step in the right direction. It would mean that the standard rate charged by societies could be reduced to 5¾ per cent. The relief would be felt by a section of the community which has carried a large burden of the cost of running the country in the last few years, carried it not only in taxation but in considerable sums in rates. My hon. Friend the Member for Nottingham, South mentioned the subsidies paid to local authority tenants. There is a fair case to be made for home owners to receive some relief.
The hon. Member for Sowerby (Mr. Houghton) spoke of the merits of the various Clauses under discussion. Our new Clause—"Exemption of building societies from income tax and profits tax (except in respect of profits from special advances)"—is the fairest of the lot in this respect. We are honest enough to say that we want the benefits of this change to go only to home owners and home occupiers and that we do not want special consideration to be given to that section of building society business which comes under the definition of special advances in the Building Societies Act.
I know that this is only a small part of the business, but we feel that home owners and would-be home owners deserve some consideration, and we have deliberately excluded the special advances which could be said to be normal commercial business.
§ Mrs. Joyce Butler (Wood Green)
I will confine what I have to say to the new Clause which has been so vigorously moved by my hon. Friend the Member for Sowerby (Mr. Houghton). He indicated that its purpose was to extend to interest on co-operative shares and penny bank accounts the concession made in the 1412 1956 Act by which the first £15 of interest on deposits in the Post Office Savings Bank and in the ordinary depart-meats of the trustee savings bank is exempted from tax.
After listening to the debates on this subject in recent years, and studying the replies from the Treasury Bench, I have been puzzled to know why the reasoned arguments from this side of the Committee have been unable to penetrate the inflexibility of hon. Members opposite. The attitude of the Government has been rather as though they were promoting an exclusive kind of small savings club. Year after year they have said that they were not prepared to vary the rules by one iota to accommodate the small savers of co-operative societies. They themselves have made the rules and they can perfectly well change them if they so desire. The arguments from this side of the Committee have been sufficient to indicate that they should change the rules and be less inflexible than they have been in this respect.
It is quite clear that the Government have appreciated that the Co-operative movement is a savings movement. For example, they recognise that, in 1961, £302 million were invested by small savers in co-operative societies of which the considerable sum of £255 million was in share capital. The Government have recognised that this considerable sum is an accumulation of very small amounts by 13 million members of co-operative societies of small amounts averaging about £20. All this has been recognised, but still the Government have not given way.
They must also recognise that not only is the Co-operative movement a savings movement in the sense in which we understand the word, but it gives special facilities for encouraging saving. One could say that a co-operative society has a built-in savings incentive by the very principle of co-operation and the machinery provided for enabling members to keep their dividend, which is a form of deferred discount, in their share capital account instead of drawing it out. It does more than any other institution to encourage members to save year after year in this way. Yet we have not succeeded, during all the years in which this matter has been debated, in persuading the Government to give co-operative 1413 societies the facilities given to the Post Office Savings Bank and the ordinary departments of the trustee savings bank.
The Government know that there is a statutory limit on co-operative shares of £1,000 and on penny bank accounts of £50, and that these are, therefore, small savings. There is no question of big savings. There is a ceiling on the amount of interest paid by co-operative societies, which is about 3 per cent., so that the rate of interest is extremely small. About 34 per cent. of the money saved is invested in Government securities so that a large part of the money saved goes in Government securities. These are all matters on which the Government have insisted.
§ Mr. Percy Holman (Bethnal Green)
Out of the £300 million which has been invested in co-operative societies, £191 million has been reinvested and not used in trading or production. Out of that £191 million, approximately 34 per cent. is invested in Government and local government securities.
§ Mrs. Butler
For the sake of time, I rather telescoped the argument, but I am assuming that the Government know all these things and I am just reminding them of them. Assuming that they do, it is difficult to understand why they continue their discrimination against the co-operative small saver.
It is all the more difficult to understand because in the Bill, in Clause 42, the Government have gone out of their way to assist co-operative housing associations. They have taken up something which has interested me for a long time, the difficulty which members of cooperative housing associations have in respect of Income Tax. Those members are now brought into line with ordinary owner-occupiers. In the Clause, which is complex, the Government have dealt with a much more abstruse principle for which it is much more difficult to draft than this very simple Clause which we now advocate and they have also acted very quickly.
Following the introduction in the 1961 Housing Act of their support for cooperative housing associations, in this Finance Bill they have seized the difficulty of members of co-operative housing associations with Income Tax and have formulated an answer to the problem and 1414 included it in the Bill. If they could do that and if they could see that and if they could find an answer to that problem, I cannot follow why they cannot see this point about co-operative small savers and find an answer to it.
The Government do not say to members of the co-operative housing associations, "You must change your rules in order to fit in with the Income Tax regulations"; they have changed the Income Tax regulations in order to accommodate members of co-operative housing associations. What we are now asking is that they should change the Income Tax regulations in order to accommodate cooperative small savers.
The principle is exactly the same. If one follows the avowed intention of the Government in the White Paper on Housing, which is to end tax discrimination against co-operative house owners in order to encourage co-operative housing associations as part of the general housing contribution, why do they not use the same principle and end tax discrimination against co-operative small savers and encourage them as part of the general small savings' contribution to the national economy?
The Treasury Bench could make a break-through this evening and support what my hon. Friends and I are suggesting. I cannot see how the Government can fail to accept this argument, since, in Clause 42, they have already taken action on another aspect of the Cooperative movement. We are jealous of the rights of the individual. We are concerned to see that justice is done, even when relatively small matters are involved.
I ask the Treasury to realise that the small savers to whom I am referring represent some of the finest people in the country. The Government are frequently saying that people should try to help themselves, and these people are doing just that. They are seeking to help themselves by the principle of co-operative self-help and they deserve better treatment in this respect than they have had.
I hope that, for all these reasons—in the name of logic, above all—the arguments which we have adduced to benefit the people who are using their initiative in an effort to help themselves through their small savings will not be met by the 1415 Government repeating the arguments they have used in previous years, but that they will support our claim.
§ Sir C. Osborne
The hon. Lady the Member for Wood Green (Mrs. Butler) has made a persuasive and attractive speech on behalf of the small savers in the co-operative savings movement. For over 100 years this movement has undoubtedly been one of the finest organisations of its kind in the country and has done a great deal of good work, particularly for the poorest section of the community. Whatever we can do to help in this direction would receive my support, although I do not necessarily go all the way with the hon. Lady in supporting the proposed new Clause entitled "Extension of relief under s. 9 of Finance Act 1956." But in her aim to protect and encourage small savers I am with her one hundredfold.
The hon. Member for Sowerby (Mr. Houghton) said that there had been in power in 1933 probably the greatest reactionary Government of all time—or words to that effect. I would remind him that that Government was originally led and inspired by the three famous founders of the Labour Party; Ramsay MacDonald, Jimmy Thomas and Philip Snowden, and I should have thought that he would not have regarded such saints in those terms.
He also said that we must look to the building societies to provide the money for the new housing drive. That is going to be grossly unfair to the savers for whom the hon. Member for Wood Green pleaded, for it would mean that we would be providing money to the borrowers, money which would grow in value, at the expense of those who lend their money. They would be swindled and robbed of their savings through inflation.
The proposed new Clause does not get my support because it does not go far enough. It fails to tackle the real problem of savings which faces us. It is like giving a poor patient an extra lump of sugar in the hope that it will cure a complaint like cancer; in this case, financial cancer. The Clause, so the hon. Member for Sowerby claimed, would cost only £2 million whereas the previous concession given by the then Chancellor in 1956 cost £12 million. This was followed by the 1416 hon. Member asking, "What is £2 million today if it will encourage the small savers?" 8.15 p.m.
Why did the hon. Member stop there? Why stop at those two extra types of savers? If it was unjust to have selected two classes of people in 1956, it is just as wrong to do so now. Why should not all small savers benefit in the same way and have the first £15 interest free of Income Tax? The aim of all hon. Members is to encourage people to save—all types of people—and it is an excellent exercise for us both to encourage savings and to save. I put it to the Chancellor and to the hon. Member for Wood Green: why should not the holders of War Loan, the most widely held securities in the country, have their first bit of interest free of Income Tax?
§ Mr. James Dempsey (Coatbridge and Airdrie)
If the hon. Member feels so strongly about it, why does he not table an Amendment or new Clause to that effect?
§ Sir C. Osborne
The hon. Member should not rush his fences. I am merely saying that the proposed new Clause does not go far enough to even touch the real problem because it will not encourage people to save. It is futile and inadequate to encourage savers in this way. It is far more important to protect the real value of their savings than merely to give a tax concession on the first £15 of interest. To illustrate this I urge hon. Members to recall that in October, 1946, the famous 2½ per cent. Dalton Treasury bonds were issued. The price was £100, but the price of them today is £45. People who took the advice of the then Labour Chancellor and put their money into those bonds today have only £45 for their £100 investment.
§ Sir C. Osborne
It is also important to realise that £1 at that time, in 1946, is today worth about 10s., so that £100 saved then is today worth only £22 10s. These people have been swindled out of £77 10s.
I hope that the hon. Member will relate all this to the Clauses under discussion. I am a little uncertain at present of the connection.
§ Sir C. Osborne
The proposed new Clause to extend relief under the 1956 Act is asking that the first £15 of interest should be granted free of Income Tax—not Surtax—to the recipients on two new classes of savings. The purpose is to encourage people to save. I am trying to reason that this is futile unless, first, it selects the other groups of savers and, secondly, because it excludes far more people than it includes. It is, therefore, socially unjust to savings.
In any case, the proposed new Clause will not do what hon. Members on both sides of the Committee want to do—encourage people to save more. Fifteen pounds free of Income Tax will not cause people to save more if, at the same time, they see the real value of their savings being lost in inflation. The falsity of the proposed new Clause is that, on the one hand, on one occasion hon. Members urge my right hon. Friend the Chancellor to spend more—and to create inflation and thus to take away the value of the savings they want the people to provide—and that, on the other hand, they must know that people will not save if they see the value of their savings being whittled away.
§ Mr. James Callaghan (Cardiff, South-East)
The hon. Member is assuming that there will be a continuation of Conservative government, and if that happens I quite agree that people will go on being swindled of their savings. But we are assuming that there will be a swift change to a Labour Government to restore the value of people's savings.
§ Sir C. Osborne
I am much obliged to the hon. Member for his intervention. If he will look at the figures between 1945 and 1951—
Order. This is going much too far from the Clause. We cannot discuss inflation now. I hope that the hon. Member will come to the Clause.
§ Sir C. Osborne
I will obey your Ruling. Sir Robert.
I oppose this Clause because I do not think that it will achieve the object that 1418 hon. Members opposite have in mind. To allow the first £15 of interest to be free of Income Tax, a concession which they wish to give to two sections but to deny to other sections, such as holders of War Loan and other Government stocks, would be socially unjust and would land us ultimately in inflation. This new Clause only plays with the problem. It is futile, and should be rejected.
§ Mr. W. T. Williams (Warrington)
The last time I spoke on a Clause similar to the New Clause—"Reduction of rate of Profits Tax on co-operative societies &c."—was in 1958, and since then I have listened to most of the speeches urging the Government to fulfil its purpose. Our approach tonight is rather that of the much-married American starlet who at the moment of her fourth marriage said that it was a triumph of hope over experience.
The hon. Member for Louth (Sir C. Osborne) will not expect me to agree with much that he has said, but I am at least happy for once to join him in paying tribute to the work and social significance of the Co-operative movement. It is this that makes me wonder why the Government persist in pursing a policy of imposing Profits Tax on this movement that has been characteristic of them through out their period of office. The hon. Member for Nottingham, South (Mr. W. Clark) congratulated the Conservative Party on being ever fresh in ideas, but in the Government's attitude towards the Co-ops it is true that the more Ministers there are the more things remain the same.
As long ago as 1933, the Raeburn Committee instituted what is illegal fiction with a vengeance—that the Co-ops were to be treated just as though they were joint stock companies. The Government ought to know better than to behave like that, because the Co-ops have absolutely nothing in common with joint stock companies. They are not joint stock companies, their capital structure is not the same, the way in which they distribute their profits is completely different, and the 13 million membership is made up of people who are, by and large, very different from the shareholders in the joint stock companies.
The Government are supposedly in favour of the Co-ops—they pay them the tribute of lip-service—yet they persist in 1419 continuing this fiction that it is just and fair to treat them as though they were joint stock companies for the payment of Profits Tax. That is not only unjust and unfair—it does not even make sense.
For instance, the Co-ops, apart from having a fixed price for their shares—the shares are for ever at par and do not increase in value as, one hopes, the joint stock companies shares do—limit the amount of interest they pay and spend the greater part of their surpluses as dividends to their members. The people who benefit are those who purchase from the co-operative stores. In such circumstances, this legal fiction, is manifestly unjust.
The position is now rather worse than it was in 1958 when this profits taxation was first imposed on the Co-ops. They are not now being treated even in accordance with the original fiction, but worse than the joint stock companies, by the raising of the rate from 3 per cent. to 10 per cent. in 1958; from 10 per cent. to 12½ per cent. in 1960, and from 12½ per cent. to 15 per cent. in 1961. In the same period, the joint stock companies have benefited tremendously, because in 1958 the taxation on their profits was reduced from 30 per cent. to 10 per cent., and they will this year be paying half their pre-1958 rate while the Co-ops will pay five times as much.
That is manifestly unjust to the 13 million co-operators who comprise the backbone of our working people, for they are able to hold relatively little capital. The average amount of capital held by each co-operator is only £22 10s. 0d., yet it is these same people who give to the co-operative movement the enormous total capital in shares and loans of £294.7 million.
We have already heard that one-third of the total of Co-operative savings is invested in Government stocks. However, the effect of the 1958 Act upon the co-operative societies holding the capital of their co-operators has been that they have had to pay in the form of taxation on profits an additional £1–3 million, in 1960 a further £500,000, and in 1961 a further £450,000. That is an increase in taxation paid by the societies of about £2¼ million a year out of moneys which would otherwise be returned to their 13 million members, who are, in the main, people in the lower income groups.
1420 The fall in dividend paid by the co-operative societies is related directly to this. The effect is so grossly disproportionate, demanding such a large contribution from lower-paid people and increasing the burden upon organisations which the Government constantly aver are for the social and economic benefit of the country, that we repeat our plea tonight, more in hope than in confidence, I fear, that they should revise their attitude and grant what we ask in the new Clause.
§ 8.30 p.m.
§ Mr. Skeet
I do not wish to follow the remarks of the hon. Member for Warrington (Mr. W. T. Williams), although I concede that his argument is extremely persuasive. I wish to direct attention to the new Clause, to which, together with some of my hon. Friends, I put my name, to exempt building societies from Income Tax and Profits Tax.
No doubt, my hon. Friend the Economic Secretary has had an opportunity to read Cmnd. 2050, to which many references have already been made. It appears that he may be in a rather troublesome predicament here. If new housing societies are to be created which do not pay Income Tax or Profits Tax, it will be rather difficult not to concede this concession to the building societies. After all, the building societies have contributed enormous sums to the same purpose since the war, and if the money had not been forthcoming from them it would have had to be found by the local authorities or by the Government.
I shall make my point briefly, because I support what has been said by my hon. Friends and by some hon. Members opposite who have pressed this proposal on the Government. I suggest that my hon. Friend the Economic Secretary ought to make perfectly clear to the Committee precisely what future rôle he has in mind for the building societies. He has said that the building societies can play a greater part in the life of this country. What precisely is to be their rôle? Cannot that rôle be facilitated by exemption from income Tax and Profits Tax, which would involve only about £15 million?
Who will be the people to benefit? One cannot do better than refer to the Halifax Building Society, the largest in 1421 the country. Last year, the Halifax advanced a total of £114 million on 60,000 mortgages. The breakdown of the total is interesting. There were 56,966 mortgage advances agreed which did not exceed £3,000 each, and these were all in respect of homes to be occupied by the borrower himself. The total there was £97 million. Again, of 3,180 mortgage advances between £3,000 and £3,500, all were in respect of homes to be occupied by individual persons, the total amount there being approximately £10 million.
Thus, we find that the people who would benefit would be those in the lower ranges of income, the very people we would wish to benefit, those requiring mortgages for the advance of about £3,000 or, perhaps, even £4,000. We are not asking for a concession to assist extremely wealthy people. The concession would assist young married couples, often the people who advance money to the building societies, who want homes which they can have as their own so that they will not be paying rent in perpetuity but, rather, over the course of the term of, say, twenty or thirty years, will have an investment.
We do not wish to return to the era of Socialist inflation. We hope to be able to say ultimately (that every man in the United Kingdom will have a house of his own, if he so wishes. We already know that each year 125,000 people are buying their own houses with the assistance of building societies. The purpose of the new Clause to which I am speaking is well understood, and I hope that my hon. Friend the Economic Secretary appreciates that he may be in some difficulty here.
There are various forms of saving. There is saving through the building societies, the National Savings movement, the housing associations, and so on. There are all these common avenues by which money is saved by the community. Are some of them to be subjected to Profits Tax and Income Tax and others not?
§ Mr. Laurence Pavitt (Willesden, West)
As the hon. Gentleman is developing this theme of the vast number of people who will own their own houses, may I point out that in his constituency the borough council had to stop lending money for a long period to would-be owner-1963 1422 occupiers because of the high interest rate which arises from the Government's policy, whereas when I was on a local authority under a Labour Government we were lending money under the Small Dwellings Acquisition Act at the rate of 2¾ per cent.? Surely that is inconsistent with the hon. Gentleman's argument.
§ Mr. Skeet
That Act was not put on the Statute Book by a Socialist Government. I believe that the Small Tenant Acquisition Acts were introduced in 1889 and 1923, but they were not put on the Statute Book by a Labour Government. If the hon. Gentleman likes to discuss the question of interest rates, he must take a number of factors into account. The Government cannot manufacture money by a printing machine. They can only derive it from the taxpayer and from people who are prepared to advance it. Thirty-eight per cent. at least of the contributors are the public themselves, and unless they are paid a reasonable rate they will not provide the money.
Reference was made a moment or two ago to War Loan. I do not want to get out of order on this matter, but I have been asked a question on it. Hugh Dalton, as he then was, advised people to put down £100 for War Loan. It has reduced in value until today it is worth only £45. Members of the public appreciate that 2½ per cent. is not enough and feel that they are entitled to a little more. In considering the question of interest rates, we must bear in mind not merely internal, but also external matters which affect our balance of payments.
The Halifax Building Society paid £8,922,283 in Income Tax last year, but I appreciate that a large part of it would be paid on account of the investors themselves and that only part of it would be on the residual surplus. The Society paid £813,000 in Profits Tax, a quite significant figure. I appreciate that if only the Profits Tax argument were conceded the building societies could not do very much because the ratio of their reserves to assets has gone down from 6.4 to 4.4 per cent. and it would be necessary to build this up.
Who would benefit from this suggestion? The chief general manager 1423 of the Halifax Building Society has written me a letter—
§ Mr. Skeet
I have nothing to do with the Society. The chief general manager states:In present conditions, assuming an immediate exemption from profits tax and income tax on surpluses, it would certainly be the wish of the Halifax Board that the benefit arising from the consequent adjustment in margin should be passed to the borrowers by way of an actual reduction in the rate of interest they are charged at present, which is 6 per cent. I cannot foresee the precise extent of such reduction except to say that it would he at least I per cent.This is an authoritative statement. This would be the benefit which would go to the people in a property-owning democracy which, we hope, will extend.
Many arguments have been adduced on this matter, but I think that the only argument which the Government can put against it is that it would create a number of anomalies. It might be said that, if the Government conceded this in respect of building societies, they would have to concede it in respect of co-operative societies, and so on. But there is one prime necessity, and that is to build more and more houses throughout the country, which the Government are doing under the proposals of the recent White Paper. What the people want, above all, is more houses which they will own over the course of years.
We appreciate that it is necessary to build more council houses, but the advantage of this from the building societies' point of view is that a man will have his own house through his own earnings over a number of years. This is one way in which the Government could substantially aid the borrower.
§ Mr. Rankin
I am committed to only five minutes and that is a disaster which the hon. Member for Willesden, East (Mr. Skeet) did not minimise by exceeding five minutes. I am thinking of my hon. Friends on this side who would like to say a word or two. Before I came into the Committee tonight, I read the speech which I made on this subject last year and I enjoyed it very much. I consider it to be a very good speech. It occurred 1424 to me that if I had time, I would bring it in and read it again tonight, but, unfortunately, it occupied more than five minutes, and I have been reminded by my Front Bench that I sometimes forget when I have had my five minutes.
I am glad to see the Economic Secretary on the Front Bench, because he was not occupying that position when I spoke a year ago and had a great deal of support from him. He was most friendly in his disposition towards us when he was on the back benches, sitting next to his hon. Friend the Member for Crosby (Mr. Graham Page), who evidently remembers the occasion. A year ago, we bad much encouragement from hon. Members opposite. They were all in favour of saving. When it came to the vote, however, they went into the Lobby against us. The Economic Secretary has the chance tonight to redeem himself.
I wish particularly to address my remarks to the new Clause entitled "Reduction of rate of profits tax on co-operative societies, & c.". I should like the Economic Secretary to remember what he said a year ago about savers and to tell us that tonight, instead of running away, he will stand with us. I asked him to do that last year, but he did not.
There is one little problem in this long fight that has been with us since 1958 when we abandoned the 3 per cent. tax. Why is it that these profits, created by the same people in the same way and in the same movement, the Co-operative movement, were regarded as undisturbed profits from long before the publication of the Reyburn Report in 1933—and the Labour Government throughout its term of office regarded and treated them as such—but that in 1958 they suddenly, overnight, became distributed profits treated in exactly the same way as if the Co-operative movement were a joint stock company? That was altogether wrong.
I am certain that when he replies, the Economic Secretary will not try to prove what is unprovable. Perhaps, however, he will tell us why what was regarded as the right thing to do prior to 1958 suddenly became the completely wrong thing to do after 1958, with the result that the movement is today losing £2¼ million, practically all of which comes from working people.
1425 Last year, the Economic Secretary said that he wanted to see savings made out of income. I want to ask him again, as I asked him last year: what is the difference? He wanted to save out of husbands' incomes. We want to save out of the housewives' spending. We were prepared to assist him in his effort last year, will he come to assist us in our effort this year; to encourage the savings which women make when they spend money in a co-operative society? 8.45 p.m.
My five minutes are up, much to my regret. [HON. MEMBERS: "Go on."] I should become very unpopular with those on this side of the Committee if I did. My hon. Friend the Member for Coatbridge and Airdrie (Mr. Dempsey) cannot sit any longer in his seat, and I hope, Sir William, that you will note what I am saying. However, I am grateful to have had five minutes; and I hope that the hon. Gentleman who supported me on this topic once before but not by vote will be helpful on this occasion and correct that error and support our new Clause.
§ Mr. Graham Page (Crosby)
I want to return to the new Clauses which deal with building societies and particularly to those which seek to give relief not only from Profits Tax but for Income Tax as well—although I think that hon. Members have taken too slavishly the statement of the Building Societies Association that relief from Profits Tax could not be reflected in any reduction in interest charged to borrowers. Certainly, so far as the smaller societies are concerned, which have a variety of ways of advancing at varying interest, relative to the properties on which they advance, I believe that even relief from Profits Tax could be reflected in benefits to the borrowers, perhaps on the older properties on which some of the smaller societies charge slightly more interest.
I have to declare an interest at once. I am a director of a building society. I find that the public idea of the board of a building society is rather extraordinary. We are thought of as whimsically or devilishly turning the screw to get another¼ per cent. interest out of the borrower and delightedly putting it into the board's pockets. Of course, what the board of directors of a building society are concerned with is that margin be- 1426 tween the rate of interest which they have to pay to get the money in and the rate of interest which they have to charge the borrower.
In dealing with the margin they are dealing in shillings and pence. It is not a large margin. Into that margin have to be squeezed the administrative expenses, the reserves which building societies have to maintain, and tax; and the tax takes a very big slice of that margin. If there were tax relief that margin could be cut; not could be, but would be cut, because it would be an obligation on the building societies to cut that margin.
It depends which end one is going to cut it. Is the interest which is paid to the depositors in order to attract more money into the building societies to be increased, or can the rate of interest charged to the borrowers be reduced? Until recently I would have said that the necessity would have been to give more interest to depositors in order to attract more money in, but from the beginning of this year or the end of last year the money has been coming into the building societies freely at the rate of interest which is offered.
This is a situation which makes it possible, if the Government would give relief now, to pass that relief on to the borrowers. It is a situation which has not existed until this year in all the debates we have had on this subject from 1958 onwards. The trouble from 1958 onwards for the building societies has been to get the money in. Therefore, any relief which they might have been given on taxation might have been passed on to those lending money to the societies, in order to attract the money in, rather than to relieve borrowers.
Now the situation has changed. The money is flowing in at the rate of interest offered, and therefore even if building societies were relieved of Profits Tax this could be passed on to the borrowers as a definnte benefit. This, then, is just the moment this year to give that relief, a moment which has not occurred in all the past years.
There is a further reason for giving the relief this year, or at least forecasting that it will be given next year, and that is the White Paper to which hon. Mem- 1427 bers have referred and which blandly says…the Government have decided to encourage an expansion of the housing society movement. The building societies can play a major part in this new development.The part which they are to be asked to play is to advance two-thirds of the money required by the housing societies in this expanded programme and to advance it for periods of forty years.
This will make it more and more difficult for the directors of building societies to adjust that margin. They are to be asked to try to spread their investments over forty years, with less and less coming in to lend out again, and having their investments tied up for that period. This is a serious thing to ask the societies to do in order to enable the Government to carry out their expanding programme. This ought to be recognised by the Government and relief should be given in return for it.
It has become the practice over the last one or two years for Chancellors of the Exchequer to forecast what they will do in the next Budget. We had, for example, the forecast about Schedule A. What is stated in this White Paper on Housing cannot come into operation for at least twelve months. It needs legislation and the whole scheme has to be worked out, but it does need the assistance of the building societies. The White Paper actually says so. It needs their assistance to the extent of two-thirds of the money which is required for this expanded programme. If my right hon. Friend could say this year that to carry out that expanded programme the next Budget will include relief to building societies we should be very happy. I think that this should be done. I think that it must be done.
§ Mr. Chapman
This debate has been repeated so often in previous years and the case for the building societies has been made so frequently and clearly that I shall not restate it again tonight. The tendency in the Committee has been simply to state the broad case all over again. Obviously, I am in sympathy with that, for I have made it myself in every previous debate on this subject, but I thought that it would be as well if I tried not to restate that broad case but to examine the response hitherto made by the Government.
1428 I want briefly to look at what I think was the most important debate which we have had on this subject, which was in June, 1961, when the present Financial Secretary replied on behalf of the Government to this broad case. The case is clear enough. It is the difference between building societies and joint stock companies, the absence of distribution of profits, the special nature of building societies as small savings institutions and the broad social argument on housing grounds. I should like, therefore, to refer to the answer which was given by the hon. Gentleman on that occasion. What the hon. Gentleman said gave us half our case. He said:It is perfectly true that there is no equity interest in their capital, that any surplus which is put to reserves does not enure for the benefit of their shareholders, who are entitled only to a fixed rate of interest, and that that serves to build up the business for the benefit of would-be house owners.All that is true. So he thus gave us a very important part of our case. It is, therefore, a waste of time to keep on making that case for it has been accepted by the Government. The hon. Gentleman went on:As to the surplus or the profit, the amount which the societies put to reserve after deducting all the outgoings by way of expenses and interest is a true profit and recognised as such by the Royal Commission. It is difficult in those circumstances to see why it should escape tax in the case of the building societies on any grounds of principle and logic, certainly as compared with an ordinary company.The hon. Gentleman stands by that.
§ Mr. Eric Lubbock (Orpington)
The big difference surely is that these profits cannot be distributed.
§ Mr. Chapman
I am pointing out that the hon. Gentleman the present Financial Secretary stands by that feature of his case. Even if the profits are not distributed, according to him they are profits. He said that this was something which must be considered as a profit and taxed as such.
§ Mr. Chapman
The hon. Gentleman nods his head. He stands now where he stood in 1961 on this matter. But does he not see the flaw in that case? If we are looking for a particular reason to foster an organisation on social grounds, we can see it in the tremendous difference 1429 between a joint stock company which distributes its profits and an organisation whose surplus the hon. Gentleman calls a profit because he wants to and for no other reason. This gives us the loophole to say that this difference between building societies and other organisations enables us to disregard his purely academic definition of profits so that we can pursue a particular social purpose and thus relieve them from this taxation. In the last resort, the hon. Gentleman is hanging on to a very slim academic argument which has little to do with reality. Indeed, he admitted it.
The second leg of his argument was that if the Government relieved building societies from this form of taxation it would be…virtually impossible to withhold a similar concession from other bodies which have no equity share capital and are not profit-making according to the definition of profit-making which has been assumed by certain hon. Members in the debate."—[OFFICIAL REPORT, 14th June, 1961; Vol. 642, c. 498–9.]In other words, if he did this for building societies he would have to do it for the Post Office, the nationalised industries and public utilities. This may be so. Indeed, I would support that case. But it can be supported and argued on quite different grounds.
The relief of nationalised industries from taxation is mainly a matter of national accounting, book-keeping and administrative tidiness. Therefore, that argument is quite different from the one about building societies. The argument about building societies is that we are trying to foster a small savings institution which is, so to speak, half nationalised—I mean in the sense that it is a social institution. We can, therefore, approach the problem from that angle. Thus, the second leg of the hon. Gentleman's argument does not really stand up. The arguments can be judged on entirely different grounds. 9.0 p.m.
I rose tonight only because I have become tired of these debates year after year during which we make the broad case but receive no answers. I challenge the Financial Secretary. For heaven's sake, let him not rely on these two arguments for the fifth or sixth year in succession. They are alt we have had every year. I ask him to stop it. Let us have 1430 a real answer to our case, which is that there is sufficient difference on every ground between building societies and other institutions to merit a special concession. I hope that we shall get a little further tonight.
Even hon. Members opposite have not progressed very far. The hon. Members for Nottingham, South (Mr. W. Clark), Crosby (Mr. Graham Page) and Coventry. South (Mr. Hocking) said tonight—"If not this year, could we at least have a promise for next year?" They keep on saying this. In 1961 the hon. Member for Nottingham, South ended his speech with these words:I hope that my hon. Friend will give some hope, if not for this year then for the future, because building societies should get relief."— [OFFICIAL REPORT, 14th June, 1961; Vol. 642, c. 492.]I could detect the tremor in his voice. We have had the same thing all over again tonight. /t is up to hon. Members opposite. A tough lobby on Schedule A managed to secure some progress. While there is a Conservative majority in the Committee, we must depend to some extent on some hon. Members opposite being a little tougher each year. It is no good now making the same speeches as were made in 1961. They will get the same "brush-off" from the Front Bench as they received then. It is time hon. Members opposite were tougher with their own Front Bench, if they really mean what they say each year on this issue. I look to them tonight to be a little stronger when it comes to the final decision. We have had enough of their words. Let us have a little action from them.
§ Mr. Dempsey
Like my hon. Friend the Member for Glasgow, Govan (Mr. Rankin), I must keep an eye on the clock and an eye on the few notes I have. This is the second evening in succession when time has been my greatest adversary. Although I find it most unpalatable, I have come to a gentlemen's agreement and, being a gentleman, I intend to observe it.
I have a co-operative society in my constituency known as the Coatbridge Co-operative Society. It is a fairly large society. Its board of directors has already made strong representations to the Financial Secretary about the discrimination against co-operators small 1431 savings. It feels very strongly that it is unfair to penalise co-operative savers when there is no discrimination against Post Office savers. The Clause seeks to ensure that co-operative small savers should enjoy the same privileges as Post Office and trustee savings bank savers. No doubt there are millions of persons who have made investments with the Post Office and who are enjoying this advantage, but there are also millions of co-operators who have done likewise through co-operative societies. Why should these small savers who are contributing to the nation's well-being be penalised?
Earlier we listened to some clap-trap about a property owning democracy. The 13 million co-operators democratically own, manage and control their own businesses. They elect officials. After meeting trading expenses, they share the surplus according to member's purchases. This section of the community is worthy of every consideration and encouragement from the Government. We ask that these small savers should have the same advantages as those who invest in the Post Office or in trustee savings banks.
I was recently asked to address the managers of this society. They were angry at what they called the shameful treatment of the co-operators in this country. All that we are asking is that the Government should grant them a relief of £2 million. This should be no trouble to hon. Gentlemen across the way. I am sure that there was more lost on a certain race which took place earlier this afternoon. I think that this is the reason for the Bill being discussed at this late hour and for hon. Members like myself being restricted to two or three minutes in which to make a speech.
This Amendment has been discussed year after year in our consideration of Finance Bills, and speaker after speaker on this side of the committee has pleaded the cause of this movement. I am assured by members of the Co-operative movement in my part of the country that had this tax never been imposed the money which would have been saved by the co-operative societies, especially those in the development districts, would have enabled them to modernise their property to a far greater extent than they 1432 have been able to do. By modernising their shops they could have provided a considerable amount of work for building trade operatives and at the same time helped the expansion of the national economy. During the period when this tax has been in operation the Inland Revenue authorities have captured from small savers sums which could have been better directed to the development of consumer organisations and indeed producer organisations in the Co-operative movement of this country.
All that the new Clause asks for is fair play for the co-operators by treating them in the same way as those who invest in the Post Office and trustee savings banks are treated. The amount involved is infinitesimal, and I would therefore have expected a sympathetic response from hon. Gentlemen opposite to this request. I hope that the Minister will consider the representations which have been made and not try to convince us that to concede this amount would cause inflation. Time and again it has been said that this concession will cause inflation, but it will amount to a concession of £2 million out of the many thousands of millions in the national budget.
I have never listened to as much piffle as I have heard from the other side of the Committee tonight. I ask the Minister to be realistic and fair-minded and for once to be sympathetic to the Cooperative movement, which has done so much for the country and for the people it serves so loyally.
§ The Economic Secretary to the Treasury (Mr. Edward du Cann)
We have been discussing five separate propositions which have certain common threads running through them. There is the proposition to extend relief under Section 9 of the Finance Act, 1956, to give co-operative and friendly societies the same privilege enjoyed by the ordinary departments of trustee savings banks and the Post Office savings bank, by which the first £15 would be free of Income Tax although not of Surtax. We have been discussing a new Clause suggesting that co-operative societies should be put in a favourable position as to liability to Profits Tax by going back to 1958. In the final group of new Clauses the suggestion is made that we should exempt building societies from Profits Tax or Income Tax and Profits 1433 Tax together to a greater or lesser extent. There is a slight difference between the suggestions made by the Liberal Party and by my hon. Friends.
The hon. Member for Sowerby (Mr. Houghton), the hone Members for Glasgow, Govan (Mr. Rankin), Coatbridge and Airdrie (Mr. Dempsey), Birmingham, Northfield (Mr. Chapman) and others have referred to debates we have had on these matters throughout the years. It might be thought perhaps that the Committee would be suffering ennui as a result, because we have heard the same points made before and have had the same speeches.
§ Mr. du Cann
The hon. Member's may have been shorter, but I think it was the same in substance. We have had some excellent speeches tonight. I wish to mention in particular the speech of the hon. Lady for Wood Green (Mrs. Butler), which impressed me as it did the whole Committee.
I was very pleased that no one made the point, as I thought they perhaps might, that there was some sort of prejudice against co-operative societies. That is a point which is sometimes made outside this Committee. The hon. Lady and the hon. Member for Workington (Mr. Peart) and my hon. Friend the Member for Louth (Sir C. Osborne) went to some trouble to say extremely pleasant things about the Government and their attitude towards co-operative and friendly societies. I am sure that is appropriate. A great deal was said tonight about the splendid work they do. I believe the hon. Member for Sowerby used the word "admirable". I wish to endorse all these tributes paid to that splendid movement.
The hon. Member for Govan seemed to put his finger on the point perhaps to a larger extent in one observation he made. He suggested by inference, and he was probably quite right, that I might find myself in some personal difficulty for, as the Committee well knows, I am enormously prejudiced in favour of savings, because savings do so much for the individual and the habit of thrift is a fine thing to encourage. It brings out the best qualities, as the whole Committee will agree. On the other hand, and here is the conflict, I am sensible of the need 1434 for sound, wise and fair administration. There is a conflict here.
§ Mr. Rankin
The hon. Gentleman is now saying that we agree, he and I, on the need for savings. I ask him this year what I asked him last year, not to penalise savings in the Co-operative movement.
§ Mr. du Cann
With great respect to the hon. Member, I think his memory is slightly at fault. I have never knowingly penalised anyone either in the past or at present, as I shall describe. His intervention reminds me—and I hope to illustrate the point in my remarks—of the difference between an optimist and a pessimist. I once heard an optimist described as the man who said a bottle was half full while a pessimist said that it was half empty. We have had the same difficulties during the course of this discussion. We are talking about an exact, precise and definable situation which some say is unfair, some say is discrimination and in which some say there are decided advantages. We shall see and come to a decision in due course. What we have basically to decide is whether co-operative societies, friendly societies and building societies should be placed in a somewhat special position.
On the subject of the first of the new Clauses we are considering, which was especially referred to by the hon. Members for Wood Green, Coatbridge and Airdrie, Sowerby and others, the hon. Member for Sowerby was entirely right when he said that when the concession to the trustee savings banks ordinary departments and the Post Office savings bank accounts was introduced by the Prime Minister when he was Chancellor, in 1956, two clear conditions were laid down. I wish to rehearse them clearly to the Committee. The object was to give special encouragement to those savings institutions which invest the whole of the funds deposited with them with the State and which pay a relatively low rate of interest. They are the only two savings institutions in the United Kingdom which fulfil those conditions.
Some hon. Members discussing this point this evening have suggested that our attitude is inflexible. That is not so. I wish to remind the Committee of what happened in the case of the Birmingham Municipal Bank, which is now under this 1435 general umbrella. I dare say—it is a matter that we shall have to decide in time—that other institutions could come under the same umbrella if they fitted the precise conditions, but at the moment they do not. I do not deny that they do immensely good work, but they do not fit these two conditions. 9.15 p.m.
Secondly, it is true, as has been argued, that giving the concession to co-operative societies and friendly societies would cost only about £2½ million, which is not a very great cost. On the other hand, if we departed from those conditions and devised conditions which would fit these two types of society, inevitably the demand would arise from many other forms of savings institutions. It is not only cooperative societies and friendly societies which encourage the small saver. There are many other institutions which do, and will do, exactly the same thing. The list is very long indeed, and the fact is that the total cost would be about £40 million. The point is that here are conditions. They are entirely clear. These two institutions have this favoured position, and they meet these conditions. The other institutions do not.
The hon. Member for Sowerby asked a question about National Savings Certificates. I will not follow him into a lengthy intervention on that point—you would not wish it, Sir William—but I was asked particularly what was the Government's attitude towards small savings. I confirm that it is our clear opinion that small savings are vital from every point of view vital for the national economy and for the kind of social reasons which I briefly discussed earlier. It is true that the inevitable hold-up in the issue of new Savings Certificates has been an inconvenience to the savings movement in general, although all other forms of National Savings have been open. It is pleasant and gratifying to read of the spendid result which the new issue has deservedly had on its introduction.
I turn to the new Clause dealing with co-operative societies. The hon. Member for Sowerby mentioned the Report of the Royal Commission on Taxation, and I will quote from paragraph 562 of the Final Report: 1436The main principle that we wish to see adopted is that a tax on the profits of corporations should apply to all profits without distinction…It seems to us that only by an impartial distribution of the tax whenever and wherever profits are found can there be a fair balancing of costs and prices…Those words are extraordinarily clear. The hon. Member for West Ham, North (Mr. A. Lewis) comments that I read this better last year. He is very good at interrupting while remaining seated. I did not speak on this subject last year.
§ Mr. du Cann
I do not think that I need follow the matter further. I have made my point, and I think that the Committee accepts it. These words of the Royal Commission are entirely clear. I am not one of those who believe that the words of the Royal Commission are Holy Writ. On the other hand, as I shall argue tomorrow, if we reach the subject which I hope to discuss tomorrow, these words have to be taken with very great seriousness and to be given proper weight. They are clear and definite and they bear particularly on four of the new Clauses.
§ Mr. du Cann
Indeed, and I remember the hon. Member making that point with his usual distinction and clarity. I will not mention the exact words which he invited me to use about his speech earlier, because I do not want him to read too much into them. I have said that I do not regard the words of the Royal Commission as Holy Writ, but it is appropriate to argue that we should pay strict attention to them, as the hon. Member himself argued, and take them seriously.
The hon. Member for Sowerby pointed out quite fairly, although other hon. Members have failed to point it out, that in relation to their share dividends Cooperative societies are somewhat specially treated. So they should be, I believe, and so the Committee feels, for share dividend is certainly different in kind from the dividends paid by ordinary companies. This position is made clear by Section 26(2) of the Finance Act, 1958. Some hon. Members argued as though we treated co-operative societies exactly on 1437 a par with joint stock companies. This is certainly not so.
On the other hand, if we accepted the new Clause in the name of the hon. and learned Member for Kettering (Mr. Mitchison), not only should we be in breach of the Royal Commission's recommendation, but I sincerely suggest to the Committee that we should be creating a thoroughly unfair situation as against other traders of all kinds in the national economy.
It was argued by some hon. Members that because Profits Tax had increased over a period, we had somehow done something which was particularly and peculiarly unfair to co-operative societies. That simply is not so. If taxation in general rises, it must be appropriate that all traders should bear it equally; anything else would be inequitable.
§ Mr. Holman
How can the hon. Gentleman maintain that the Profits Tax should apply to non-profit-making organisations which merely have to accumulate a small reserve, such as a building society or co-operative society, in order to maintain their solvency under difficult conditions?
§ Mr. du Cann
I suggest that it should apply simply because these societies are engaged in trade in the same way as limited liability companies are engaged in trade.
I now advert to the larger group of Amendments dealing with building societies. I shall not follow the hon. Member for Huddersfield, West (Mr. Wade) into the details of the long-standing arrangements which have existed in relation to the composition of tax and the rest of it. I think we are all agreed that this is the appropriate and sensible thing to do, and, as he quite rightly suggested, it saves everybody a great deal of trouble; and that surely is a thoroughly good thing.
I want to come to the argument used in favour of giving building societies an especially favoured position. Something was said to the effect that building societies were non-profit-making concerns. A great deal on this point was again said by refe-ence to debates that we have had in earlier years. The hon. Member for Northfield with HANSARD in his hand —a very bulky volume from the look of it—quoted at some length from the 1438 debate of 1961. Many other hon. Members have quoted from our earlier debates. But what I did observe, somewhat to my disappointment, because I know that hon. Gentlemen are honourable men, was that these quotations were very selective. No one quoted, for example, the speech of my hon. Friend the Member for Wimbledon (Sir C. Black) last year. No one in this Committee has more experience of building society matters than the hon. Member for Wimbledon. This is a matter of fact, not a matter of argument. He made the point very clearly that a building society is a profit-earning society in the same way as any limited liability company attempts to be. There were other hon. Gentlemen who suggested, rather as has been suggested in relation to co-operative societies, that there were no particular tax concessions for building societies. This is again simply not true.
In the case of Profits Tax, with which we are concerned particularly in relation to the Opposition Amendment, the difference between their shareholders and those of an ordinary limited liability company is already recognised in arriving at their Profits Tax liabilty.
§ Mr. du Cann
I am obliged to the hon. Member for Northfield for confirming that. Therefore, they do in fact have special treatment under our tax system at the present time. But their surplus is undoubtedly and unquestionably a profit in the ordinary sense of that term. Of that there is no doubt whatsoever. There can be no escape from the logic of the Royal Commission's view, because if we get away from that clear principle and start modifying the rate of tax according to the nature of the trade or business which is carried on, or the nature of the body which carries it on, as Lord Amory said a year or two earlier, we shall certainly be in a very deep bog indeed. Where would the exception of these particular societies lead us? That is a question that no Member of the Committee is willing to attempt to answer.
Nobody in the Committee produced one of the arguments which has been made many times in the past, to the effect that the incidence of tax prevents building societies from building up adequate reserves. I am not surprised, 1439 for it is an argument which it is impossible to justify, although we hear it outside the Committee from time to time.
We are told, and we were told, that there are special social reasons why building societies should be helped. It was said, in particular by my hon. Friend the Member for Nottingham, South (Mr. W. Clark), my hon. Friend the Member for Willesden, East (Mr. Skeet) and my hon. Friend the Member for Crosby (Mr. Graham Page), who also has great experience of these matters, that the exemption proposed in the Clause which those hon. Members recommend would allow for a reduction in the mortgage interest rate charged by societies of about ¼ per cent.
I accept the argument that it is essential to do all that we can in various ways, so far as it is open to us, to facilitate home ownership. I have never had any doubt about that in the whole of my life. Of course that is true. But, of course, it is similarly true that many factors go to make up the cost, so to speak, to home owners. Everyone in the Committee knows this. It is certainly true that interest rates are one of them, but what would a difference of per cent. mean to the kind of people, talked about with such eloquence by my hon. Friends, when they come to attempt to buy their own houses?
I have had a calculation made and I report it to the Committee. When the rate of interest on mortgages was reduced from 6½ per cent. to 6 per cent., the Building Societies' Gazette reported that this would mean on a mortgage over a 20-year term that the monthly repayments would be reduced by 7d. per £100 borrowed. This calculation did not take into account the Income Tax allowance and perhaps the reduction would be a bit less than that, but we will forget that for the moment. A reduction of ¼ per cent., which might or might not follow from this change—some building societies might make a full reduction, but I am perfectly certain that not all would do so—and taking into account the total reduction of Income Tax and Profits Tax on surplus, would leave a monthly benefit of little more than 2d. per £100 borrowed to the standard rate taxpayer. For example, on a loan of £2,000 repayable 1440 over 20 years, the net monthly repayments would be reduced by 3s. 8d. for the standard rate taxpayer. I am not suggesting that that is nothing. What I am saying is that one must get these matters into proportion and that this is a very small item.
§ Mr. Lubbock
The hon. Gentleman said that he was not sure whether the calculation based on the½ per cent. reduction was accurate. Is he aware that it was given in the Financial Times on 10th February, 1962, when the calculation showed that it would save the borrower £100 on a mortgage loan of £2,500 over a 20-year period?
§ Mr. du Cann
I dare say that there may not be any difference between the figures I have quoted and those which the hon. Member for Orpington (Mr. Lubbock) has quoted. What I am saying is that, in general, on the basis of regular payments this reduction would make very little difference.
Even if it made a very much larger difference, this is the year in which, as the hon. Member for Sowerby has reminded us, my right hon. Friend the Chancellor of the Exchequer has abolished Schedule A liability. This is the year when yet again this Administration has reduced the Stamp Duty on the purchase of houses. These concessions were extremely expensive—they were right and appropriate and proper concessions—and it is not altogether unreasonable to point that out to those who have pressed hardest to suggest that we should go still further during the course of this year.
We have continually done much to encourage home ownership and it is only right that we should be proud of that. We look forward to going further in the future, but, for the time being, there certainly seems to be no appropriate reason for giving a very high priority indeed, for social reasons only, to this suggestion in relation to building societies. 9.30 p.m.
I would like briefly to refer to the proposed new Clause in the names of my hon. Friends. That differs in cost not at all from the Clause proposed by the Liberal Party. Both parts of the profit or surplus—and I can see the reasoning, which is logical, of my hon. 1441 Friends—arise from the lending of money at interest and I do not think that they should be dealt with differently for that special reason.
§ Mr. Wade
What is the significance in the statement that has been made on one or two occasions by Government spokesmen to the effect that there will be no Profits Tax or Income Tax on housing associations? What is the difference between that, if there is an operating surplus by a housing association, and a building society?
§ Mr. du Cann
I think that the point the hon. Member is endeavouring to press upon me is that the announcements made in the White Paper, which have to be followed by legislation, possibly constitute a precedent in the kind of Clause which he and the Liberal Party are advancing. I do not believe that to be so because the two things are different. One is an entirely co-operative venture and the other a building society of the orthodox kind, and to that extent an entirely commercial venture. The two things are entirely different and separate.
My hon. Friend the Member for Willesden, East asked what was the attitude of the Government towards building societies; what was our idea of the rôle they should fulfil in the future. I do not altogether accept the remarks of
§ my hon. Friend the Member for Crosby on this point. The building societies have played a very valuable part in our economy in the past. There can be no doubt about that. We believe that they will continue to play a great part in the future; that they will help the country and many individuals. We have enormous faith in them, as we have demonstrated, I hope, by the reference to them in the White Paper.
§ However, anyone who looks at their record of results I will not retail them all to the Committee, except to point out that their assets have risen from £1,256 million in 1950 to £3,437 million in 1961—will see how well they are doing. The argument that they or their social activities are adversely affected by the taxes which they currently have to bear, as does every other enterprise in the United Kingdom, quite frankly ignores the facts.
§ For those reasons, which I believe to be logical and good, I hope that the Committee will not see fit to press these new Clauses too hard.
§ Question put, That the Clause be read a Second time: —
§ The Committee divided: Ayes 151. Noes 216.1445
|Division No. 129.]||AYES||[9.34 p.m.|
|Ainsley, William||Dempsey, James||Hughes, Hector (Aberdeen, N.)|
|Albu, Austen||Diamond, John||Hunter, A. E.|
|Allen, Scholefield (Grewe)||Dodds, Norman||Hynd, H. (Accrington)|
|Awbery, Stan (Bristol, Central)||Donnelly, Desmond||Hynd, John (Allercliffe)|
|Beaney, Alan||Edwards, Rt. Hon. Ness (Caerphilly)||Irvine, A. J. (Edge Hill)|
|Bellenger, Rt. Hon. F. J.||Edwards, Robert (Bilston)||Irving, Sydney (Dartford)|
|Bennett, J. (Glasgow, Bridgeton)||Edwards, Walter (Stepney)||Janner, Sir Barnett|
|Benson, Sir George||Fernyhough, E.||Jay, Rt. Hon. Douglas|
|Blackburn, F.||Finch, Harold||Jenkins, Roy (Stechford)|
|Blyton, William||Fitch, Alan||Jones, Dan (Burnley)|
|Bowden, Rt. Hon. H.W. (Leics, S. W.)||Foot, Dingle (Ipswich)||Jones, J. Idwal (Wrexham)|
|Bowles, Frank||Forman, J. C.||Jones, T. W. (Merioneth)|
|Boyden, James||Fraser, Thomas (Hamilton)||Kelley, Richard|
|Braddock, Mrs. E. M.||Galpern, Sir Myer||Kenyon, Cllifford|
|Bray, Dr. Jeremy||George, LadyMeganLlyod(Crmrthn)||Lawson, George|
|Broughton, Dr. A. D. D.||Ginsburg, David||Ledger, Ron|
|Bulter, Mrs. Joyce (Wood Green)||Gourlay, Harry||Lee, Frederick (Newton)|
|Callaghan, James||Grey, Charles||Lever, L. M. (Ardwick)|
|Carmichael, Neil||Griffiths, Rt. Hon. James (Llanelly)||Lewis, Arthur (West Ham, N.)|
|Chapman, Donald||Griffiths, W. (Exchange)||Lubbock, Eric|
|Collick, Percy||Hale, Leslie (Oldham, W.)||Mabon, Dr. J. Dickson|
|Craddock, George (Bradford, S.)||Hamilton, William (West Fife)||McBride, Neil|
|Cronin, John||Hannon, William||MacDermot, Niall|
|Crosland, Anthony||Harper, Joseph||Mclnnes, James|
|Crossman, R. H. S.||Hart, Mrs. Judith||McKay, John (Waltsend)|
|Cuilen, Mrs, Alics||Hill, J. (Midlothian)||Mallalieu, E. L. (Brigg)|
|Dalyell, Tam||Hilton, A. V.||Mallalieu, J. P. W. (Huddersfield, E.)|
|Davies, G. Elfed (Rhondda, E.)||Holman, Percy||Mapp, Charles|
|Davies, Harold (Leek)||Houghton, Douglas||Marsh, Richard|
|Davies, Ifor (Gower)||Howell, Denis (Small Heath)||Mason, Roy|
|Davies, S. O. (Merthyr)||Hoy, James H.||Mendelson, J. J.|
|Delargy, Hugh||Hughes, Cledwyn (Anglesey)||Millan, Bruce|
|Milne, Edward||Roberts, Albert (Normanton)||Thomas, Iorwerth (Rhondda, W.)|
|Mitchison, G. R.||Robertson, John (Paisley)||Thompson, Dr. Alan (Dunfermline)|
|Monslow, Walter||Robinson, Kenneth (St. Pancras, N.)||Thornton, Ernest|
|Oliver, G. H.||Rogers, G. H. R. (Kensington, N.)||Tomney, Frank|
|O'Malley, B. K.||Ross, William||Wade, Donald|
|Oram, A. E.||Silverman, Julius (Aston)||Wainwright, Edwin|
|Oswald, Thomas||Silverman, Sydney (Nelson)||Warbey, William|
|Padley, W. E.||Skeffington, Arthur||Watkins, Tudor|
|Paget, R. T.||Slater, Mrs. Harriet (Stoke, N.)||Willey, Frederick|
|Pannell, Charles (Leeds, W.)||Slater, Joseph (Sedgefield)||Williams, D. J. (Neath)|
|Parkin, B. T.||Small, William||Williams, LI. (Abertillery)|
|Pavitt, Laurence||Sorensen, R. W.||Williams, W. R. (Openshaw)|
|Pearson, Arthur (Pontypridd)||Soskice, Rt. Hon. Sir Frank||Williams, W. T. (Warrington)|
|Pentland, Norman||Spriggs, Leslie||Willis, E. G. (Edinburgh, E.)|
|Prentice, R. E.||Steele, Thomas||Winterbottom, R. E.|
|Price, J. T. (Westhoughton)||Stones, William||Yates, Victor (Ladywood)|
|Rankln, John||Swain, Thomas||TELLERS FOR THE AYES:|
|Redhead, E. C.||Swingler, Stephen||Mr. McCann and Mr. Whitlock.|
|Agnew, Sir Peter||Fletcher-Cooke, Charles||MacArthur, Ian|
|Aitken, W. T.||Fraser, Ian (Plymouth, Sutton)||Maclay, Rt. Hon. John|
|Allan, Robert (Paddington, S.)||Freeth, Denzil||McMaster, Stanley R.|
|Allason, James||Galbraith, Hon. T. G. D.||Macmillan, Maurice (Halifax)|
|Arbuthnot, John||Gammans, Lady||Maitland, Sir John|
|Atkins, Humphrey||Gardner, Edward||Markham, Major Sir Frank|
|Awdry, Daniel (Chippenham)||Gibson-Watt, David||Marshall, Douglas|
|Barber, Anthony||Gilmour, Ian (Norfolk, Central)||Marten, Neil|
|Barlow, Sir John||Gilmour, Sir John (East Fife)||Mathew, Robert (Honiton)|
|Barter, John||Glover, Sir Douglas||Matthews, Gordon (Meriden)|
|Batsford, Brian||Glyn, Dr. Alan (Clapham)||Maudling, Rt. Hon. Reginald|
|Baxter, Sir Beverley (Southgate)||Goodhew, Victor||Mawby, Ray|
|Beamish, Col. Sir Tufton||Gower, Raymond||Maxwell-Hyslop, R. J.|
|Bennett, F. M. (Torquay)||Grant-Ferris, R.||Maydon, Lt.-Cmdr. S. L. C.|
|Bennett, Dr. Reginald (Gos & Fhm)||Green, Alan||Mills, Stratton|
|Berkeley, Humphry||Gresham Cooke, R.||Miscampbell, Norman|
|Biffen, John||Grosvenor, Lt.-Col. R. G.||Montgomery, Fergus|
|Biggs-Davison, John||Gurden, Harold||Morgan, William|
|Bingham, R. M.||Hall, John (Wycombe)||Meave, Airey|
|Birch, Rt. Hon. Nigel||Hamilton, Michael (Wellingborough)||Nicholson, sir Godfrey|
|Bishop, F. P.||Harris, Reader (Heston)||Nugent, Rt. Hon. Sir Richard|
|Black, Sir Cyril||Harrison, Col. Sir Harwood (Eye)||Oakshott, Sir Hendrie|
|Bossom, Hon. Clive||Harvey, Sir Arthur Vera (Macclesf'd)||Osborn, John (Hallam)|
|Bourne-Arton, A.||Harvey, John (Walthamstow, E.)||Osborne, Sir Cyril (Louth)|
|Boyd-Carpenter, Rt. Hon. John||Hastings, Stephen||Page, John (Harrow, West)|
|Boyle, Rt. Hon. Sir Edward||Heald, Rt. Hon. Sir Lionel||Page, Graham (Crosby)|
|Braine, Bernard||Henderson, John (Cathcart)||Pannell, Norman (Kirkdale)|
|Brewis, John||Hendry, Forbes||Partridge, E.|
|Brooman-White, R.||Hendry, Forbes||Pearson, Frank (Clitheroe)|
|Brown, Alan (Tottenham)||Hill, Mrs. Eveline (Wythenshawe)||Percival, Ian|
|Browne, Percy (Torrington)||Hirst, Geoffrey||Peyton, John|
|Buck, Antony||Hocking, Philip N.||Pickthorn, Sir Kenneth|
|Bullard, Denys||Holland, Philip||Pitman, Sir James|
|Bullus, Wing Commander Eric||Hollingworth, John||Pitt, Dam Edith|
|Carr, Compton (Barons Court)||Hornsby-Smith, Rt. Hon. Dame P.||Pott. Percivall|
|Chichester-Clark, R.||Howard, John (Southampton, Test)||Powell, Rt. Hon. J. Enoch|
|Clark, Henry (Antrim, N.)||Hughes Hallett, Vice-Admiral John||Price, David (E (Eastleigh)|
|Clark, William (Nottingham, S.)||Hughes-Young, Michael||Prior-Palmer, Brig Sir Otho|
|Cole, Norman||Hulbert, Sir Norman||Proud foot, Wilfred|
|Cooke, Robert||Hurd, Sir Anthony||Pym, Francis|
|Copper, A. E.||Hutchison, Michael Clark||Ramsden, James|
|Cooper-Key, Sir Neill||Iremonger, T. L.||Rawlinson, Sir Peter|
|Corfield, F. V.||Irvine, Bryant Godman (Rye)||Redmayne, Rt. Hon. Martin|
|Coulson, Michael||Johnson, Or. Donald (Carlisle)||Rees, Hugh|
|Craddock, Sir Beresford (Spelthorne)||Jones, Arthur (Northants, S.)||Rees-Davies. W. R.|
|Crawley, Aidan||Jones, Rt. Hn. Aubrey (Hall Green)||Renton, Rt. Hon. David|
|Critchley, Julian||Kerans, Cdr. J. S.||Ridsdale, Julian|
|Crowder, F. P.||Kerby Capt. Henry||Roberts, Sir Peter (Heeley)|
|Curran, Charles||Kerr, Sir Hamilton||Robinson, Rt. Hn. Sir R. (B'pool, S.)|
|Currie, G. B. H.||Leather, Sir Edwin||Rodgers, John (Sevonoaks)|
|Donaldson, Cmdr. C. E. M.||Leavy, J. A.||Russell, Ronald|
|Drayson, G. B.||Leburn, Gilmour||St. Clair, M.|
|du Cann, Edward||Legge-Bourke, Sir Harry||Scott-Hopkins, James|
|Duncan, Sir James||Lilley, F. J. P.||Seymour, Leslie|
|Eden, Sir John||Litchfield, Capt. John||Sharples, Richard|
|Elliot, Capt. Walter (Carshalton)||Longbottom, Charles||Shaw, M.|
|Elliott,R. W.(Newc'tle-upon-Tyne,N.)||Longden, Gilbert||Shepherd, William|
|Errington, Sir Eric||Loveys, Walter H.||Skeet, T. H. H.|
|Farr, John||Lucas, Sir Jocelyn||Smith, Dudley (Br'tnt'd & Chiswick)|
|Fell, Anthony||Lucas-Tooth, Sir Hugh||Smithers, Peter|
|Finlay, Graeme||McAdden, Sir Stephen||Spearman, Sir Alexander|
|Stodart, J. A.||Tiley, Arthur (Bradford, W.)||Webster, David|
|Stoddart-Scott, Col. Sir Malcolm||Touche, Rt. Hon. Sir Gordon||Whitelaw, William|
|Storey, Sir Samuel||Turner, Colin||Williams, Dudley (Exeter)|
|Studholme, Sir Henry||Turton, Rt. Hon. R. H.||Wills, Sir Gerald (Bridgwater)|
|Summers, Sir Spencer||van Straubenzee, W. F.||Wilson, Geoffrey (Truro)|
|Taylor, Sir Charles (Eastbourne)||Vane, W. M. F.||Wolrige-Gordon, Patrick|
|Taylor, Edwin (Bolton, E.)||Vaughan-Morgan, Rt. Hon. Sir John||Woodhouse, C. M.|
|Taylor, Frank (M'ch'st'r, Moss Side)||Walder, David||Woodnutt, Mark|
|Teeling, Sir William||Walker, Peter|
|Thatcher, Mrs. Margaret||Walker-Smith, Rt. Hon. Sir Derek||TELLERS FOR THE NOES:|
|Thompson, Sir Kenneth (Walton)||Wall, Patrick||Mr. Peel and Mr. McLaren.|
|Thornton-Kemsley, Sir Colin||Ward, Dame Irene|