HC Deb 31 May 1965 vol 713 cc1265-341

7.45 p.m.

Mr. Heath

I beg to move Amendment No. 234, in page 40, line 4, to leave out subsection (1) and to insert: (1) A gain shall not be a chargeable gain if it accrues to a unit trust or to an investment trust to which this section applies.

The Deputy-Chairman (Sir Samuel Storey)

We can discuss, at the same time, Amendment No. 372, page 40, line 4, at beginning, insert: (1) If in accordance with section 63 of this Act the chargeable gains of a unit trust for an accounting period are apportioned to shares in the unit trust the amount apportioned to any such shares other than shares of which the holder is an individual person whose total income in the year of assessment in which the apportionment is made is such that he is not liable to surtax for that year shall be treated for the purposes of this Part of this Act as if it were—

  1. (a) a capital distribution received by him at the time of the apportionment and paragraph 3 of Schedule 7 to this Act shall apply thereto accordingly; and
  2. (b) expenditure allowable under paragraph 4 of Schedule 6 to this Act and incurred by the person holding the shares at the time when the amount was apportioned to those shares.

Amendment No. 45, page 40, line 4, leave out subsection (1) and insert: (1) A unit trust or investment trust shall be exempt from tax on chargeable gains.

Amendment No. 373, page 40, line 5, leave out "a unit trust or" and insert "an".

Amendment No. 210, page 40, line 5, leave out "a unit trust or".

Amendment No. 211, page 40, line 6, leave out "unit trust or".

Amendment No. 51, page 40, line 12, leave out "and the said section 63".

Amendment No. 368, page 40, line 28, at end add: (3) The total net gains realised by the trustees of an authorized unit trust scheme in any accounting period may be distributed to unit holders and the trustees shall not be chargeable to tax on any gains so distributed. (4) Gains distributed in accordance with subsection (3) above shall be chargeable to tax for the purposes of this Part of this Act as if the said distribution were a chargeable gain on an asset realized at the date of the distribution. (5) If the trustees of an authorized unit trust scheme certify to the unit holders the amount of the total net gains realized by them the amounts so certified shall be deemed to be distributed for the purposes of subsections (3) and (4) of this section. The amounts so certified shall be treated for the purpose of this Part of this Act as if it were expenditure allowable under paragraph 4 of Schedule 6 to this Act.

Amendment No. 375, Clause 63, page 79, line 31, leave out paragraph (a) and insert: (a) the trustees of authorised unit trust schemes shall not be liable to corporation tax in respect of chargeable gains; and.

Amendment No. 379, Clause 63, page 79, line 36, at end insert: Provided that for the purpose of computing the liability to corporation tax of any unit trust the amount of chargeable gains accruing to the trust in any accounting period shall be treated as reduced by the fraction of such gains of which the numerator is the amount by which the aggregate of the sums paid by the trust in respect of the cancellation of units exceeds the aggregate of the sums received by the trust in respect of the ceration of units during the period and the denominator is the total consideration received by the trust on the disposal of chargeable assets during the period.

Amendment No. 380, Clause 63, page 79, line 37, after "gains", insert: (reduced where appropriate in accordance with the proviso to the last preceding subsection)".

Amendment No. 215, Clause 63, page 79, line 38, leave out "a unit" and insert "an investment".

Amendment No. 228, Clause 63, page 80, line 37, leave out subsection (7) and insert: (7) For the purpose of this section "investment trust" shall have the meaning assigned to it by section 34 of this Act.

Mr. Heath

On an earlier Amendment, the Committee has shown its deep concern over matters affecting investment trusts and unit trusts and its great anxiety about the consequences of the Bill as it is drafted on charities. Indeed, the Government managed to muster a majority of only three in the face of a combined assault by the parties in opposition on their proposals. The Committee will agree, I think, that this is an important Amendment, which proposes to exempt investment and unit trusts from the Capital Gains Tax. This is a debate of considerable significance.

We have, from the first, drawn attention to the points set out in these Amendments. We emphasised them when the Chancellor of the Exchequer first put forward his proposals for the two new taxes. We emphasised them again when he amplified his statement to the House. We also drew attention to them in the debate on the Budget, and on the Second Reading of this Bill. I know that the Chancellor and the Chief Secretary have received many representations from those concerned about the consequences of the Bill as it is drafted.

I hope that the Committee agrees about the immense importance of those affected by the Bill. I understand that the assets of investment trusts today are in excess of £3,000 million. There are tens of thousands of small holdings in the investment trusts. In addition, there are large holdings by the institutions governing pension funds and superannuation funds and the insurance companies. There is, therefore, in the investment trust movement a combination of the small investor and the large institution governing the interests of many thousands of individuals.

According to the latest figures available at the end of last month, the average holding in unit trusts in £334. This demonstrates that pre-eminently the interest in them is that of the small investor who invests his personal savings and gets, as the Chief Secretary has described, the advantages of expert advice, wise management and a good spread of investments. It is therefore no exaggeration to say that the Bill will have consequences for millions of people through the superannuation and pension funds and the direct personal small investments in the unit trusts and investment trusts.

We on this side of the Committee believe in encouraging the small investor. It is not only a question of not discouraging him; we believe in actively encouraging him. We have long professed our belief in, and tried to encourage, a property-owning democracy. This is to be interpreted not only in the literal sense of owning one's house and home but also in the sense of property owning in other spheres.

The unit trust and investment trust method has always seemed to us on this side to be, perhaps, the best way in which the small investor can start to invest, apart from in his own home. Naturally, when a person first starts to invest, he looks to his own home, but, after that, he looks for a wider investment in securities and tries to achieve this through the unit trust and investment trust. We on this side have a deep belief that this should be encouraged and, to judge from the words of the Chief Secretary on an earlier Amendment, hon. and right hon. Members opposite have no desire to discourage it, although I am not certain that they wish to encourage investment of this kind. Perhaps there is a difference between us. If the Chief Secretary says that the objective of the present Administration is to encourage the small investor, no one will be more pleased than we on this side. We shall be delighted if he says that, because we shall then be able to hold him to his words and point out how his actions tend to militate against their effect.

I hope that the hon. Gentleman will go as far as to say that he wishes to encourage the small investor. We believe that it is desirable for individual reasons, which I have explained, and we believe that it is desirable for national reasons as well. At this moment, I do not wish to discuss the state of the economy, although the hon. Member for Manchester, Cheetham (Mr. Harold Lever) never hesitates to point out its perilous condition whenever he speaks on any Amendment. However, if the economy is to have the investment in plant and the modernisation of our factories which it ought to have, there must be a great increase in savings, and this increase must come not only from the large investor but from the aggregate of small investors. With the rising level of wages in this country, we should, I suggest, encourage a much greater amount of saving by the small investor. These are the reasons, both individual and national, why there should be such encouragement.

Undoubtedly, the general effect of the Corporation Tax and the changes in taxation will present investment trusts with a number of difficulties. There are the difficulties which will arise from the adverse effect on individual shareholders in normal companies as a result of the changes in taxation. In this, they are subject, like other investors, to particular problems. There is also the problem that the investment trust has a large part of its assets placed overseas. I think that about £872 million, or 28 per cent., of the £3,000 million I mentioned is invested outside the United Kingdom. Here again, investment trusts are liable to suffer the general disadvantages which arise from the introduction of the Corporation Tax which we shall be discussing later.

In addition, investment trusts, naturally, wish to switch their investments from time to time in the interests of their shareholders. This is an aspect of the wise management to which the Chief Secretary referred. Overseas, they will come under the new penalty when one switches one's investment in a dollar holding, and this will be another disadvantage in their present state. At the same time, as a result of the Bill as drafted, they will have to pay Capital Gains Tax on appreciation of securities which they hold if they switch them at home as well as overseas.

I am sure that the Chief Secretary knows that capital gains which are made in an investment trust, that is, the capital appreciation when it is realised, go into further capital investment. It is not paid out in the form of normal dividend to the shareholder. This distinction is made by law, I believe, and will continue to be made in respect of investment trusts. Therefore, from their point of view, any appreciation of capital will have to go in further capital investment. As a result of Capital Gains Tax, there will be damage to their further capital investment and to the investments of their shareholders. Also, as I said on an earlier Amendment, following the definition of the hon. Member for Cheetham, this is a clear example of double taxation. There is the taxation of capital gains by the original company, and, when an investment trust switches its shareholding, although that Capital Gains Tax has already been paid by the original company, the trust has to pay Capital Gains Tax on any appreciation which it makes.

If investment trusts are exempt from Capital Gains Tax under the Amendment, the shareholder who sells his holding in an investment trust will himself have to pay Capital Gains Tax. That is fully accepted. But, of course, the Government have put forward a most complicated administrative procedure whereby the individual shareholder is given a certificate for exemption in respect of the tax on the gain paid by the investment trust. But, here again, there is a difference. Whereas the individual shareholder, if he were responsible for the whole Capital Gains Tax, would be paying at the rate of 30 per cent., the investment trust will have to pay at the rate of at least 35 per cent. or—I hope that we can agree on the words here—not more than 40 per cent., according to what the Chancellor said. I hope that we shall not have the same sterile argument with the Chief Secretary about what the Corporation Tax will be in fact. The individual paying Capital Gains Tax would pay at 30 per cent., but the investment trust would have to pay something between 35 per cent. and, as the Chancellor said, a maximum of 40 per cent. Therefore, it would be between 5 per cent. and 10 per cent. more than the individual would pay on his own shareholding.

We regard this as unjustifiable. In the interests of the small investor, superannuation funds and pension funds, investment trusts should not be required to pay Capital Gains Tax a second time on any appreciation of shares it has which will arise only because it is switching its holdings for the benefit of its shareholders and reinvesting its capital, not paying it out. Then the shareholder himself will pay at the rate for the individual.

For the unit trust, there are further complications due to the statutory obligations placed upon them by the Board of Trade. These obligations are peculiar to unit trusts, but I think that the whole Committee will agree that they are justifiable. At some future date, when we come to reform the company law and implement the recommendations of the Jenkins Committee, changes may have to be made in regard to unit trusts. We were considering this in the last Administration, and I have no doubt that the present Administration will consider it. At present, however, there are clear regulations laid upon unit trusts by the Board of Trade. In the same way, they will be liable for Capital Gains Tax, with the same administrative procedure laid down under Clause 63(3). The difficulty for unit trusts arises from the Board of Trade's insistence, quite rightly, on equity among the three groups of unit holders at any one moment—those who are continuing to hold, those who are selling and those who are buying—and it is the administrative difficulty arising from the need to secure this fair balance that produces a real problem for the unit trust.

So far, the general operations of unit trusts have not produced any problem, but, if the Government try to implement their present proposals, the complications will, undoubtedly, be considerable. From the point of view of principle, it cannot be right to impose Capital Gains Tax on unit trusts as such. If it is imposed on the holder of the units when he liquidates his holding, that is perfectly clear, and it would be justifiable. Moreover, it would avoid double taxation. I cannot see why the Chief Secretary and the Government are so anxious to keep unit trusts in particular under the obligation to pay Capital Gains Tax and to introduce what is really a most complicated administrative procedure of certificates, particularly complicated for the unit trust.

I cannot agree that there is any danger here of evasion by the wealthy or the surtax payer because, if a man has a large holding in a unit trust, he will have to pay Capital Gains Tax when he realises his units. I cannot see why there should be particular anxiety about the possibility that someone might go in for large holdings in unit trusts. But, even if there were ground for such anxiety, the fact that predominantly holdings are small—I have already referred to the average holding of £334—out-weighs any disadvantage which the Chief Secretary might see or any anxiety he might have about the larger holder.

8.0 p.m.

The administrative problem is that, as far as Capital Gains Tax is concerned, the unit trusts will have two alternatives. Either they have to meet contingent liability for any capital gains they may make or they have to take no account of liability for capital gains till they realise them, and whichever course they decide, they are going to be unfair to one of the three groups whose interests they have to consider under Board of Trade Regulations. They will be unfair either to those who are buying them, because they would have to buy their units at a price which made allowance for the contingency fund which has been set up, or, of course, as soon as they have bought them at the lower price, the value of the unit becomes that of the normal value and the chap who buys gets an immediate advantage over those who are in the fund by which they provide for contingent liability. Exactly the same problem arises if they wait till the capital gains are realised, because then those who sell beforehand get an unfair advantage.

So these are really administrative complications which arise from the system put forward by the Government. I think that the only real answer to this is to adopt the proposal which we put forward, that they should be exempt from the capital gains, that capital gains should fall on the holder either of the holdings in the investment trust or of the units in the unit trust. This will avoid the problems which arise from the present arrangements on which the Board of Trade, quite rightly, insists. It will avoid the administrative complications of the certificate system which are set out in Clause 63(3) of the Government's present scheme.

I believe that this is fully justified in principle and in practice. I know that these objections have been brought to the notice of the Chief Secretary and that he has been having discussions with the Association of Unit Trusts and with many others who are interested in this. I have a feeling that when the Bill was drafted the Government did not realise the administrative complications which were involved, particularly for the unit trusts. I have a feeling, too, that perhaps they had not really thought through the complications of the Government's scheme both to the original shareholdings and to the investment trusts themselves. I am sure that the Chief Secretary and his advisers have had a wealth of information about the problems which arise, and I know that in fact certain schemes have been submitted to him for his consideration.

We move this Amendment because we believe, on grounds of principle as well as of administrative practice that it is desirable that both investment trusts and unit trusts should be exempt from capital gains, and that the burden should fall on the person holding the shares and the units. That is what we believe to be the right solution, and I would urge it upon the Chief Secretary.

Sir Lionel Heald (Chertsey)

I wish to support my right hon. Friend the Member for Bexley (Mr. Heath) on this Amendment. Perhaps I may draw attention to Amendment No. 45 in my name and the names of five other hon. Members, including the hon. Member for Orpington (Mr. Lubbock), who, I hope and believe, will be fully in agreement with the argument which I propose to put forward. The effect of that Amendment is exactly the same as that of this, and the object is to prevent the application of Capital Gains Tax to investment and unit trusts, but not to their shareholders or members. So it is in no sense a wrecking Amendment.

The argument assumes that Capital Gains Tax will be applicable at the proper place and time, that is to say, if and when the shareholder or member actually realises a gain on disposal, that is to say, the only time when he has an interest in anything except income, on which, of course, he pays Income Tax.

I feel a heavy responsibility in presenting this Amendment. It affects, I believe, between 3 million and 4 million people. It would have been so much more appropriate, and it would have been done so much better, if Maurice Macmillan had been here. As Chairman of the Wider Share Ownership Council he has for a long time been an outstanding champion of the small investor. I hope that it is not out of place to say that I believe his temporary absence is regretted in all parts of the Committee. We are glad to know that he will soon be back again, all being well, and the sooner the better, and I am also quite certain that he has the heartfelt sympathy of every single hon. Member in this Committee in the recent distress to himself and his family.

I am not myself a member of the Council. I can speak only as one of the 3 or 4 million small investors who have interests in these companies. Perhaps it is an advantage that I am not a member of the Council because I am not inhibited, as I might otherwise have been, in pointing out that the Vice-Chairman is Lord Longford. He is, unfortunately, prevented by the constitution from giving to us any practical views, which I am sure he has, on the iniquity of the method which the Government have chosen for applying Capital Gains Tax to this particular object, but he is not prevented from expressing his views within the Cabinet, and I hope he will do so after he has studied what will have been said during this debate.

I do not propose to repeat what my right hon. Friend has already said so clearly and succinctly about the problem and the objections which are raised. Certainly, more will be heard of them from my hon. Friends very soon. I would merely summarise the main objections as I see them to this proposed method of application. The application of the tax at what I may call the company level is based not on any actual gain, but on a notional gain. This has the effect that every investor's shareholding is subject to Corporation Tax at 35 per cent. or 40 per cent., whereas if he invested direct in the various companies—which, of course, he cannot do, being a small man—he would be entitled to relief by way of assessment on the alternative basis, if he qualified, with this result, that he would then get the rate reduced, 27½ per cent. standard rate.

If we take a married, retired man and wife with an income of £900 or less it comes down to 22½ per cent., and so it goes on and on, till the very small investor is paying nothing at all, whereas now, if he is so wicked as to invest in investment trusts he will pay 35 or 40 per cent. That is the inevitable result, as we have already been told by the Chief Secretary. I am very glad that in his speech on the charities issue he made it very clear that this is the inevitable and unavoidable result of this great principle.

To underline the unfairness of this method, it should be added that whereas the trading company is not taxed when it obtains a nominal gain on the replacement of fixed assets—that is Clause 31—the investment company is taxed when it does the same with its fixed assets. There is not technical justification whatsoever for this.

As regards overseas investment, there is the point which I am sure one or more of my hon. Friends will want to deal with, and I shall not trespass on their area.

Finally, this so-called relief under Clause 63 is not only illusory and adequate, but is apparently quite unworkable. This point about the unworkability seems to have been overlooked by the commentators on this subject. They may have been misled by the casual bonhomie of the Chancellor, who passed over this matter very lightly in his Budget speech. In column 246, on 6th April, he gave the impression that it was a straightforward proposition. In fact, I am told that if one tried to work it it would be necessary to have a computer working day and night in every company office. It is a pity that the right hon. Gentleman the Minister of Technology has gone—he was here a few minutes ago—because he might have been able to tell us how this would be organised.

After listening to the Chief Secretary, and remembering what the Chancellor said in his Budget speech, I cannot help wondering whether they understand what the investment trust is, because on 6th April, the Chancellor said: I propose that capital gains realised by companies … shall be subject to corporation tax at the corporation tax rate. A company is a continuing association which has as its main purpose making profits; whether those profits arise as trading income or as capital gains … and I think that it is right that they should be taxed at the same rate."—[OFFICIAL REPORT, 6th April, 1965; Vol. 710, c. 250–1.] The investment company is not there for the purpose of making profits at all. In effect, the Government have missed the point from the beginning.

8.15 p.m.

The argument which has been put up is really a façade. When the vices of this tax have been gone into, they will, I think, be found to be quite clear. I leave it to my hon. Friends, who are much better qualified than I am, to deal with the details. I want to confine myself to the inference to be drawn from the fact that such vices exist and that there is a reluctance in any way to modify them, and the effect which they should have on the attitude of the Committee to the Amendment.

In the first place, it is clear that this method cannot be justified on the criteria laid down by the Financial Secretary, who talked about the wicked capitalist. Even the classic steamroller of my right hon. Friend the Member for Harrogate (Mr. Ramsden) would, I suppose, be satisfied by the method of treating the shareholder's actual realisation as the subject of this tax. These additional imposts are something altogether different, and much more sinister. They are, in effect, a deterrent. They are a fine for having the effrontery to use the collective method of investment. It is rather like what happened to Admiral Byng—"pour encourager les autres". They cannot be justified by any consideration of justice, common sense, national expediency, or even by any reasoned argument at all, except one, and I propose to indicate what that argument is upon which they can be justified.

A number of my constituents have asked me, "How can you explain such unfair treatment for the small investor?". I believe that the answer to that is quite simple. I suggest that the explanation lies in the realisation by the ruthless dyed-in-the-wool Socialists who are responsible for this Bill that the investment trust, and even more obviously the unit trust, constitute a real obstacle and danger to the prospects of a Socialist Utopia, so they must be fined, not for any anti-social behaviour—because one could hardly use such an expression in relation to people like Members of Parliament, and, I would hazard a guess, Cabinet Ministers also, who are investors in this admirable form of investment—but for being anti-Socialist. People must be taught that this is a naughty thing to do, by making them less attactive, and so we heard the Chief Secretary himself unconsciously saying—and unconscious evidence is very often the best evidence, particularly in political speeches—that charities would have to find something else.

It has this advantage too, of simplicity, "Get the Bill through as it stands, and if you get a really big majority you can always jack up the percentage and pretty well wipe them out in no time." Why is it that these Socialists hate investment trusts as much as they do? They must hate them, otherwise they would not do these things to them. Some say that it is due to stupidity and incompetence. I think that that is underrating them very much, and is a dangerous assumption to make. The people involved in this are very clever.

Mr. J. T. Price

The right hon. and learned Gentleman is usually scrupulously fair in presenting his case. He is going rather beyond the mark in making these suggestions in such a polemical way. Socialists on this side of the Committee, including myself, do not hold the views to which he has referred. It is slanderous to charge that against us. One of the largest and most successful investment trusts of which I have personal knowledge is the trade union investment trust. That defeats the right hon. and learned Gentleman's argument.

The Temporary Chairman (Mr. Thomas Steele)

Order. The hon. Member's interruption is becoming a speech.

Sir L. Heald

I apologise to the hon. Gentleman. He is an old friend of mine. I did not accuse him of it. I referred to the doctrinaire, ruthless Socialists who are responsible for the Bill, and he is not responsible for it. I am glad of the indication that he does not like it very much, either. Certainly, many of his colleagues do not, and there are very good reasons for that.

I was going to answer the question why those on the Government Front Bench who have prepared, brought in, and now support the Bill, dislike unit trusts. I suggest that the principle of wider ownership in shares in industrial and commercial enterprises, once understood, must appeal to any thinking person. The urgent need of industry for new capital can no longer be satisfied by a small number of large investors; they do not exist.

That development is very welcome to Socialist ideology, as shown in relation to steel in the Labour Party's constitution, because it favours more and more State participation in industry and, thus, more and more State interference and State control. The dyed-in-the-wool Socialist by whom we are now being governed regards this as a blessed and inevitable prospect.

The Conservative, on the other hand, believes that the encouragement and maintenance of private enterprise is vital to our survival, and the modern Conservative has always preached the doctrine of what is called the property-owning democracy. [Laughter.] That remark apparently causes amusement. The millions of people who have become owners of property during the last few years would not like to think that they had been laughed at by hon. Members opposite. They may have a chance of expressing their views before long. This consideration applies to shares as well as houses, and it is a positive anathema to the Socialists. That is why shareholders in investment trusts are being penalised in the application of this tax.

That is only one example of the evil hotch-potch of the Bill, but it is a very striking example. It proves conclusively that the Socialist leopard has not changed its spots. That fact has been almost totally ignored by political commentators. There have been one or two notable exceptions, but all the rest appear to have been led down the garden path by the Prime Minister's propagandists, and, in their turn, have led the public down the garden path. Let us hope that it is not too late to alert people to the situation. This Clause, like many others, reveals the underlying purpose, object and philosophy of the Bill.

I am on record as having publicly said, the day after the present Prime Minister became Leader of the Opposition, that he was the most dangerous enemy of private enterprise that this country has ever known.

The Temporary Chairman

Order. The right hon. and learned Gentleman must relate his remarks to the Amendment under discussion.

Sir L. Heald

I am much obliged to you, Mr. Steele. I am sorry to have appeared to offend. What I was going to say was that the attitude adopted by the Government in relation to this Amendment and to others proves conclusively that what I have just said is right.

Mr. W. Baxter

On a point of order. The right hon. and learned Gentleman has been making a vicious attack upon the Labour Party as a whole. That attack has apparently been well prepared. Every word is being read from a script. Is that in order?

The Temporary Chairman

The question of what is in order is a matter for the Chair.

Sir L. Heald

When one is dealing with an important and fundamental matter of this kind it is necessary to be careful of one's language. I do not require a note. For many years I have worked in a place where one does not use notes, and I do not need them. But when I am making statements of the kind I have just made I like to make certain that they are right—and they are right.

I hope that on this occasion we shall have a proper answer to the Amendment. We have rarely had one during the whole Committee stage. I hope that we shall get a real answer from the Chief Secretary. I hope that he will agree that what I have said is right, and that the real justification for the Government's proposal is that investment trusts are something on their own in relation to the Capital Gains Tax, and should be discouraged. I hope that the hon. Gentleman will agree that that is the purpose of the action which the Government are taking in refusing exemption.

It is surprising that we should find someone who has been a very distinguished accountant, and who has presumably engaged in assisting both large and small investors as to the best way to invest their money, supporting the proposition which must be supported if the Amendment is to be resisted.

Sir Richard Thompson (Croydon, South)

Poacher turned gamekeeper.

Sir L. Heald

That is one way of putting it.

When the Chief Secretary replies I hope that we shall hear an agreeable story. I hope that he will tell us that at one time he was astray in this wicked field of things like investment trusts, but that the day came when he went for a journey and when suddenly a light shone all round him, and he saw a vision of the Socialist paradise, which caused his conversion. That is the only way that he can explain his attitude.

8.30 p.m.

Mr. W. Baxter

I do not propose to follow the right hon. and learned Member for Chertsey (Sir L. Heald) on the line of argument which he addressed the Committee, other than to say that it was gratifying that when attention was drawn to the fact that he was reading his speech the right hon. and learned Gentleman soon finished.

I think that there is some justification for asking for an explanation of the provisions in this Clause. It is right that it should go forth from this Committee that there is some anxiety, even among hon. Members on this side of the Committee, that unit trusts and investment trusts are to be taxed, as appears in the Clause. We should be as fair as possible in such a matter and I should like my hon. Friend to give us a satisfactory explanation.

Organisations such as pension funds and superannuation funds invest money through unit or investment trusts. To me, the trust appears to be only the agent of the investor. It gains nothing. It invests the money and passes back the proceeds to the investor. It is not unlike an individual instructing his broker to invest on his behalf. In such a transaction a profit may accrue to the investor, but the broker is not taxed on it. If the investor makes his investment through a unit trust or an investment trust the profit will inevitably be taxed, as I understand the provisions of the Clause. That seems to be unfair. The small investor is penalised.

We seek to encourage the small investor to join a unit trust and to put his money into industrial undertakings. The result of these provisions would appear to be what has been described in the past as double taxation. If that is not so, I should like a satisfactory explanation. It is important that we should get this matter clear.

A large industrial undertaking or a local authority pension fund investing directly in industrial undertakings would be at an advantage compared with a smaller pension fund investing through a unit or investment trust. If that is not so, I should like it explained, but from the strict interpretation of the Clause it appears to me that those who invest through units or investment trusts will carry a heavier taxation burden than those who invest directly in an industrial undertaking. I may be wrong, but that is the purport of the argument adduced from the benches opposite, and I think there is some justification for it. I have no personal investment in a unit trust or investment trust, but millions of people do invest in such trusts. We wish to encourage them and to increase their number. I should not like it to go out from this Committee that the present Government were in any way stultifying that great project.

Mr. Hirst

The hon. Member for West Stirlingshire (Mr. W. Baxter) is one of the greatest optimists whom I have heard for a long time if he imagines that he will get any answer from the Treasury Bench. His only recourse would be to join us in the Lobby in due course on behalf of the small savers. He certainly will not get an answer at the present standard—

Mr. R. Gresham Cooke (Twickenham)

He made a good point.

Mr. Hirst

It was a good point, and I am not disputing it, although I often quarrel with his speeches and he with mine. I was saying only that he is a supreme optimist.

My right hon. and learned Friend the Member for Chertsey (Sir L. Heald) said quite correctly that this attack on the unit trusts and the investment trusts was from a Government and party of dyed in the wool Socialists. Having taken part in these finance debates a good deal over the years, I know that the Chief Secretary has in the past made many speeches which I would not call dyed in the wool, so I do not know how he has been captured for the present team. We are dis- cussing a very important range of about 25 Amendments. I approve of them all. I think that I have signed 21, which are frightfully fundamental to a vast number of people in a very great movement.

We have mentioned this matter before and it has to be mentioned again. My right hon. Friend the Member for Bexley (Mr. Heath) said that he hoped that the Government would not discourage—let alone encourage—the movement of investment and unit trusts. This is not the picture. This Finance Bill is not designed to encourage them. If the Government, even at this late hour, want to give the slightest impression that they are genuinely out to encourage and not discourage this movement, it is only by an Amendment such as this that they can make that understandable to the vast mass of people who are now deeply interested in the subject.

My right hon. and learned Friend the Member for Chertsey was right in pointing out the tremendous number of people involved. What a wonderful movement this is. Is it not exactly what any nation like ours, with all the need and desire to encourage the development of our country and the association of the people in it, would welcome, in the opportunity which it gives to all of us, quite apart from the individual advantage? We should also encourage the individual advantage, of course, to get people to save in relatively small lots. The average, even including the big institutions, is about £300, so it is small. It is something which we ought to encourage and not to discourage in the manner which is prescribed in the Clause.

This is vital. All the Government's aspirations, whatever they are, count for nothing compared with this great need and this great movement which has been developing over the years. I applaud it as one of the greatest things which has ever happened. I have always wanted to see people investing in industry. I have pushed in the House before that investment trusts as we know them in this country should have a different tax system, as is the case with their counterparts in the United States. I have always believed that the finest thing which could happen is that workers of every degree should put their savings into movements of this nature.

I think that the unit trusts and investment trusts are better than some of the systems of savings schemes in the United States, because they spread the risk and ensure the expert management which is not always discernible in the "share shops" in the United States, where people have not yet learned that expertise and discretion which allows them to choose their invesments wisely.

I have said before and, if necessary, I will say again 150 times, that double taxation is a gross injustice and should never be permitted more than it can be avoided. I admit that there may be times when it is unavoidable, but to legislate for double taxation is disgraceful. How the Chief Secretary, whose speeches on this side of the Chamber I have heard many times, can possibly sit there and represent a Government introducing that sort of element gratuitously, damagingly and knowingly is one of the biggest surprises which I have seen from a surprising Government.

Mr. Diamond

Perhaps the hon. Gentleman will allow me to explain that the main reason why I can sit here and listen patiently to his admonitions is that I have listened to him so many times criticising the occupant of my position that I have become used to it.

Mr. Hirst

I take the point 100 per cent. I have made many speeches criticising my own side, because I stand up for what I believe to be true. I have done it against all the Whips in Christendom and I shall do it again, but at no time did I have to stand up and criticise the Government which I supported for introducing a Measure of this character—double taxation and all that goes with it. Such iniquity never happened. I might have criticised details, but I have never seen a Finance Bill as disgraceful, as despicable and as damaging as this. I could not have imagined what had happened if I had. I would have had to leave the party, and I am still happy in it. That is my answer to the hon. Gentleman.

Unit trusts have immense value in their flexibility and ease and fairness and are able to expand or contract to the occasion perfectly. If we are to have all this business of certificates and so on under Clause 63, it will be pure madness. How will they have the same ease of flexibility? I have nothing to do with unit trusts, but I am applying some intelligence to the matter. How will they be able to operate with the same ease and advantage of economy to the holders?

What is wrong with unit trusts at the end of the day? Why should not small people be encouraged to put their money into these trusts in the hope that it will be of some value to them and to their families and some protection against the inflation element? If there was ever a time when people wanted to protect themselves from inflation, it is today. What is wrong about it? Why should people not try to protect themselves so that the income in real terms from their investment in future will be something identical with what it is today and not only in the money terms run not by Socialist extravagance and ideological measures which will put ruin to savings schemes?

I beg the hon. Gentleman to give a better answer—at least an answer. He has never had such a bad day as this. He has been surpassed by a long way even by the Financial Secretary who sits there grinning. I have had a few answers from the hon. and learned Gentleman, dusty ones, but none from the Chief Secretary. These Amendments go to the underlying happiness, well-being and confidence of millions of people. Let the Government give the answer they should, or they will take and deserve the consequences.

Mr. Diamond

Perhaps it would be convenient if I replied now. I have listened very carefully to the three speeches from the back benches opposite. They have rested on such misunderstanding of the provisions of the Bill that it might be better if I tried to clear the air now, because there is no point in continuing to argue about what is not provided when the Opposition may want to say something about what is provided.

These two Clauses together—and we are discussing Amendments to two Clauses—provide against double taxation, make provision against the double taxation, of the capital gains of unit and investment trusts. Everything hon. Members opposite have been saying and all their comments about Socialism, myself and all the rest of it has not been very solidly based, because there is no question whatsoever about whether there should be double taxation. The only question is at what point in time the tax is to be paid. We are considering the difficult question of the point at which we should collect the tax so as to be fair to all taxpayers and investors.

8.45 p.m.

The right hon. Member for Bexley (Mr. Heath) asked me to explain our attitude towards savings. He pointed out that it was necessary that there should be modernisation, and I entirely agree. It is necessary, therefore, that there should be savings which provide for that modernisation. My attitude towards savings is that we must encourage them by every possible method, and I mean all kinds of savings, not exclusively or inclusively any type.

I completely agree with the right hon. Gentleman that we could not get the modernisation required unless we have the savings and unless we have a new form of taxation which encourages modernisation and ploughback, which is the whole raison d'etre for introducing the Corporation Tax and which results in companies having to pay tax on their capital gains as though they were part of their income. That is the position from which we start. There is no question of double taxation, as my right hon. Friend made clear in his Budget statement.

The strictures of the right hon. and learned Member for Chertsey (Sir L. Heald) were completely ill-founded. Although he had made a careful note of everything he intended to say, I suggest that he did not allow himself time in which to read the provisions of the Bill.

Mr. Hirst

Is the hon. Gentleman not overlooking some of the provisions dealing with O.T.C. companies, not least the creaming off of money, the 25 per cent., which will cause a considerable cost factor to the companies concerned? Does this element not come into the issue, as my right hon. Friend the Member for Bexley (Mr. Heath) suggested?

Mr. Diamond

We are talking about the provision covering the payment of Capital Gains Tax at the Corporation Tax rate by two categories of corporation known as unit and investment trusts. There is in the Bill provision that the Capital Gains Tax paid by those bodies shall be taken into account so as to prevent double taxation on the recipients. It is the investment or unit trust which pays the tax and not the unit holder or shareholder in the investment trust.

It is suggested that this should be switched around the other way so that, for the sake of simplicity in the administration of unit trusts in particular—this does not affect investment trusts because the question of administration does not arise there—no Capital Gains Tax should be paid by the trust, but by the unit holder.

To be fair to all investors, to all savers and taxpayers, that is not a system which we could adopt. This comes back to many of the speeches that were made by hon. Gentlemen opposite when we were discussing the previous group of Amendments. If we were to say that the shareholder in an investment trust could rely on having a mechanism, an investment trust, under which there would never be any Capital Gains Tax paid until the shareholder himself sold his share—which might not be until his death—then he would be placed at an enormous advantage compared with any other individual.

If an individual wants to invest in a share and makes a capital gain on that share he has to pay tax straight away on realisation. What is proposed in the Amendment is that the realisation of this corporate body should not be susceptible to Capital Gains Tax, but should only be susceptible to the tax when an individual who is a shareholder sells his shares. This individual could, therefore, have a mechanism whereby the whole of his investments could be managed, changed, and switched, with all the advantage of careful and expert management, the advantage of the income combining out of tax-free capital accumulations. He could have all of that at a definite advantage compared with the ordinary taxpayer who is not a shareholder in an investment or unit trust. He would have all these things in a completely unfair way.

People save money through media other than unit and investment trusts and it is only these two which are being picked out for preferential treatment. If there is to be any equity between savers then these two particular forms cannot be singled out. It is no part of the Government's benevolent attitude towards all forms of savings to single out two particular forms, so one is left with the problem that one is compelled in equity to others, to tax the corporation and not the unit holder.

Mr. Gresham Cooke

Why does not the Financial Secretary make unit trusts just like an ordinary company which does not pay capital gains on its internal operations? For instance, if I bought I.C.I. shares the company would not have to pay capital gains when it sells one factory and buys another. I would only pay capital gains at the time when I finally sell my I.C.I. shares, even if 10 years' hence.

Mr. Diamond

That is just the point. A company will have many transactions resulting in capital gains which will be taxable in that year. What is proposed by this Amendment is to single out an investor who invests by the machinery of investment through unit trusts, and to give him an advantage over the shareholder which the hon. Gentleman has mentioned.

Mr. Heath

Is the hon. Gentleman not arguing now that the main difficulty will be one of deferment? Is he not saying that although he would get the money in the end, because of the case of the investment or unit trust there would be deferment and this would be unfair to other individuals who put their investments directly into firms and switch them from time to time? As the Financial Secretary and the Chief Secretary have emphasised, what they are concerned with here is spending power. This is the only reason they are combining capital with income. Does not this invalidate his argument?

Mr. Diamond

What the right hon. Gentleman has not perhaps realised is the unfair advantage which would accrue to a shareholder of an investment trust, because he would be obtaining the income on the Capital Gains Tax free of accumulations within the investment trust which the ordinary shareholder would be denied. The right hon. Gentleman is proposing to single him out for this bene- fit. It is not only the point of time at which the revenue gets its share, but it is the distinct advantage which will be given to one saver and one taxpayer as against another. This cannot be done. One must come back to the method proposed in the Bill, of saying that in terms of the point of time Capital Gains Tax should be paid by the corporation and here are methods within the Bill aleady provided to prevent double taxation.

I therefore say that the only question that remains is one of administrative convenience—

Mr. Heath

In arguing the case of discrimination, which I do not accept, is not the Chief Secretary overlooking the fact that an investor making a direct investment will have the disadvantage of a liability when he changes the investment of only 30 per cent., but in the case of the investor in an investment trust the disadvantage is between 35 per cent. and 40 per cent., which is a very severe disadvantage?

Mr. Diamond

I am sorry—I did not deal with the rate of tax, though the right hon. Gentleman made that point.

Without again going into what he calls a stale argument, we all know the hard fact of the 30 per cent. and the 35 per cent., so neither of us need consider whether that gap will increase or decrease in the future. All we know is that there is an extra rate to pay—there is, and no one says there is not. One does not attempt to reduce or extinguish that gap. There are advantages to be obtained from corporate investment as opposed to individual investment. If people want to do that, they must assess the advantages and disadvantages, and there is no difficulty about that.

There have been many discussions relating to administrative convenience. Quite shortly, the difficulties were between the convenience, on the one hand, of the unit trust managers—I do not think that the investment trusts come into this very much—and of the Inland Revenue, on the other. Both must be considered. I am happy to say that as a result of very full discussions—and I want to acknowledge the very great help the Government have had from the associations representing all these bodies, and particularly the right hon. Gentleman the Member for Taunton (Mr. du Cann), who has taken his proper place in these discussions, and we are very grateful to him—we have reached broad agreement, and I do not want to tie down anyone who has not yet seen any particular Amendments, which will result in Amendments being put down on Report which, I hope, by the time they have been read and carefully considered by all interests, will be found to have met the difficulty.

Shortly, the method proposed is that unit trusts will pay Capital Gains Tax on changes of investment on the assumption that their units remain constant in number, but if the units are falling—that is to say, if individuals had been paid back—that amount will be deducted from the figure on which the Capital Gains Tax is assessed, so that the trust will be assessed only on the capital gains made in respect of a continuing number of unit holders, and the unit holders who have sold out, who have left, who have been repaid, will be assessed individually on any capital gains they have made. As a result, there will be a fairly simple assessment on the unit trusts in respect of their switching, and the Inland Revenue will have to seek out each individual holder who has been repaid during the period and collect from him individually the Capital Gains Tax which will not have been paid by the trust.

This is a reasonable half-way house. It will mean that the administrative problem; of the trusts will be virtually extinguished. It will mean that the Inland Revenue will have the difficulty of collecting tax from individuals instead of as, under the present system, collecting direct from the company. Nevertheless, this is a reasonable half-way house, and I am glad to say that it is being put forward by the associations themselves and that, after careful consideration, we have agreed to incorporate it in the Bill on Report.

Sir Knox Cunningham (Antrim, South)

Does the hon. Gentleman seriously say that this is a simple method?

9.0 p.m.

Mr. Diamond

Yes, it is quite simple having regard to the kind of institution that a unit trust is and having regard to the work which a unit trust already has to do. Perhaps the hon. and learned Gentleman is not aware of the problems of valuation and certificates which already rest on the managers of unit trusts. It is because a unit trust is this kind of organisation that it has these problems, and we do not feel that these problems are being added to.

I repeat that after full discussions, after other suggestions were found not to be acceptable, this was the suggestion made on behalf of the unit trusts, and we find it acceptable and will incorporate in the Bill an Amendment which, we hope, will prove acceptable after it has been given full consideration by the interests concerned.

Having explained why we must tax the investment or unit trust in the first place, how it is clear in the Bill that there is no question of double taxation because the unit holder or investment share holder will not be taxed again, and how we have solved our administrative problems in agreement with the unit and investment trusts, I hope that on further consideration the right hon. Gentleman and his hon. Friends will be able to withdraw their Amendment.

Mr. Gower

It would be very churlish if anyone speaking on this side of the Committee at this stage of the debate did not welcome any step forward which was being made to narrow the serious differences which have so far existed between the two sides on this very important issue. I only hope that the hon. Gentleman's explanation was more difficult than the solution it prescribed.

My only comment is that the very nature of the problem and the long negotiations remind us what an objectionable tax this has proved to be in all its aspects. I sincerely hope that the solution will be the one that we hope for. The hon. Gentleman will be aware that in relation to both the unit trust world and the investment trust world the period since his right hon. Friend first proposed to make these important changes has been a prolonged one of great anxiety in the minds of all associated with those movements. If there has been some solution which will measure up to the need, I should be the last not to afford it a welcome. I hope that the hon. Gentleman will bear in mind the importance of having a solution which does not impose extra great expense on the management of the unit trust. That has been a matter of some importance as he is well aware.

The hon. Gentleman told my right hon. Friend the Member for Bexley (Mr. Heath) that he was a supporter of saving in all its aspects. He implied that he was a supporter of these important organisations of investment and unit trusts. But his enthusiasm was hardly expressed in the words that he uttered. Indeed, there was a singular lack of enthusiasm, and I hope that he has greater enthusiasm than he showed.

As my hon. Friend the Member for Shipley (Mr. Hirst) said, I think the unit trust movement has been the most encouraging and promising thing which has happened since the end of the war. It is something in which we can take pleasure. I sincerely hope that this last period of anxiety will be only a temporary phase in its growth. Although hon. Gentlemen on both sides of the Committee have pointed to the extent of the movement, its importance and its size, we ought to realise that it is still a small movement, particularly compared with the mutual funds in America, and that it is still perhaps only in the position that the building societies were in relatively at the turn of the century. We still have a very great way to go before we have the kind of industrial property owning democracy which can be compared with the ownership of houses.

I hope that the Chief Secretary's solution will commend itself to the House when we see it. We can only infer from his remarks what it may resemble. I hope that it will be as satisfactory as he suggested. I doubt that it can be as simple.

Mr. Harold Lever

I hesitate to trouble the Committee after this prolonged debate, but the right hon. and learned Member for Chertsey (Sir L. Heald) referred to the Wider Share Ownership movement and its vice-chairman, Lord Longford. Lord Longford had to retire on entering the Government, and I must declare an interest by saying that I undertook to replace him in that position.

I have a further interest to declare. I represent mainly very poor and humble people in my constituency. I cannot pretend to be either poor or humble. I hope that my hon. Friends will believe me when I say that I could declare a few financial interests in connection with investment and unit trusts, and, I am sure either directly or indirectly, in the effect of the provisions of the Bill. However, I beg my hon. Friends to believe that in both respects this merely adds to the diffidence that I feel in speaking as I am in duty bound to do. Far from causing me to lean in favour of unit and investment trusts, the City and the like, it causes me very great diffidence and hesitation before espousing, or appearing to espouse, their cause, and if I do so, it is because I believe that I am espousing the cause of many humble people in my constituency who sent me here to represent their interests. I may be wrong, but it is in all sincerity that I offer my views.

Since we must have Conservative Members of the House of Commons, I regret that one of them is not Maurice Macmillan. He is the chairman of the movement of which I have undertaken to be the vice-chairman. I share the grief expressed by the right hon. and learned Member for Chertsey at the misfortune which overtook Maurice Macmillan recently. I hope that he will replace one or other of the hon. Members opposite at the time of the next election.

In approaching the problem, the first point to bear in mind is our attitude to savings and investment. I say loudly, clearly and unambiguously, and open to criticism from anybody who cares to make it, that I am unqualifiedly in favour of wider investment by the public. I endorse entirely everything which has been said on that subject, in a non-party sense. What would surprise me would be a suggestion that the Labour Party, which has fought so hard and successfully for the betterment of the standards of the working people and poor people in this country, was not in favour of investment. If one is on miserable wages, as was the case at the beginning of the century, one has nothing to invest. One is lucky to keep body and soul together and to feed one's children.

The aim of the Labour movement is to raise the standard of life of the working people and the poor people, and we should be proud to think that, largely through their political pressure and achievement, working people in this country are able and have the means to invest in all forms of investment in the same way as others who are better off. Perhaps they cannot do it to the same extent; but, to the extent that they are able to save, it is a movement very much to be desired, welcomed and encouraged. Indeed, all Labour Party supporters may know better than do hon. Members opposite that the possession of a small fund of savings means an addition to the personal freedom of the individual which is entirely to be welcomed.

I make no bones about it: a sensible and honest appraisal of savings in relation to the working people must welcome this development in all the forms which it may take. Nobody who is expert or experienced in investment funds denies that in the modern world the investment, at any rate in part, of the working people and of small savers ought to be in equities. Nobody who has any experience in these matters doubts that there has been a vast improvement not only in America but in this country in this matter compared with what used to take place before the war. Lawyers, trustees and accountants know that it was commonplace before the war that working-class and middle-class people saved at great cost and effort to themselves for their old age and for their families, that unfortunately they were not specially expert at saving and that often they found only a fraction of their savings available to them in their old age because of their mis-investment.

It is entirely to be welcomed that that phenomenon has virtually been abolished by the fact that those who want to invest, as opposed to those who want to gamble—and I am not preaching against gambling; I am not here to inflict a sermon upon my colleagues but to deal with the problems which arise on this issue—have no difficulty at all in the modern world because the skilful professionalism of the City of London has gradually evolved the most subtle institution for all sizes of shareholders to invest with complete spread and with complete safety. I make no bones about saying that this is is an entirely welcome development and one which the Labour Government must do everything to foster and encourage. I flatly repudiate the charge—although it may have been made in good faith—made by the right hon. and learned Member for Chertsey that the Labour Party wishes to discourage the small saver or even that it wishes not to encourage him.

Mr. Geoffrey Wilson (Truro)

Some of the hon. Member's hon. Friends are not very enthusiastic about his speech.

Mr. Lever

I dare say that there are shades of opinion on this matter on this side of the Committee. Hon. Members opposite have been known to have differences of opinion.

The Temporary Chairman

Order. I hope that the hon. Member will relate his remarks to the Amendment.

Mr. Lever

I thought that my remarks had been to the letter, to the word, and to the comma related to the Amendment.

The Temporary Chairman

Yes, but I thought that the hon. Member was about to rise to the bait offered him by the hon. Member for Truro (Mr. Geoffrey Wilson).

Mr. Lever

If you will forgive me for saying so, Mr. Steele, I thought that the attitude of my hon. Friends to the saving movement was relevant to the Amendment, but I will not pursue the point. I will not rise to any bait. I was merely commenting that I am sure that the opinions of my hon. Friends are not fundamentally different from my own on this matter. No doubt in one way or another they keep in mind the welfare of the same people as I have in mind.

The question which arises here causes difficult problems. I think that if the Amendment is carried nobody will invest in anything but investment trusts or unit trusts. If the Amendment is not carried, various almost insuperable difficulties will face the unit trusts and grave penalties will be inflicted on their members in the way of double taxation. I am sorry to be a little lengthy about this, but I must pause on the point of double taxation. First, a unit trust is nothing more or less than a partnership of people gathered together for convenience and safety to invest their money. I am not talking about charities, with which we dealt in a previous Clause. That was a totally different matter. A unit trust, as opposed to an investment trust, with which I was concerned on a previous Amendment in relation to charities, is a partnership.

Mr. Heath

The hon. Member cannot get away with that. On the Amendment dealing with charities we were dealing with both investment and unit trusts. He then argued that there was a complete division between the corporation and the members who were shareholders or unit holders in it. I am much attracted by his present approach, but I wish he had adopted it two Amendments ago.

Mr. Lever

I should be out of order to recapitulate in simple terms the complex argument on which I addressed the Committee. I very much regret that we do not have these debates upstairs. I wish that we had a Finance Bill, on the one hand, to raise revenue and also a Tax Bill which would decide these complex and highly technical matters after discussion in a small Committee upstairs. We should all have gained a lot, not merely in terms of sleep, but in terms of accuracy of discussion and constructiveness of argument.

9.15 p.m.

I took the view that in assessing the right tax to pay, where tax is to be paid—we are not discussing concessions made by the State to charity; we are talking about the right basis of tax for a unit trust holder—people should pay as individuals and that the 35–30 gap should be closed in so far as it is in the power of the Treasury to close it, because this is much more in the nature of a partnership than a company. The idea that there is not double taxation because capital gains in a unit trust become subject to Corporation Tax and not to Capital Gains Tax is too reminiscent of the famous conundrum about how many legs has a dog if one calls its tail a leg. The answer is not five, because calling its tail a leg does not make it one, and calling a company's gain a Corporation Tax gain does not help the argument. Thirty per cent. or the personal rate of the unit trust holder, in so far as it is possible to achieve it, should be the basis on which the Treasury should act.

I wish to say a few more words on this question of unit trusts and investment trusts. I am very sympathetic about the question of fairness as between one investor and another, but there is a fundamental point of grave importance to us all, and it is this. When we introduce a new form of taxation, it does not com- mend itself to me as a welcome form if one of the inevitable consequences is the destruction of a system of investing which has been established in the City of London, skilfully managed and honourably and honestly undertaken. If this tax were inevitably to penalise unit and investment trusts, which I do not believe is the case, and cause their destruction in the long run, I would say that that was an insuperable objection to having the tax, because it is not for the Labour Government, or any political party, to specify to investors the mechanism by which they will invest. All parties should be entirely neutral on this. One can take the view that nobody should be entitled to invest, but once we concede the right to invest we must do nothing through the tax system to interfere with the best mechanisms to investment. It is not possible always to achieve perfection in this regard, but to achieve the destruction of the great city institutions would be a disaster, and it could not be countenanced.

I hope that the Chief Secretary will bear in mind in all these negotiations that we on this side of the Committee are entirely neutral about how a man invests his money. If he chooses to invest it in investment or unit trusts, we should do nothing in our taxation system which prevents or discourages him from or penalises him in doing so.

Mr. Heath

I have been following the hon. Gentleman's argument with the greatest interest. He says that nothing should be done to discriminate against them. Is he suggesting, for example, that the investment trust and the unit trust should pay Capital Gains Tax, if they are to pay it, at the personal rate and not at the Corporation Tax rate? That would be one way to remove discrimination. I do not know whether his argument is leading that way. He did not follow his argument logically to a conclusion, but if he does he will have to take it further. The majority of holders in unit trusts are at an income level at which they would take advantage of the two-thirds option as it is to be amended by the Government and the rate would be still lower than 30 per cent.

Mr. Lever

I have said that the counsel of perfection is that the Government should, in operating the tax, secure that the unit trust holder is no worse off than if he held that bundle or group of shares in his own name instead of through a unit trust. That is the guiding principle which the Government should bear in mind. I do not know to a dot and comma that it is always possible to carry that principle into practice, but if it is to be substantially departed from that is not an argument against the unit or investment trust; it would be an argument against the form of taxation concerned. If it is to be said that it is inconsistent with the preservation of these highly developed and well recognised existing institutions for saving, this is not an argument against those institutions; it is an argument against this form of tax. But I do not believe that, given good will and acceptance of the principle I have outlined, such incompatibility exists, and neither do I believe that it is beyond the wit of the Treasury to make the concessions required to allow these institutions to carry on.

Although it may seem somewhat unusual, coming from this side of the Committee, I cherish all the national assets of this country, including the City of London. I know of no country in the world which has a comparable organisation of the austere integrity and reputation of the City of London and its institutions. I am sure that a Labour Government will be a beneficiary of those institutions as much as a Conservative Government. The over-sea investments and the other mighty connections of the City are not held back from the Labour movement or a Labour Government. We must, therefore, prize the organisations which brought them into being as much as any party in the State, and we should do nothing to bring them down or do them injury. I know of nothing in the objectives of my party and Government or in the ideals which I have served all my political life which causes me to want to cast away or do injury to institutions and a reputation which are the envy of the entire world.

Mr. Gresham Cooke

I listened carefully to the concession made by the Chief Secretary, but, as far as I can see, it does not apply to the investment trust.

Mr. Diamond

The concession applies equally to the unit trust and to the investment trust. I pointed out that there is an administrative problem in relation to unit trusts which applies less or is non-existent in relation to investment trusts, but the concession affects both equally.

Mr. Gresham Cooke

I am glad to hear that. The hon. Gentleman emphasised the unit trust so much in explaining the concession that I thought that it did not apply to investment trusts.

It appeared to me that the concession would help the unit trust which was declining or coming towards the end of its life, that it would assist the unit trust with a small number of investors but it would not help the unit trust which was growing, with a greater number of buyers and sellers. Perhaps the hon. Gentleman will consider this point, because we shall have to think about the whole matter before Report to see whether we can have a concession which will help all unit and investment trusts.

What the hon. Gentleman has said does not get over the fundamental point that if a small investor puts his £100 or £50 into I.C.I. and keeps it there for 30 years, he does not have to pay Capital Gains Tax until he sells his I.C.I. shares, however much I.C.I. may increase in one way or another, selling one factory, buying another, and so on, The investor who goes into a unit or investment trust, on the other hand, is hit in three ways. He is hit by the effect of the Corporation Tax, which will prevent industrial companies from distributing so much as previously. He is hit by the possibility of a unit or investment trust having overseas shares. He is hit by Capital Gains Tax being levied on the investment or unit trust in its ordinary day-to-day operations.

The Corporation Tax rate of gains tax, as it were, is bound to be larger than the marginal rate which the ordinary small investor will pay. I cannot see why the Government cannot accept the practice in America, that is, to assess the holder of unit and investment trust shares at the time when he sells his units or holdings. I am sorry that the President of the Board of Trade is not here, though he did look in on our debate a little earlier. For many years, he has been advocating, in the columns of the Daily Herald and in articles elsewhere, that people should invest through unit trusts and that this is the ideal thing for the small investor. Now his Government are attacking it in this very special way.

The Amendments ought to be considered a little more seriously. The concessions which we have had are not, in my view, good enough for these investors. I would urge my right hon. Friends on the Front Bench to put down another Amendment on Report so as to bring out the valuable services which are performed by these trusts and their investors whom the Government are still getting at, despite the concessions which have been made. In the circumstances, I do not feel satisfied that these concessions are good enough for the holders in unit and investment trusts.

Sir R. Thompson

I intervene very briefly to support my right hon. and learned Friend the Member for Chertsey (Sir L. Heald) in the reasons he advanced in support of his Amendment, No. 45. Since those arguments were adduced we have had an intervention from the Chief Secretary, to whom I listened with a great deal of care, but at the end of his painstaking speech I found myself in as much of a fog about his intentions as I was beforehand. The only encouraging thing which I can draw from his remarks is, as I understand it, that the kind of compromise he will put before us at a later stage of the Bill is one which the unit trust movement is ready to support. That seems to me to be a thing in its favour and it indicates to me that the Government are beginning to realise the drastic nature of the attack on the small investor which is implied in the Bill.

Prior to the hon. Member's remarks I felt very much disposed to agree with my right hon. and learned Friend, who took the view, which I support, that this Clause and this very long Bill are all part of the general assault on personal savings and personal independence which are so detestable to Socialist theory as a whole. It seems to me particularly atrocious that it is mainly the equity shareholder who suffers under this attack, the man whom the Government, in another dress, are supposed to be encouraging. He is the risk taker, the man who pays the tax on profits out of which preference dividends are paid. He is the man who suffers under the provisions of the Bill.

I am very glad indeed to see that the Chief Secretary is beginning to realise that the Government are being very wrong here. I was encouraged by the support which those of us who, on this side of the Committee, take this view had in the speech of the hon. Member for West Stirlingshire (Mr. W. Baxter), who, I thought, was very reasonable. He also was breaking a lance for the small investor. He said that he had no personal interest in this at all. I suppose it would only be fair for me to say that I have a small interest. I have a few hundred shares in an investment trust.

I suppose that, in the present climate of opinion, although practically every hon. Member in the Committee probably has an interest, directly or indirectly, I should be much better advised not to have any investment of that kind, but to put any surplus income I may have into the pools or bingo parlours, something of that kind, because under the Bill that is the kind of expenditure or investment the proceeds of which are tax-free. But, like millions of others, I have tried to put a little money by, managed by people much more competent than I to manage it. I am very glad to see that hon. Members opposite are also beginning to realise that the Bill as it stands is a great assault on the small saver and private investor.

I was very glad to hear the speech of the hon. Member for Manchester, Cheetham (Mr. Harold Lever), because it seemed to me that even a man of his great financial experience and expertise was at issue with his Front Bench. He was not entirely satisfied by any manner of means—and nor am I—that there was not an element of double taxation of the small investor involved in the provisions of the Bill.

Although I have the gravest misgivings about the Clause, we ought to see the Chancellor's further proposals on Report, because if they have the support of the Wider Share Ownership movement they are worth our consideration. I hope that he will come to the House at a later stage of the Bill and spell these out in greater detail, so that we can give them our careful consideration. I hope that when he does that he will make it clear that the thing which worries and bothers most of us, that is, the element of double taxation, which I confess I did not find removed by what the Chief Secretary said a few minutes ago, has been removed.

9.30 p.m.

As I have said, the Clause hits the small investor, whom everybody is supposed to be in favour of, brutally hard. It is all part of a pattern of flattening them out, which we have seen in other provisions of the Bill. We had it on the business expenses, which did not matter for the grouse moor man, but did matter for the small commercial traveller and the sales representative. We had it on the beneficial trust, which did not matter for the very big man, but mattered for the small man with a small trust which was automatically doomed to diminish in value every ten years, and now, in its present form, this assault is continued on the small investor who likes to trust experts to invest what little money he is able to save.

I think that the Committee has been unanimous in speaking up for the small man, and I hope very much that when the Chancellor produces his proposals on Report he will see that the benefit of the doubt which some of us are prepared to give him at this stage is not misplaced.

Mr. Diamond

I intervene for the second time for only a moment because I might have misunderstood what was said by the hon. Member for Twickenham (Mr. Gresham Cooke), and the last thing that I would want to do is to mislead the Committee in any way. I agree with the hon. Member for Croydon, South (Sir R. Thompson) that it is only when the Amendment is put down and it can be carefully studied that we can give it the consideration which we would all want to afford to it.

I hope that I made it clear in my original speech, when referring to the concession which had been arranged, that I was talking about taxing switching, but not taxing the reduction in the number of units. As is well known, an investment trust does not operate in this way. I do not say a run, but if there are a number of unit holders who want to be paid out the only thing the unit trust can do is to sell its investments to pay them out. There would be a net contraction at the end of the year. It is those holders who would be taxed directly, and not the trust itself—and this is in answer to my hon. Friend—at either 30 per cent., or the two-third rate, or no tax at all, depending on their relevant personal rate.

I hope that I have made it clear to the hon. Member for Twickenham that this is not a problem with which the investment trusts are faced.

Mr. Gresham Cooke

I am obliged to the hon. Gentleman for saying that, because I thought that the concession applied only to unit trusts. I am glad that he cleared up the point, because that was the impression I had. I made the point that 50 per cent. of the Amendments applied to investment trusts.

Dame Patricia Hornsby-Smith (Chislehurst)

First, I must declare my interest in this matter, as I am the chairman of the management committee of the Western and General Unit Trust, and a modest holder in it. I am grateful to the Chief Secretary for at any rate giving us some hope of a rearrangement or concession on Report. I do not wish to detain the Committee for long, but I must point out that the hon. Gentleman was not quite specific enough to assure us that double taxation will be avoided. This is a rare but happy occasion, on which I find myself following the line of argument put forward both by my hon. Friend the Member for Shipley (Mr. Hirst) and the hon. Member for Manchester, Cheetham (Mr. Harold Lever).

I want to put one question directly to the Chief Secretary. As the Bill is now drafted, I understand that a person with an income of £1,000 a year who saves modestly £50 or £100 a year through a unit trust will, on every £1 of realised income from those savings, pay more in tax than will a man with £100,000 who invests directly through the Stock Exchange and makes £50,000 a year. Pound for pound of realised income, the direct investor will pay less tax, however wealthy he may be, than will the holder in a unit trust.

I know that these figures have been given to the Treasury by the deputation from the Unit Trust Association, and I feel very strongly that we should have an assurance that the situation will be met, and that the direct investor will not be left with more after paying tax than will the unit trust holder who, overall, is a very modest investor. The hon. Member has pointed out that he passionately wants to do everything that he can to protect savings. I am sure that that is so; it has been the wish of every Chancellor of the Exchequer, of whatever party.

But why complain because the unit trust holder does not panic and does not keep putting in and taking out his units? He may leave his units in for some years before he realises them. Why should he not then be asked to pay tax on his capital gains? The hon. Member suggests that the method used will be a simple one. Surely any pre-taxation of a trust, whether it is on capital gains or not, will produce a ridiculous situation in the day-to-day price of units. At the moment unit trusts are controlled by the Board of Trade; their values are scrupulously worked out by computers every day. Every unit trust holder knows at any time of any day what his unit is worth, and it is a fair, accurate and just price.

If we are going to make unit trusts pay capital gains they can do one of two things. They can either accrue the contingent liability for tax on capital gains and reduce the unit by a proportionate amount or take no account of liability for tax until the capital gains are realised and then slash the units. Whichever way they operate it will be unfair. I am not satisfied that the Chief Secretary has given us any assurance that these anomalies will not arise and destroy the true value of the unit, making it cheaper for the buyer at one moment and dearer for him at another. We want a little more assurance that he has gone further than I suspect is the case from what he said tonight to meet the very real complaint of the small investors in unit trusts. The average amount invested is only £334, but the holders are to pay a higher rate of tax than the wealthy man who gambles on the Stock Exchange.

Mr. Geoffrey Lloyd

Earlier the Chief Secretary gave the impression—I may be mistaken—that investment trusts were included in the concession which he had arranged with the unit trusts. I think that recently the hon. Gentleman has corrected that impression. I have consulted the Association of Investment Trusts since his speech and find that it has not been consulted about any such arrangement. It would be useless to investment trusts, because their problem is different. The Chief Secretary seemed to imply that they had no administrative problem, but we do not think that is so.

Broadly speaking, investors in investment trusts are insurance companies and pension trusts—the large institutional investors—on the one hand and the small individual investor on the other. Large private investors do not usually invest in investment trusts for whatever the reason. We know from our records that it is the small investor and the big institution whose investments are made in investment trusts. I suggest that there is no administrative problem from the point of view of the big institution, but with the small investors it is a different matter. They are literally small investors; very often they are widows. It is no use for hon. Members opposite to laugh about this. We have had too many indications that this is so.

These investors have to be looked after to ensure that they claim their dividends and any bonuses that may be issued, and to ensure that they get their rights, because many of them are unaccustomed to any kind of complicated business dealings. We are anxious about the certificates which will have to be issued every year, and conceivably more often than that. We feel that many investors will not have kept records and it will be very difficult for them. They do not have access to skilled accountancy advice as does the larger investor. We anticipate that there will be a good deal of trouble and difficulty for the small investor if the Government scheme goes through. The difficulty could be solved by the acceptance of the Amendment, and this would result in the elimination of the slips of paper and the need to issue them continuously.

Some of the slips of paper and certificates will relate to absurdly small amounts. The capital gains realised in respect of investment trusts are small. Normally the trusts do not seek to make a capital gain, and any gain realised arises incidentally in the course of the redisposing of assets in the best way to increase the income of the trust. The small investors will not get much capital gain. I am advised that some certificates may relate to a fraction of a penny or some figure which is quite derisory. Yet this enormous machine, both from the point of view of the Revenue and the investment trust companies, will be invoked.

I wish to remind the Committee of our discussions earlier about charities and to indicate that the whole of that problem would be solved instantly by the acceptance of this Amendment. Hon. Members on this side of the Committee consider that the Government have not done justice to this considerable investment movement which really represents collected investments. We feel that they have made it more difficult for the small man to take advantage of this movement, which was started not in England, not in the City, but in Dundee, 100 years ago, after a jute boom. The canny Scots were looking round to see where they should put their money and they saw good benefits in the railways to open up the great wheat fields of America. They invested in them and got a good return.

Starting as a simple trust, they were then converted into trust companies. From this basis they have reached their present large size, and they are much larger than the much better known and more recent unit trust movement, but they have not been growing so rapidly recently. They have hundreds of thousands of very small investors. We do not think that the Government have done justice to them. We hope that they may reconsider their attitude, either from the point of view of what we have discussed tonight—or possibly the rate—between now and Report.

9.45 p.m.

Mr. Heath

When I moved the Amendment, I said that I thought that it would be an important debate, and I think that it has been one of great significance. When the Chief Secretary and his colleagues on the Front Bench are considering the matters raised tonight, I hope that they will give careful consideration to the wide number of points which have been made by my hon. and right hon. Friends and the very powerful plea made by the hon. Member for Manchester, Cheetham (Mr. Harold Lever). I hope that the Chief Secretary will consider all this when he is defining his own scheme in the Amendment which he is to put down. He began by saying that his own position was perfectly clear. He said that he would do everything possible to encourage savings. I interpreted this when I was putting forward the same view as being to encourage small savings particularly.

I think that the balance which has been struck by the Chief Secretary tends towards the wrong side. If anything, the balance ought to be more towards the small saver in the unit trust and the investment trust, rather than the way in which it is at the moment. The Chief Secretary emphasised that the small saver has the advantage of wise management and that therefore he must expect certain disadvantages under which the investment and unit trusts appear to be in the present Bill.

Of course, the small saver is paying for this management in the administrative expenses of the unit or investment trust, which have to be met by both out of their income. In that way alone, he is compensating for the wise management and advice which he gets, as shown through the operation of the investment trust or unit trust. I do not believe, therefore, that there ought to be compensating disadvantages to the detriment of the small saver. Therefore, I am particularly in agreement with what the hon. Member for Cheetham said about trying to get the best possible balance. If anything, I think that the balance ought to be tipped on the small saver's side.

The Chief Secretary said that he has discussed this with the Association of Unit Trust Managers, and that he proposes to put down an Amendment with that aim. I think that he will agree that both investment and unit trusts wish to be exempt from the Capital Gains Tax and want the tax to fall on the holder of the shares or units. That was their first position, which they put to him and his colleagues. Having failed to secure the first position in their discussions, they have moved on to other schemes, one of which the Chief Secretary will follow in his Amendment.

My first reaction is that this does nothing to help the investment trusts, though it helps the unit trust from the point of view of withdrawal of units. It still leaves a problem—which I think we must discuss when we see the Chief Secretary's proposal in detail—of maintaining an equality between those buying units and those retaining them. That problem remains.

At the same time, we must look at the scheme which is put down and which the Chief Secretary has described. I must confess that I am beginning to feel somewhat unhappy about the "halfway houses" which the Chief Secretary manages to reach in our discussions. Our experience of past halfway houses has been that they breach a principle which he has said is absolutely inviolable and usually produce an administrative position which is difficult to maintain and a whole series of fresh anomalies which cause a tremendous amount of irritation for everyone concerned. I hope that he will understand my saying that I shall approach the wording on the Order Paper with some trepidation. Nevertheless, the Committee is in a difficulty, because it has not seen this new proposal in detail and wishes to consider it.

I should like to maintain our position in principle—that we believe that these bodies should be exempt from Capital Gains Tax—and to assure him that we shall give the fullest consideration to the Amendment which he puts down. In the meantime, I should like to withdraw our Amendment so that we may consider his more fully when he puts it down and return to our own position if we deem it necessary or advisable when the time comes. I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Lubbock

I beg to move Amendment No. 47, in page 40, line 5, to leave out "unit trust or investment trust" and to insert "company".

It has been accepted on both sides of the Committee that double taxation of capital gains is abhorrent and that we should try to avoid it wherever possible. I am seeking to develop that point of view. I should like to make it clear that the word "company" includes, of course, investment and unit trusts. What I am seeking to do is to apply the provisions of Clauses 34 and 63 and paragraph 4 of Schedule 6 to all companies and not only to investment and unit trusts.

Under this provision, any capital gains made by a unit or investment trust are subject to Captain Gains Tax in the hands of the trust, but when the shareholder sells his shares, if there is a capital gain on his holding, he is relieved of so much of the tax as has already been paid by the trust on his behalf on the underlying assets.

If any other type of company makes a capital gain on a trade investment or any other asset involved, this is to be taxed in the hands of the company at the Corporation Tax rate of, say, 35 per cent. and then, when the shareholder disposes of his holding, the amount which is left is to be taxed in the hands of the individual shareholder at 30 per cent.

That is to say, if the shares have appreciated by exactly the amount of the net capital gains which the company has made after deduction of the 35 per cent. Corporation Tax, in effect, the individual shareholder will pay the double Capital Gains Tax rate of 54½ per cent. This figure has been mentioned already and the Chief Secretary will know how it is contrary.

Whereas if he is being taxed at less than the standard rate the individual shareholder can opt to pay on the second tranche of this tax at two-thirds of his marginal rate of tax, he has no control over the 35 per cent., or 40 per cent., Corporation Tax which has already been paid by the company on his behalf.

I emphasise that not every small investor wants to invest through the medium of investment or unit trusts. I do not think that we have so far mentioned in these debates anything about the tremendous growth of investment clubs. The growth of this comparatively recent phenomenon is accelerating at a tremendous pace. Many groups of small investors have got together in this way—teachers, policemen, clerks and perhaps even some of the workers on the floor of the motor factory who have been mentioned by the right hon. Member for Sutton Coldfield (Mr. Geoffrey Lloyd), and have invested through this medium in recent years.

Quite apart from this, there are many small investors who prefer to exercise their own judgment. They enjoy studying the progress of various companies and trying to find those most successful in their own lines. We should not discourage people from doing this. Therefore, without in any way trying to minimise the importance of investment and unit trusts, I would not like to think that these were the only medium for the small investor. We are discriminating against investors who prefer to exercise their own judgment. The Bill gives a concession to people who invest through investment and unit trusts and denies it to the small investor who puts his money into any other type of company. I fail to see the difference. I cannot see the logic in this discrimination.

There may be companies with trade investments which, from time to time, dispose of those investments and replace them with others. They will pay the Corporation Tax rate of 35 per cent. and the money will be subject to tax at the rate of 30 per cent. in the hands of the shareholder. I urge the Chief Secretary to think again on this issue.

Mr. Diamond

I readily respond to the request of the hon. Member for Orpington (Mr. Lubbock) to think again on this issue, but I am bound to tell him that I have given the matter a considerable amount of thought already. I did not find that his arguments broke new ground. Indeed, he said what I expected him to say. I would, therefore, be misleading him if he thought that further consideration would lead to a different course of action.

The hon. Gentleman asked why we differentiate between a unit trust and an ordinary company. That has been the whole basis of the discussion we have only just completed. It has been made clear, and the Government accept, that up to a point the unit trust is a sort of alter ego of the individual—a machinery by which an investment is made for him—and although one cannot go the whole way and treat it as a complete agent of the investor, it is a very different relationship from an investment in an ordinary company direct.

Moreover, there is this real difference. Whereas in a unit trust the value of the unit represents most accurately the value of the underlying assets, and whereas in an investment trust the value of the share represent quite accurately the value of the underlying assets, in regard to an ordinary trading company the valuation of the shares has at times a close reference and at other times no close reference at all to the value of the underlying assets. The value of the shares depends entirely on different considerations, as the hon. Member for Orpington will know, and an increase in dividend will put up the value of the shares without a single asset changing hands or being altered.

I come to the next stage, which is to repeat that the Corporation Tax is a tax on corporations. As a corporation makes profits, be they drawn from income or capital, it makes gains on which it pays Corporation Tax. That is a separate thing from the tax paid by the individual. For example, a corporation will pay tax on its profits. On the remainder of its profits, which are distributed to shareholders, the shareholder will pay Income Tax—quite a separate thing—and the tax which the corporation bears is borne on profits which derive from either or both sources. The function of a company is to make profits, and whether it makes them from capital or income sources is irrelevant to this issue. Thus, the same differentiation applies to Income Tax paid by the shareholder as to Capital Gains Tax paid by the shareholder. These are totally different issues and just as in one case the shareholder pays Income Tax so in the second case the shareholder pays Capital Gains Tax.

10.0 p.m.

Mr. Lubbock

The right hon. Gentleman will realise that it is not an irrelevant distinction from the accounting point of view and in the case of the disposal of an asset this would be placed to capital reserves and not be available for distribution to the shareholders.

Mr. Diamond

Whether it is available to the shareholders depends on a lot of other issues, as the hon. Gentleman knows. It very often is distributed to shareholders as a capital dividend. It is not a question of accounting but of company law, and I agree that, as there are very good reasons for protecting creditors, capital must remain intact and it cannot be distributed.

We are talking about capital gains. I hope I have made it clear that, although I am only too glad to look at what the hon. Gentleman has said and read it once more in HANSARD, I do not feel I can offer him much hope.

Mr. George Y. Mackie (Caithness and Sutherland)

I should like to point out the difference between the Liberal proposal on Corporation Tax and the idea behind the Government's proposals on Corporation Tax. Our taxation committee proposed a Corporation Tax—

The Chairman

Order. The hon. Gentleman will have his chance to develop that at a later stage of the Committee's proceedings, but not at this moment.

Mr. Mackie

I accept that, Dr. King. With regard to the Captain Gains Tax the distinction which the right hon. Gentleman is making is completely false, because shareholders cannot be divorced from the company. It is one thing to tax the company on a simple form, but it is another thing to lay down as a principle, which is what the hon. Gentleman is doing, that a company is entirely divorced from shareholders. This cannot be done.

Mr. Peter Walker

I should like to emphasise the point made by the hon. Gentleman the Member for Orpington (Mr. Lubbock) as to the hardship caused by this Clause in relation to double taxation. I have already quoted the example of the company in which two shops were owned as opposed to the individual owning two shops. If a person owns two grocery shops through a limited company and disposes of one of these shops then subsequently the whole business of the shop he first disposed of, he will pay a total of 54½ per cent. Capital Gains Tax. There are a very large number of small businesses run on this basis throughout the country. I am sorry that the Chief Secretary has not thought again since our earlier debate on this topic. I ask him to recognise that there is real anxiety on both sides of the Committee that some people will be taxed at 54½ per cent. and others at 30 per cent.

Amendment negatived.

Mr. Peter Walker

I beg to move Amendment No. 235, in page 40, to leave out line 12 and to insert This section and section 63 of this Act apply to an".

The Chairman

With this Amendment we will take Amendment No. 236, in page 40, line 13, leave out "means" and insert "which".

Amendment No. 237, in page 40, line 13, leave out "a company" and insert "is".

Amendment No. 238, in page 40, line 19, leave out "ten" and insert "twenty-five".

Amendment No. 239, in page 40, line 19, leave out "value" and insert "cost".

Amendment No. 240, in page 40, line 22, after "company", insert (not being a company whose income is derived wholly or mainly from shares or securities)".

Amendment No. 241, in page 40, leave out lines 23 to 28 and add: (c) that it is a company (other than a close company (as defined in paragraph 1 of Schedule 17 to this Act)) whose shares are quoted on a recognised stock exchange (as defined in Part IV of this Act); and (d) that the distribution as dividend of surpluses arising from the realisation of investments is prohibited by the company's articles of Association; and (e) that the company does not retain more than ten per cent. of the income it derives from its shares and securities but for the purpose of this calculation any amount not capable of being distributed as dividend by reason of the prohibition referred to in the last foregoing paragraph shall be ignored.

Amendment No. 262, in page 40, line 22, after "company", insert not being itself an Investment Trust or Authorised Unit Trust".

Amendment No. 52, in page 40, line 23, leave out paragraph (c).

Mr. Walker

The purpose of this Amendment, which is directly related to a number of other Amendments which you were kind enough to call with it, Dr. King, is to clarify and improve the definition provided for investment trusts. On a careful examination of the provisions made in Clause 34 in defining investment trusts which will receive the treatment appropriate to this Clause, we discovered that almost every investment trust in the country would be excluded from the provisions of the Clause. Therefore, we have set about, by means of this Amendment, to put forward another definition which we hope will be acceptable to the Committee.

Amendments Nos. 235, 236 and 237 are purely minor matters of wording which, we think, improve the first part of the subsection, but Amendment No. 238 is a departure from the general definition. Here we suggest that the figure should be increased from 10 per cent. to 25 per cent. That is exactly the position in the United States, where there is a very developed investment trust movement and where the provision is for 25 per cent. and 10 per cent. I think that careful examination will show this to be a not unreasonable figure for these particular types of investment trust.

Amendment No. 239 is very important, because it seeks to substitute the word "cost" for the word "value". We believe that the use of "value" would put managers of an investment trust into an impossible position because the investment trust may invest in a particular security which at the time of the investment may be worth less than 10 per cent. or 25 per cent., whichever the case may be, of the total investment trust.

If the security then rises in value the percentage laid down may be exceeded. That would mean that a rise in a particular security could suddenly make an investment trust no longer able to benefit from the various provisions of Clause 34. I think that the Committee will recognise that, from the practical point of view, it is important that we use the word "cost" and not "value".

Amendment No. 240 would enable a company to invest through a subsidiary company which was primarily concerned with investments or to invest in another investment trust. That frequently happens in the investment trust movement and I do not think that it in any way detracts from the wishes of the Government when they were framing these Clauses of the Bill.

We feel that Amendment No. 241 would provide a much better and wider definition of investment trust companies which will continue to be included in the provisions of the Clause. Unless this Amendment is accepted, a very large number of genuine investment trusts in the true spirit and meaning of both sides of the Committee would be excluded from the provisions of the Clause. We have laid down very careful limitations. This is not an attempt to allow certain companies which are not genuinely investment trusts companies to take advantage of the Clause, but an attempt so to define an investment trust as to bring the great majority of genuine investment trusts within the provisions of the Clause.

I hope that the Government will feel that these Amendments have been tabled in that spirit, and will find them acceptable.

Mr. MacDermot

I say at once that I entirely accept what the hon. Member for Worcester (Mr. Peter Walker) has said about the spirit in which he has moved this Amendment, which deals, as does the whole group of Amendments, with the question of what should be the criteria for determining what is an investment trust for the purposes of the Clause.

I should like briefly to explain our objective in laying down the criteria in the Bill. It is to distinguish the genuinely public investment trust, in respect of which the relief under the Clause is intended, from the investment trust company which is under private control and which is, in substance, no more than a company designed to hold the private fortune of a family group; for example, the shares of a family company in which a large number of members of the family are interested.

The provisions of the Bill are modelled—I do not say that they follow precisely—on criteria which have been operated under American law for some time. It was never our intention to give relief from double taxation for companies which did not fall within the general objective of the criteria that we laid down.

For the most part, the Amendments put forward proposals which have been made by the Association of Investment Trusts. There has already been reference in the Press to the fact that my right hon. Friend received a deputation from it. I was present at the meeting. We agreed that the meeting should be followed by discussions with the Association to try to work out an acceptable definition. Our consideration of these matters is not quite complete yet, but I think I can go a good way to indicate to the Committee our approach to the Amendments. It will probably be convenient if I take them in turn, as the hon. Gentleman did. The first three, as he said, are really drafting Amendments, and I need not spend time on them.

The first two Amendments of substance are No. 238 and No. 239, which propose to alter subsection (2,b) so that, instead of referring to trusts not more than 10 per cent. by value of whose investments or securities are in any one company, it will refer to trusts not more than 25 per cent. by cost of whose investments consist of such shares or securities. I will take these in turn and deal with No. 239 first. With regard to the proposal to substitute "cost" for "value", the argument is, as the hon. Gentleman made the point, that one may get a situation where a trust which at one time qualified finds itself disqualified because a particular share in its holdings has increased relatively in value compared with the other holdings. Obviously, that is a forceful and understandable argument. This is looking particularly, as it were, to future movements in share value.

The argument the other way is to look at what has happened in the past, to look at the time when particular shares were purchased by the investment trusts. It may seem illogical that their qualification or non-qualification should depend on the particular moment when they acquired a certain group of shares. One might theoretically, if one adopted the Amendment, get a situation where one had two investment trusts with exactly the same portfolios, and one would qualify and the other would not because of the time when they purchased particular shares. However, perhaps that is a situation which is less likely to occur, and I concede that there is obviously force in the argument put forward.

With regard to the substitution of 25 per cent. for 10 per cent., we think that the figure of 25 per cent. may be somewhat high. The purpose of an investment trust is to spread its portfolio as widely as it can and to spread the risk, and a holding of 25 per cent. in one company would seem rather unusual and due to special circumstances, or inconsistent with the general objectives of trust companies. But it has been put to us—again, the point was made by the hon. Gentleman—that the American code provides for a 25 per cent. holding, though it is right to say that this is related to a test by value and not by cost. I put it to the Committee that we see the force of these arguments. We should like to look sympathetically at the two Amendments and try to find, as a result of further discussion with the Association, a reasonable and acceptable solution. We obviously would not take a test which would result in the exclusion of a very large number of investment trusts which are clearly within the general principle which I stated at the outset.

Amendments No. 240 and No. 262 would, as the hon. Gentleman said, both have the effect that an investment trust would be able to qualify for authorisation although the whole of its portfolio consisted of shares in another investment trust or unit trust company. I would make it perfectly clear that we have no objection in principle to this and will also view these Amendments sympathetically.

I will also state our attitude to Amendment No. 52, which proposes to delete paragraph (c) from subsection (2). This would have two effects. One would be to remove the requirement that it should not be under the control of fewer than 50 persons. I will come to that point in a moment when dealing with the next Amendment, but I think we can meet that point. However, it would also mean getting rid of the requirement that the investment trust must be one in which the public are substantially interested. Clearly, that is a requirement which must be retained. Therefore, we could not accept that Amendment as it stands.

10.15 p.m.

But we can accept the main point in dealing with Amendment No. 241. This proposes that, instead of the test of control by not less than 50 persons, in order to qualify for authorisation a trust should be a quoted company and not a close company and that it should distribute at least 10 per cent. of the income which it derives from its shares and securities, leaving out of account for this purpose any surpluses from the realisation of investments which it is prohibited from distributing by its articles of association. Given the definitions which there are in Schedule 17 of "close company", "control" and "associate", these proposals seem to us in general to be reasonable.

However, there are two particular points that we would like to look at further in this connection. The first is whether the stipulation that the shares of the company must be quoted on a recognised Stock Exchange is sufficiently reliable. We should like to check what are the minimum requirements of Provincial stock exchanges before a quotation can be obtained. Secondly, we think that there might be virtue in including a further test that not more than 10 per cent. of the shares of the investment trust company should be in the hands of any person other than a person which is in itself an authorised investment trust company. It seems to me that, subject to those two points, the proposed criteria are sensible.

We do not dissent from the main principles underlying the Amendment. Taking the Amendments as a group, we are generally sympathetic to them. We have reservations on one or two points, most of which I have indicated. Subject to further consideration of these matters and perhaps further discussions with the Association, we shall be glad to bring forward an Amendment on Report which we hope will be acceptable.

Mr. Harold Lever

Before he sits down, would my hon. and learned Friend tell me what the Government have in mind in having restrictions upon investment trusts and what would be lost to the Government if they did not have these restrictions—except the right to collect double tax on capital gains? He said that these restrictions are useful. By which criteria does he say that they are reasonable or unreasonable? By what purpose are the Government moved in putting on these restrictions?

Mr. Grimond

I do not want to deprive the Financial Secretary of an opportunity to answer that question.

Sir D. Glover

He does not know the answer.

Mr. Grimond

Perhaps I may apologise for having missed the opening moments of the debate. I was summoned from the Committee, and if I make points which have already been made, I apologise. I am grateful to the Financial Secretary for the general tenor of his speech. I understand that on Report he will meet most of the points in principle, with the exception of those in Amendment No. 52.

May I put to him briefly a point concerning Amendments No. 238 and 239? He said that he would look at the requirement about 10 per cent. in value of the holdings being in one company. If he looks at the holdings of investment trusts he will see that this requirement would rule out most existing trusts. Many hold from 12 per cent. to 15 per cent. in a particular share, and it is not unreasonable that this should be so if it is a good investment; that is exactly why the investment trusts exist.

It seems to me that the idea of spread can be exaggerated. What the investor in a trust wants is to have the advantage of expert management. The bulk of the trust funds may well be in certain companies and not necessarily spread throughout the whole of industry merely for the sake of spread.

It seems to me highly undesirable that an investment trust should be forced, perhaps at a most inconvenient moment, to realise some of its holdings simply because it has more than 10 per cent. in one company. I am grateful to the Financial Secretary for saying that he will look at this point, increase the level and take into account the Amendment which suggests that it should be cost rather than value which counts.

There are a number of specialised trusts which deliberately confine their investment to a fairly narrow range of companies—for instance, trusts which invest in the electronics industry. This seems to me to be a very reasonable development of the investment trust movement, because it is often in the newer industries concerned with electronics and nuclear power that the small investor has the greatest difficulty in knowing which companies are best. But it limits the spread of trust. I hope that when the Financial Secretary is considering the Amendment which he will put down on Report he will bear this matter in mind and bear in mind the position of these rather specialised trusts with their more limited field of investment. I hope that he recognises that they have a part to play and that he will take them into account when he drafts the Amendment.

Mr. John M. Temple (City of Chester)

I am sure that the whole Committee is extremely obliged to the Financial Secretary for his very expansive statement.

The investment trust movement is an important movement, particularly to the small investor.

I wish to raise with him a point about Amendment No. 241, concerned with the criteria for disbarment of an investment trust if it can pass on its capital gains in a special form to the investors themselves. If the Bill had been enacted in the form in which it was drawn, it would have meant that investment trusts would have slipped in and out of the investment trust category. It is very important when the new criteria are being considered that they are drawn extremely widely, because the worst thing which could happen to the investment trust movement would be that an investor should invest in particular shares of an investment trust in the belief that the trust would be able to pass on its capital gains to the investor only to find that, owing to the criteria as to the value of some particular investment or the fact that there were fewer than 50 people actually controlling the trust, the trust had fallen out of what I call the favoured category.

This is extremely important, and I very much hope that when we see the Amendment on Report we shall find that the criteria of the investment trust will be drawn on a much wider basis so that investment trust managers may have confidence in the fact that the trust will continue to be in the form which will be extremely useful to investors.

Sir D. Glover

I do not think that my hon. Friend the Member for the City of Chester (Mr. Temple), who has just congratulated the Minister, is "on the ball", because the concessions which the Minister has given on these Amendments are an illustration of the appalling inefficiency of the Government in producing the Bill as it was. When the Government say, "We will look into this, that and the other", it creates the impression that they did not know what they were doing and had not any appreciation of what would be the result of the Bill. This is another example of Government inefficiency.

We are dealing with a very difficult problem which many people do not understand. Suppose that I were to decide to place my money in the hands of a group of people who would invest it in a category laid down by the articles of association of that trust to the best advantage of the investors. What the Government are saying in this Clause, even with the acceptance of the Amendments which they say they will accept, is, "Although it may be the view of the directors of this investment trust that all the money should be put into X company, if they did that they would be breaking the law as laid down in the Finance Bill".

The right hon. Member for Orkney and Shetland (Mr. Grimond) talked about investment trusts which were mostly concerned with electrical companies. Others are concerned with oil. The Government say that the expert knowledge of the directors of investment trusts must not be used and that if it is they will incur penalties. They say that the directors must not invest their liquid funds in company X because if they do they will be breaking the Clause and will incur penalties. They are, therefore, obstructing the judgment of the directors of investment trusts to work in what they consider the best interests of the shareholders of the trust.

What appalls me as we go on with the Bill, and even when the Government accept Amendments, is that they do not know the repercussions of what they are proposing in the Bill. They are saying, "We propose to put a premium on mediocrity". This "dynamic" Government propose to put a premium on the conformer. They say, "The careful man who does not take a chance and who puts 5 per cent. of his money in each of 20 companies is a much sounder citizen than the entrepreneur who puts all his money in one company because that is the company which will grow".

I understood that the Labour Party was returned to power on the understanding that it would create a dynamic society and clear the decks for action. This is a safety first Clause which says that people should never take a chance and that if they do they have to pay the penalty. Is this the sort of atmosphere in which to build up a dynamic society? I am sure that the hon. Member for Manchester, Cheetham (Mr. Harold Lever) goes some way with me in this. The Clause inhibits the sound judgment of people who are in charge of investment trust funds.

10.30 p.m.

If that is true in the case of the investment trust, how much more true is it in the case of the unit trust. In an investment trust, there may be a group of, say, five solid financiers who get together and decide to put their money into this or that company or investment. I give the hon. Gentleman that argument, but, in the case of the unit trust, what is the difference? It is said that unit trusts must do the same. A unit trust is made up, perhaps, of 100,000 people none of whom has £1,000. The average holding is about £100. Why have they invested in a unit trust? They have done so because they realise that they themselves could not make a sound judgment on their investment, and they are prepared to hand over their £100, £250 or £500 to those who, they think, have the knowledge to do their investing on their behalf.

Mr. MacDermot

The Amendments we are discussing deal only with investment trusts, not with unit trusts.

Sir D. Glover

I accept that. Perhaps as a result of the hon. and learned Gentleman's intervention, I may be able to speak later in the debate on unit trusts.

But the argument still applies to investment trusts. The Government are putting a premium on inefficiency, not efficiency. I should never be invited to be a director of an investment trust, but, for the sake of illustration, let us imagine that the hon. Member for Cheetham and I were members of a board, considering our investment policy. We might decide at one stage that we would like to invest more than a given percentage in a particular share, but, if we did that, we should lose all the advantage. We are not allowed to do that. We must spread our investments. Therefore, we are forced by the Government to put our money into shares we do not think we ought to put it into. If that is not dishonest and forcing the directors of an investment trust to act dishonestly towards their investors, I should like to know what it is.

Sir L. Heald

On a point of order, Dr. King. I should like to ask for your guidance. I realise that we are not yet discussing the Question, "That the Clause stand part of the Bill," but perhaps you may be able to help us. Some of us would like to make one or two brief comments on this matter, but you may consider that it has been so discussed that to have a debate on the Question, "That the Clause stand part of the Bill," would not be appropriate.

In the circumstances, in view of the present rather unusual performance of discussing a large number of Amendments and questions at the same time, perhaps it might be in order to discuss the general principle as well.

The Chairman

I should never rule in advance on a hypothetical situation. I should warn hon. Members that if they use Amendments to make speeches which would be appropriate to the Question, "That the Clause stand part of the Bill," when the time comes to consider whether we debate that Question, the Chair's heart will be very hard.

Mr. Harold Lever

I do not want to harden the heart of the Chair by my arguments, Dr. King, and I shall, therefore, try to dispense with argument and, instead, put some questions and induce some reflections—in a neutral sense—by the Government. [Interruption.] I hear my hon. and learned Friend say that I have not had an answer to the first lot. That, surely, far from induces silence; it merely adds to inquisitiveness.

The hon. Member for Ormskirk (Sir D. Glover) has raised the horrific possibility of our sitting together on a board. I am in enough trouble already, without having that added to my difficulties. What I am really concerned to know is the thought processes behind this Clause or any other Amendments.

The Chairman

Order. It might—I only say might—be in order to discuss the thought processes behind this Clause on the Question, "That the Clause stand part of the Bill", but it certainly would not be in order at this stage.

Mr. Lever

I do not think that you heard my last words, Dr. King—"in relation to these Amendments". It seems on first sight that the Government are making a decision in areas where without hurt to themselves they could be entirely neutral. I do not want to reecho the argument which has been made already. Perhaps I am being naive about it, but can the Government tell me why I, as a good Socialist, am becoming, as one of my hon. Friends says, a Tory, because I want a certain amount of logical explanation before I assent to legislation upon these matters?

If my hon. and learned Friend will apply his excellent mind to these points he will see that the questions I am raising are not partisan, and in no way conflict with the motivation or the purposes of my right hon. Friend, whom I am delighted to see here, and who is so unfairly used and abused by the Opposition, characteristically by "Heath's Fork"—that if they do listen to argument they are condemned for not having thought of it before, and if they refuse to listen to reason they are guilty anyway.

What I want to ask my right hon. Friend is this: why is it necessary, what purpose does it serve, what difference does it make to say—not what the Opposition side of the Committee says, but a good Socialist like my hon. Friend, who thinks that I ought to be in the Conservative Party—what difference does it make even to my hon. Friend whether a company has 25 per cent. of its investments or 10 per cent. or 90 per cent. or 100 per cent. in a particular company?

Mr. Hugh Jenkins (Putney)

If I thought that my hon. Friend had become a member of the Conservative Party I should say so openly, and not, as it were, in parenthesis.

Mr. Lever

Perhaps I owe my hon. Friend an apology. If I have been too touchy, I make apology to him. What difference does it make to my right hon. Friend whether such a company invests all its money or half its money in this way? Perhaps I can have that explained to me. What difference does it make whether a company has 50 shareholders or one? What are these restrictions about? I do not want to repeat myself on the Question, "That the Clause stand part of the Bill". I merely wish to be enlightened because I have not seen so far any purpose served. Maybe there will be a purpose served. But what I want to ask my right hon. Friend is if it turns out that no purpose is really served may we not have them abolished in their entirety? And if a purpose is served by one or more of the restrictions, then each one must be justified; the purpose and the restriction must be justified.

Mr. John Tilney (Liverpool, Wavertree)

I should like to support what the hon. Gentleman the Member for Manchester, Cheetham (Mr. Harold Lever) said and strongly support what my hon. Friend the Member for Ormskirk (Sir D. Glover) said. I hope that, when the Financial Secretary looks at all these Amendments on Report, he will again look at Amendment No. 52, because investment trusts, especially in Edinburgh and outside London, have done a fine job long term for Britain. I am thinking of those which have invested far more than 10 per cent. in certain industries—in, say, oil drilling off shore in America—to the great success of the trust and to the benefit of our balance of payments. Will he also consider whether if just 26 companies have only 2 per cent. in one investment company that would alter the status of the investment trust? These are points which, no doubt, he will reflect upon, because I am quite certain that the whole of this Clause wants readjusting.

Mr. Peter Walker

May I make it perfectly clear that, if there is an investment trust board with the hon. Member for Manchester Cheetham (Mr. Harold Lever) and my hon. Friend the Member for Ormskirk (Sir D, Glover) as directors, I have no intention of investing in it?

Sir D. Glover

I have no doubt my hon. Friend's reluctance has nothing to do with me, but with the hon. Gentleman the Member for Manchester, Cheetham (Mr. Harold Lever).

Mr. Peter Walker

I think that such a trust would have the most protracted board meetings ever.

I am grateful to the Financial Secretary for accepting the spirit of our Amendments. I think that, as always, he did it a trifle reluctantly, but I think that his comments add up to the fact that we got nine out of 10 for our Amendments. In spite of the lack of enthusiasm, we are grateful to the hon. and learned Gentleman for accepting them in prin- ciple, as they will substantially improve the Clause. I therefore beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. G. A. Pargiter (Southall)

I beg to move Amendment No. 370, in page 40, line 28, at the end to add: (3) Any chargeable gains whether short or long-term arising from the sale of investments out of funds established under a scheme for the collective investment of local authority moneys (including superannuation fund moneys) approved by the Treasury under section 11 of the Trustees Investments Act, 1961, shall be apportioned to the participating authorities: (4) A certificate stating the amount of the chargeable gain apportioned to a local authority under paragraph (3) above shall be given to the authority by the trustees of the scheme and the authorities shall be able to claim repayment of the relevant tax which has been paid by the Trustees as follows:—

  1. (a) in respect of superannuation moneys invested by the authority, the proportion of tax corresponding to that part of its superannuation fund which is approved under section 389 of the Income Tax Act, 1952; and
  2. (b) in respect of other funds invested by the authority, the full amount of the tax.
The purpose of the Amendment is to enable local authorities to do collectively, without attracting tax, what they may do individually. Under Section 11 of the Trustees Investments Act, 1961, it is possible for local authorities to set up a collective scheme for the purpose of investing moneys in equities, and so on. The Local Authorities Mutual Investment Trust is a body which exists entirely for the purpose of investing local authorities' moneys, mainly superannuation funds which, if dealt with in this way, apart from a small proportion, are not subject to tax.

It would be illogical to say that local authorities may do individually what they may not do collectively, and I gather that the object of the Amendment will meet with some sympathy. It may not be worded in the best way. I would have preferred to have included it in Clause 62 which provides exemptions from tax for local authorities, but it is probably not possible to do that because a small section, particularly the superannuation moneys which are not approved, attract tax, and, therefore, that element would probably prevent it from coming under Clause 62.

This is rather a complicated way of dealing with the matter, because it means that the trust pays the tax and local authorities reclaim it. If a way can be found by which this object can be achieved without going through the machinery of reclamation, it will be easier, less costly, and in the end will cause the Government less trouble, and will certainly cause the Inland Revenue less trouble.

I hope that the Amendment will commend itself to the Government. I am sure that its principle will be accepted, that the Government will want to get the principle right, and will want to ensure that local authorities are allowed to do collectively what they have been able to do individually, indeed, specially requested so to do by the Minister of Housing and Local Government, in a circular issued to them.

Mr. Temple

Not for the first time I find myself in the company of the hon. Member for Southall (Mr. Pargiter) in speaking on behalf of local authorities. I think that the Amendment should commend itself to the Government. Quite frankly, I cannot understand why the Government, in their researches with local authorities, did not discover that the Local Authorities Mutual Investment Trust was outside the scope of the Bill, and bring in an Amendment to cover this point.

The Government are learning extremely quickly. They are learning a lot about investment trusts, and it seems a very good thing that we have a Committee which can give the Bill a very thorough examination. I believe that the Amendment will give effect to the intentions he has so clearly put forward, namely, that the investments of local authorities which are made other than for superannuation fund purposes will be exempt from Corporation Tax, and that those which are made on behalf of superannuation funds will be treated in the same way as investments made on behalf of any other superannuation funds. The Local Authorities Mutual Investment Trust is particularly important to the smaller local authorities—and here I would mention that I am speaking both on behalf on the Association of Municipal Corporations and the Rural District Councils' Association—which do not wish to call in the experts in the investment world; nor have they the facilities to do so, or the necessary access to them. At present, about £50 million are invested through this organisation.

I believe that the form of the Amendment is sound. I hope that if the Minister cannot accept its wording he will accept its spirit, which is supported wholeheartedly in the local authority world.

10.45 p.m.

Mr. Hirst

I support the two speeches which have been made. Like my hon. Friend, I have an interest in the matter, in that I am a Vice-Chairman of the Urban District Councils' Association, which is equally interested in the Amendment. I hope that we do not have to labour the point, because, as the hon. Member for Southall (Mr. Pargiter) has said, it is self-evident. These slip-ups can happen in the best-regulated societies, and this one should be put right.

In the faint hope that it does not need any great strength of argument I will be brief, but I trust that the hon. Member's reply will be sufficient to get this one out of the way. It is clear that there is a desire on the part of local authorities to be allowed to deal collectively as they have done individually—and collectively it is much more to their advantage. I hope that we do not have to press strongly on this point and make long speeches.

Mr. Diamond

The hon. Member for Shipley (Mr. Hirst) is quite right in saying that local authorities are interested in this matter, and nobody knows the problems of local authorities better than does my hon. Friend the Member for Southall (Mr. Pargiter), who speaks on these matters with great knowledge and years of experience. He will appreciate that the Bill would not have taken its present form unless there had been a distinction to be drawn between exempt persons and non-exempt persons, and that some local authority funds will be exempt and others will not.

What my hon. Friend is proposing is that there shall be a complete exemption from this tax, at all events in respect of taxing in the first place. What he is suggesting is that certificates should be issued enabling tax repayments to be made where appropriate, which would be in most cases.

Mr. Pargiter

The Amendment does not ask for total exemption. It asks for exemption to the same extent that local authorities would be exempt in respect of superannuation funds—in which case about 95 per cent. are regarded as being approved for the purpose of exemption and about 5 per cent., which deal largely with lump sum payments, are not. I am not claiming that the trust should be in any more favourable position than local authorities themselves. I thought that I had made that clear in moving the Amendment.

Mr. Diamond

Perhaps my hon. Friend did not hear me say, "In the first place", by which I was referring to the taxation of the investment trust itself. He is proposing that a tax certificate should be given to the individual local authority, which would enable it to reclaim repayment of tax in appropriate cases. My hon. Friend will no doubt have heard the debate on the very closely related topic of charities, during which, in order to try to help the Committee, I suggested the kind of consideration which the Government would be willing to give to the matter. It is that same kind of consideration which—naturally, with the consistency for which this Government are renowned—it will be glad to give to this comparable Amendment.

It is, of course, within my hon. Friend's knowledge and within that of many other hon. Members that there already exists a fund, the Charifund, which is a method of investing exclusively suitable for charities. There are many investment funds designed for special purposes. I believe that an arrangement could be made, as a result of which local authorities could use this machinery of investment for their funds which would be wholly exempt, instead of for funds part of which would be exempt. If that were the case, there would be such a close relationship and proximity between the investors and the investment trust that one could contemplate bringing in, on Report, provisions which would enable what my hon. Friend wants to be achieved.

I think that that is the best indication which I can give him of the way in which the Government are thinking. There have been negotiations, and these negotiations are by no means at an end. I cannot say that the Amendment in its present form is the kind which could be accepted, but I think that I have said enough to indicate the sort of consideration which the Government are giving and the kind of device which would largely meet my hon. Friend's point of view.

Mr. Temple

I must admit that I am far from clear about what the hon. Gentleman intends. He made a reference to a previous speech which I do not think was entirely germane to the Amendment so ably moved by his hon. Friend the Member for Southall (Mr. Pargiter). With respect, I do not think that his hon. Friend made the position quite as clear as I endeavoured to make it with regard to the 5 per cent. of money which has nothing to do with the superannuation funds, but which is the ordinary funds of the local authorities.

As I understood it, the hon. Gentleman said that that 5 per cent.—which, if the local authority invested it, would not be subject to Capital Gains Tax, Corporation Tax or Income Tax—will, in this case, be treated as if this organisation were a charity. The hon. Member for Southall made it quite clear how he thought the matter should be treated, that the local authority should be no worse treated if it invested through a mutual fund than if it had invested in individual investments.

If the Chief Secretary will tell the Committee that that is what he accepts, I think that the Committee will be prepared to accept his proposals, but he has not said that. The hon. Gentleman also made hardly any reference to what would happen to the much larger section of the Local Authorities Mutual Investment Trust, that is, the 95 per cent. invested on behalf of superannuation funds. As I said, he referred to a previous speech which was not in the least germane to the argument. We were left to guess what proposals he would bring forward. I do not think that the Committee would be wise to leave this matter at this point. We need a much clearer explanation and I hope that the hon. Member for Southall may be able to join in and press for a little more specific information from his hon. Friend.

Mr. Pargiter

I think that my hon. Friend's explanation, to say the least, went a long way round to get to the kernel of the matter, which is that where a local authority is exempt from taxation on the investment of its own funds individually, collectively local authorities should be exempt in precisely the same way, no more and no less. I have not asked that the 5 per cent. which is not approved for superannuation purposes should be exempt in any way. I am merely asking that when the Local Authorities Mutual Investment Trust invests 95 per cent. of the superannuation money, it should be exempt. Approximately 5 per cent. of other moneys—housing repair funds, cemetery funds and other bits and pieces—are not exempt, but the bulk is superannuation money.

My hon. Friend was making rather heavy weather of it. I am not asking that these words be accepted, but I am asking him to say clearly that he accepts the principle that local authorities collectively should not be subject to tax. I think that that was sufficiently simple to extract a reasonably simple answer. I am aware that the Government cannot commit themselves to a precise form of words, in view of certain conversations, but my hon. Friend could have indicated that this subject will be discussed on the principles that I have enunciated.

Mr. Peter Walker

I join with the hon. Member for Southall (Mr. Pargiter) in urging the Chief Secretary to reconsider his position. Using similar arguments to those used on charities, the Chief Secretary was saying that if local authorities want to obtain avoidance of this double taxation, which everybody agrees it is right they should, they have to make new arrangements. The present arrangements cannot be used for this purpose and, says the Chief Secretary, they must make new arrangements which the Government will be willing to consider on Report.

When the existing arrangements work so well for local authorities, and are tried and have been used and are working successfully to the satisfaction of the local authorities, I would have thought that it was absurd, because of the Government's doctrinaire principles, to suggest that the arrangements should be rearranged. This principle was involved in our discussion of the position of charities and now it is advocated again. Rather than stick to his present position, the Chief Secretary should agree to reexamine the whole matter to see whether he cannot use the existing arrangements to give the exemption which is required.

Mr. Lubbock

Is the Chief Secretary saying that local authorities must withdraw the 5 per cent. of their funds which are invested through L.A.M.I.T., funds which did not arise from superannuation contributions analogous to what he said about charities earlier, that is, if they choose to form an investment trust in which only charities—or local authorities—invest and no other person whatever, they will be exempt from Capital Gains Tax? If he is saying that, will he say where that is provided in the Bill? I have studied it carefully and I cannot find where it is provided that L.A.M.I.T. or charities which do as he suggests can be exempted 100 per cent.; or is the hon. Gentleman proposing to put forward an Amendment later?

11.0 p.m.

If this is what he is saying, I ask him to be very careful about it, because it will mean that local authorities will have to withdraw the 5 per cent. of their funds which arise from sources other than superannuation and create some new medium of investment to utilise those funds. This would be a wasteful procedure administratively and it would certainly not endear the Chief Secretary to the local authorities, in view of all the great financial burdens which have been placed on them by the Government's present policy of high interest rates. The Chief Secretary ought seriously to consider the sensible proposals of his hon. Friend.

Sir D. Glover

I do not know whether the Committee should go on discussing the Bill when it becomes appallingly obvious as every hour goes by that the Government who are responsible for it do not know what the repercussions of each Clause will be.

The hon. Member for Southall (Mr. Pargiter) and my hon. Friend the Member for the City of Chester (Mr. Temple) have put forward cogent arguments and the Chief Secretary replied without even understanding those arguments. At this stage, I shall not move to report Progress, but it becomes obvious, as our discussions proceed, that the Government do not understand the repercussions of half the Clauses which we are discussing and which they are advocating that the Committee should accept.

The Government accepted many Amendments to the last Clause, showing that their original proposals were wrong. We are now having a very narrow discussion on one aspect of local government funds. The hon. Member for Orpington (Mr. Lubbock), the hon. Member for Southall and my hon. Friend the Member for the City of Chester have made cogent speeches which have taken only a few minutes of the time of the Committee and yet the Chief Secretary has not dealt with any of the problems which they thought would arise from the implementing of the Clause. Can we continue to discuss the Committee stage of the Bill when it is becoming increasingly obvious that the Government have completely lost control of their own business?

Mr. Diamond

I am at fault for having assumed that everybody who has spoken to the Amendment was present at an earlier discussion when virtually the identical principle was discussed at length. I am grateful to the hon. Member for Worcester (Mr. Peter Walker) for acknowledging this, because at all events that will make my motives clear. It was not entirely out of ignorance, as the hon. Member for Ormskirk (Sir D. Glover), with his typical gallantry, suggested, but to save the time of the Committee that I assumed that everybody did not want me to go over the same ground twice. The hon. Member for Ormskirk likes going over the same point twice, thrice or forty times.

Perhaps I can tell my hon. Friend the Member for Southall (Mr. Pargiter) that this identical point arose in connection with charities when I pointed out, for a variety of good reasons, why, although a charity itself is not liable to tax, a distinction is to be drawn between individual investors, be they individual citizens, charities or local authorities, and what my hon. Friend called investing jointly, by which he means investing through the machinery of an investment trust. An investment trust is a corporation and is not an individual in that sense. For corporations we have Corporation Tax and Corporation Tax rates and a number of obvious advantages and disadvantages which flow from that.

Mr. Temple

Has the hon. Gentleman overlooked the fact that in a subsequent Clause local authorities are entirely exempt from Capital Gains Tax and Corporation Tax and that this is only a mutual fund for local authorities?

Mr. Diamond

We are coming later to a Clause that exempts local authorities and there will be a detailed explanation when we get to that stage. As far as we are concerned at the moment—the facts are admitted by all sides—some of the funds that are invested are not exempt from tax. They will not be exempt from tax. What my hon. Friend the Member for Southall is proposing is that a certificate should be given to enable tax that has been paid by the trust to be repaid to the local authority.

Mr. Pargiter

With the exception of approximately 5 per cent., to which I have referred, which we recognise is subject to tax. I am not asking that that should be exempted from tax.

Mr. Diamond

I think I understood what my hon. Friend had in mind. All I am saying, in relation to a body like a local authority—in the same way as we said in relation to charities—is that the Government would like to help as far as possible. If there were such a close relationship between the investor and the investment trust that they were all of the one category and all wholly exempted then, to answer the point made by the hon. Member for Orpington (Mr. Lubbock), although there is no provision in the Bill at the moment to deal with the situation, we would be willing to consider introducing an appropriate amendment on the Report stage.

The further answer to him is that where an investment trust has a membership which is itself a charity, then it is provided in the Bill, that being a charity, that it is tax exempted. Therefore, I repeat that, although there may be considerable advantage in the discussions going on to continue, in the hope that we may find a method that will be satisfactory all round, I cannot accept the Amendment. It would be wholly in- consistent with the decision the Committee reached earlier.

I hope that my hon. Friend the Member for Southall will understand that while I regard his proposal as sympathetically as possible, this particular form of Amendment will not be satisfactory. The reasons are those given earlier in discussing charities and which I have now repeated more shortly.

Mr. Peter Walker

This is a most unsatisfactory attitude of the Government and the Chief Secretary. What he has said is that where the local authority is investing 95 per cent. exempted funds into an investment trust he is unwilling to give certificates for 95 per cent. to be exempted from capital gains. But if they go to all the administrative problems, resorting and rearrangement of their investment, so that it is 100 per cent., then, in a doctrinaire, dogmatic Socialist spirit, he will consider it. If it is right to consider it for 100 per cent. funds invested by a local authority, it is right to give it consideration for 95 per cent. exempted. The Chief Secretary does himself no credit by his dogmatic attitude.

Mr. Diamond

Is the hon. Member proposing, therefore, that the regulation should be brought forward limited for all time to 95 per cent.?

Mr. Walker

I am suggesting, in the present position, that the Chief Secretary should have accepted his hon. Friend the Member for Southall's Amendment. That would have provided a means whereby certificates could have been given. The Chief Secretary's attitude on this has been completely unreasonable.

Mr. Hirst

This is rather dreadful. It does not require all this Treasury cloak and dagger stuff. We cannot accept with equanimity this sort of assing about on the Report stage. We shall want weeks for the Report stage, to judge from the way the Chief Secretary is going on. The Clause is absolutely clear. It is not good the Chief Secretary trying to hark back to the charities Amendment. Here is a local authority investment trust set up by the Treasury under Section 11 of the Trustee Investment Act. This is an issue which should have stuck out a mile for consideration by the Treasury. For the Chief Secretary to use phrases like, "I will give the matter further thought", and, "It needs further consideration between now and Report", is totally inadequate and an absolute insult to the Committee. It cannot be anything else. The hon. Gentleman is too intelligent for this to have been an oversight. This problem must have been understood and realised by the Treasury.

The sooner we make progress the better. Meanwhile, the Treasury Ministers must understand that some thought must be given to these matters before they come before the Committee to answer our questions. I am not making a party political point. It is a matter of courtesy to the Committee that the Government should be prepared to answer our questions on these important issues. The Financial Secretary surely did not have to be briefed overnight on this one.

Local authorities have benefited in the past. It would be a bore if they must go to all this trouble individually. They combined together and, for the sake of convenience, made arrangements which avoided the necessity of them having to take individual action. After all that procedure the Financial Secretary has the nerve to tell the Committee that he will consider the issue between now and Report. If that is to be the treatment we are to get from the Government there will be opposition to the Bill Clause by Clause and line by line.

Mr. Pargiter

Having listened carefully to the reply of my hon. Friend the Chief Secretary I am bound to tell him that

he did not go as far as he might in his assurance. It was unfortunate that he went into the question of the different types of charities because I have been at pains to keep this matter to the specific issue with which the Amendment is concerned. I was grateful for the assurance, such as it was, and I hope that he will give the matter further consideration.

I appreciate that he considers that a loophole might exist here and that evasion might take place. Is he saying that all local authority funds—except the 5 per cent. or so of their superannuation funds in regard to which tax is payable—will, as soon as Clause 62 becomes law, be exempt from tax if invested through the trust, provided that this element of superannuation funds which is subject to tax is not so invested and that this course would save the local authorities the trouble of having to reclaim tax as is proposed in this Amendment?

I am sure that the representatives of the local authorities would be happy to discuss this matter with the Treasury. Such discussions might prove a fruitful way of resolving this difficulty, without each local authority being involved in having to reclaim tax. I appreciate the assurance which my hon. Friend gave and if he would be prepared to indicate that this is what he means I would be happy to withdraw the Amendment.

Hon. Members


Question put, That those words be there added:—

The Committee divided: Ayes 193, Noes 198.

Division No. 154.] AYES [11.15 p.m.
Agnew, Commander Sir Peter Boyd-Carpenter, Rt. Hn. J. Currie, G. B. H.
Alison, Michael (Barkston Ash) Boyle, Rt. Hn. Sir Edward Dalkeith, Earl of
Allan, Robert (Paddington, S.) Braine, Bernard Davies, Dr. Wyndham (Perry Barr)
Allason, James (Hemel Hempstead) Brinton, Sir Tatton d'Avigdor-Goldsmid, Sir Henry
Amery, Rt. Hn. Julian Bromley-Davenport,Lt.-Col.Sir Walter Dean, Paul
Anstruther-Gray, Rt. Hn. Sir W. Brown, Sir Edward (Bath) Deedes, Rt. Hn. W. F.
Atkins, Humphrey Bruce-Gardyne, J. Digby, Simon Wingfield
Baker, W. H. K. Bryan, Paul Doughty, Charles
Barber, Rt. Hn. Anthony Buxton, Ronald Douglas-Home, Rt. Hn. Sir Alee
Barlow, Sir John Campbell, Gordon Elliot, Capt. Walter (Carshalton)
Batsford, Brian Carlisle, Mark Eyre, Reginald
Beamish, Col. Sir Tufton Carr, Rt. Hn. Robert Farr, John
Berkeley, Humphry Chataway, Christopher Fell, Anthony
Berry, Hn. Anthony Clark, William (Nottingham, S.) Fletoher-Cooke, Charles (Darwen)
Bessell, Peter Cole, Norman Fletcher-Cooke, Sir John (S'pton)
Biffen, John Cooke, Robert Foster, Sir John
Biggs-Davison, John Cooper-Key, Sir Neill Fraser,Rt.Hn.Hugh(St'fford & Stone)
Birch, Rt. Hn. Nigel Corfield, F. V. Fraser, Ian (Plymouth, Sutton)
Blaker, Peter Courtney, Cdr. Anthony Gammans, Lady
Bossom, Hn. Clive Crosthwaite-Eyre, Col. Sir Oliver Gardner, Edward
Box, Donald Curran, Charles Gibson-Watt, David
Gilmour, Ian (Norfolk, Central) Lancaster, Col. C. G. Ramsden, Rt. Hn. James
Gilmour, Sir John (East Fife) Langford-Holt, Sir John Rawlinson, Rt. Hn. Sir Peter
Glover, Sir Douglas Legge-Bourke Sir Harry Redmayne, Rt. Hn. Sir Martin
Goodhart, Philip Lewis, Kenneth (Rutland) Ridsdale, Julian
Goodhew, Victor Litchfield, Capt. John Rodgers, Sir John (Sevenoaks)
Gower, Raymond Longbottom, Charles Roots, William
Grant, Anthony Longden, Gilbert Scott-Hopkins, James
Grant-Ferris, R. Loveys, Walter H. Sharples, Richard
Gresham Cooke, R. Lubbock, Eric Sinclair, Sir George
Grieve, Percy Lucas, Sir Jocelyn Smith, Dudley (Br'ntf'd & Chiswick)
Griffiths, Peter (Smethwick) McAdden, Sir Stephen Spearman, Sir Alexander
Grimond, Rt. Hn. J. MacArthur, Ian Stainton, Keith
Gurden, Harold Mackenzie, Alasdair (Ross&Crom'ty) Steel, David (Roxburgh)
Hall, John (Wycombe) Mackie, George Y. (C'ness & S'land) Stodart, Anthony
Hall-Davis, A. G. F. Maclean, Sir Fitzroy Stoddart-Scott, Col. Sir Malcolm
Harris, Froderic (Croydon, N.W.) Macleod, Rt. Hn. Iain Studholme, Sir Henry
Harris, Reader (Heaton) McMaster, Stanley Taylor, Edward M. (G'gow,Cathcart)
Harrison, Brian (Maldon) Maginnis, John E. Taylor, Frank (Moss Side)
Harrison, Col. Sir Harwood (Eye) Maude, Angus Teeling, Sir William
Harvey, Sir Arthur Vere (Macclesf'd) Mawby, Ray Temple, John M.
Harvey, John (Walthamstow, E.) Maxwell-Hyslop, R. J. Thatcher, Mrs. Margaret
Hastings, Stephen Meyer, Sir Anthony Thomas, Sir Leslie (Canterbury)
Hawkins, Paul Mills, Stratton (Belfast, N.) Thomas, Rt. Hn. Peter (Conway)
Heald, Rt. Hn. Sir Lionel Miscampbell, Norman Thompson, Sir Richard (Croydon,S.)
Heath, Rt. Hn. Edward Mitchell, David Tilney, John (Wavertree)
Higgins, Terence L. Monro, Hector Turton, Rt. Hn. R. H.
Hill, J. E. B. (S. Norfolk) More, Jasper Tweedsmuir, Lady
Hirst, Geoffrey Morgan, W. G. van Straubenzee, W. R.
Hobson, Rt. Hn. Sir John Morrison, Charles (Devizes) Walker, Peter (Worcester)
Hogg, Rt. Hn. Quintin Mott-Radclyffe, Sir Charles Ward, Dame Irene
Hooson, H. E. Munro-Lucas-Tooth, Sir Hugh Weatherill, Bernard
Hordern, Peter Murton, Oscar Whitelaw, William
Hornby, Richard Noble, Rt. Hn. Michael Williams, Sir Rolf Dudley (Exeter)
Hunt, John (Bromley) Nugent, Rt. Hn. Sir Richard Wills, Sir Gerald (Bridgwater)
Hutchison, Michael Clark Osborn, John (Hallam) Wilson, Geoffrey (Truro)
Irvine, Bryant Godman (Rye) Page, R. Graham (Crosby) Wise, A. R.
Jenkin, Patrick (Woodford) Pearson, Sir Frank (Clitheroe) Wolrige-Gordon, Patrick
Johnson Smith, G. (East Grinstead) Percival, Ian Wood, Rt. Hn. Richard
Johnston, Russell (Inverness) Peyton, John Wylie, N. R.
Kaberry, Sir Donald Pickthorn, Rt. Hn. Sir Kenneth Younger, Hn. George
Kilfedder, James A. Pitt, Dame Edith
Kimball, Marcus Powell, Rt. Hn. J. Enoch TELLERS FOR THE AYES:
King, Evelyn (Dorset, S.) Price, David (Eastleigh) Mr. Martin McLaren and
Kirk, Peter Pym, Francis Mr. R. W. Elliott.
Lambton, Viscount Quennell, Miss J. M.
Albu, Austen Davies, Ifor (Gower) Harrison, Walter (Wakefield)
Alldritt, Walter Davies, S. O. (Merthyr) Hazell, Bert
Allen, Scholefield (Crewe) Delargy, Hugh Herbison, Rt. Hn. Margaret
Armstrong, Ernest Dempsey, James Hobden, Dennis (Brighton, K'town)
Atkinson, Norman Diamond, John Homer, John
Bagier, Gordon A. T. Dodds, Norman Houghton, Rt. Hn. Douglas
Baxter, William Doig, Peter Howarth, Robert L. (Bolton, E.)
Beaney, Alan Donnelly, Desmond Howie, W.
Bence, Cyril Driberg, Tom Hughes, Cledwyn (Anglesey)
Benn, Rt. Hn. Anthony Wedgwood Duffy, Dr. A. E. P. Hughes, Emrys (S. Ayrshire)
Bennett, J. (Glasgow, Bridgeton) Dunn, James A. Hunter, Adam (Dunfermline)
Binns, John Dunnett, Jack Hynd, H. (Accrington)
Bishop, E. S. English, Michael Irving, Sydney (Dartford)
Blackburn, F. Ennals, David Jackson, Colin
Blenkinsop, Arthur Evans, Albert (Islington, S.W.) Jay, Rt. Hn. Douglas
Boardman, H. Fernyhough, E. Jeger,Mrs.Lena(H'b'n&St.P'cras,S.)
Boyden, James Fitch, Alan (Wlgan) Jenkins, Hugh (Putney)
Braddock, Mrs. E. M. Fletcher, Sir Eric (Islington, E.) Jenkins, Rt. Hn. Roy (Stechford)
Bradley, Tom Fletcher, Ted (Darlington) Johnson, Carol (Lewisham, S.)
Brown, Rt. Hn. George (Belper) Fletcher, Raymond (Ilkeston) Johnson,James(K'ston-on-Hull,W.)
Brown, Hugh D. (Glasgow, Provan) Floud, Bernard Jones,Rt.Hn.Sir Elwyn(W.Ham,S.)
Buchanan, Richard Foot, Sir Dingle (Ipswich) Jones, J. Idwal (Wrexham)
Butler, Herbert (Hackney, C.) Foot, Michael (Ebbw Vale) Jones, T. W. (Merioneth)
Butler, Mrs. Joyce (Wood Green) Ford, Ben Kenyon, Clifford
Callaghan, Rt. Hn. James Fraser, Rt. Hn. Tom (Ham[...]lton) Kerr, Mrs. Anne (R'ter & Chatham)
Carmichael, Neil Freeson, Reginald Kerr, Dr. David (W'worth, Central)
Carter-Jones, Lewis Garrett, W. E. Lawson, George
Castle, Rt. Hn. Barbara Garrow, A. Ledger, Ron
Coleman, Donald Ginsburg, David Lever, Harold (Cheetham)
Conlan, Bernard Gourlay, Harry Lewis, Ron (Carlisle)
Corbet, Mrs. Freda Greenwood, Rt. Hn. Anthony Lomas, Kenneth
Cousins, Rt. Hn. Frank Gregory, Arnold Loughlin, Charles
Craddock, George (Bradford, S.) Grey, Charles Mabon, Dr. J. Dickson
Cronin, John Griffiths, Rt. Hn, James (Llanelly) McCann, J.
Cullen, Mrs. Alice Griffiths, Will (M'chester, Exchange) MacColl, James
Dalyell, Tam Hamilton, James (Bothwell) MacDermot, Niall
Davies, G. Elfed (Rhondda, E.) Harper, Joseph McGuire, Michael
Mclnnes, James Pargiter, G. A. Swain, Thomas
McKay, Mrs. Margaret Park, Trevor (Derbyshire, S.E.) Symonds, J. B.
Mackenzie, Gregor (Rutherglen) Parker, John Thomas, Iorwerth (Rhondda, W.)
Mackie, John (Enfield, E.) Parkin, B. T. Thomson, George (Dundee, E.)
MacMillan, Malcolm Pearson, Arthur (Pontypridd) Tomney, Frank
MacPherson, Malcolm Peart, Rt. Hn. Fred Urwin, T. W.
Mahon, Peter (Preston, S.) Pentland, Norman Walden, Brian (All Saints)
Mahon, Simon (Bootle) Perry, Ernest G. Wallace, George
Manuel, Archie Popplewell, Ernest Watkins, Tudor
Mapp, Charles Prentice, R. E. Wells, William (Walsall, N.)
Mason, Roy Probert, Arthur Whitlock, William
Millan, Bruce Pursey, Cmdr. Harry Wigg, Rt. Hn. George
Miller, Dr. M. S. Rees, Merlyn Wilkins, W. A.
Milne, Edward (Blyth) Rhodes, Geoffrey Willey, Rt. Hn. Frederick
Morris, Alfred (Wythenshawe) Roberts, Albert (Normanton) Williams, Alan (Swansea, W.)
Morris, Charles (Openshaw) Roberts, Goronwy (Caernarvon) Williams, Mrs. Shirley (Hitchin)
Mulley,Rt.Hn.Frederick(SheffieldPk) Robertson, John (Paisley) Williams, W. T. (Warrington)
Murray, Albert Robinson, Rt. Hn.K.(St. Pancras, N.) Willis, George (Edinburgh, E.)
Neal, Harold Rodgers, William (Stockton) Wilson, Rt. Hn. Harold (Huyton)
Newens, Stan Ross, Rt. Hn. William Wilson, William (Coventry, S.)
Noel-Baker, Francis (Swindon) Sheldon, Robert Winterbottom, R. E.
Norwood, Christopher Shore, Peter (Stepney) Woodburn, Rt. Hn. A.
Oakes, Gordon Short,Rt.Hn.E.(N'c'tle-on-Tyne,C.) Woof, Robert
Ogden, Eric Silkin, John (Deptford) Wyatt, Woodrow
Oram, Albert E. (E. Ham, S.) Skeffington, Arthur Zilliacus, K.
Orme, Stanley Slater, Joseph (Sedgefield)
Oswald, Thomas Small, William
Page, Derek (King's Lynn) Solomons, Henry TELLERS FOR THE NOES:
Paget, R. T. Stewart, Rt. Hn. Michael Mr. Brian O'Malley and
Palmer, Arthur Stonehouse, John Mrs. Harriet Slater.
Pannell, Rt. Hn. Charles Summerskill, Hn. Dr. Shirley

Clause ordered to stand part of the Bill.