853. Your Department is responsible for the account dealing with Old-Age Pensions? That is so.

854. Paragraph 53, on page xxiii of the Comptroller and Auditor General's Report, deals with some prosecutions in Scotland turning on incorrect baptismal certificates in connection with old-age pensions. Would you like to add anything to that paragraph, Sir Malcolm? (Sir Malcolm Ramsay.) The first part part simply records facts. In the last part of the paragraph I mention that the question whether baptismal certificates should be admitted as proof of age has been under consideration. I have not yet heard whether that question is settled, or whether the Treasury has agreed that these overpayments of £6,000 odd may be written off.

855. Can you tell us about that, Mr. Phillips? (Mr. Phillips.) Well, sir, this was a case in the North of Scotland in which a Session Clerk gave a large number of forged baptismal certificates, which resulted in the holders of them getting too much in the way of oldage pensions. Every attempt has been made to ascertain whether collusion took place between the pensioners and the Session Clerk, but the attempts have failed, and we have clearly got to write

off the money as a loss. As regards the future, this type of case cannot happen again in Scotland, because we have now reached a date 70 years from the coming into force of compulsory registration of births. It is not impossible that baptismal certificates will continue to be used in England, perhaps for another 12 or 15 years. On that point the Customs have proposed to us, and we shall almost certainly agree to have, a test check of baptismal certificates. It is too big a job to go through the whole lot every year, so we propose to take a percentage each

year.

Major Salmon.

856. Where do we see the expenditure on administration in connection with oldage pensions? That is paid, in the main, out of other Votes. For instance, the services of the pension officers who investigate the claims for the local committees is borne on the Customs and Excise Vote. Sub-head B. of the Old-age Pensions Vote is, of course, the expenses of the Pensions Committees.

Chairman.

857. You will put in the statement that one of the Members of the Committee asked for?-Yes.

Mr. Walter Baker.
Sir Henry Craik.
Mr. Gillett.

Mr. William Graham.

Sir Robert Hamilton.

Mr. Harmsworth. Sir John Marriott. Major Salmon.

Sir Fredric Wise.

Chairman.

mem

858. I ought to intimate to bers of the Committee that unfortunately Sir Richard Hopkins is ill, and it was only yesterday morning that I received definite information that he would be unable to come here to-day; there was then not sufficient time to arrange for the attendance of another Department; but Sir Percy Thompson has come in his place, and I think we may take it, Sir Percy, that you will cover all the ground; the Committee is not likely to ask anything about things with which you are unfamiliar. (Sir Percy Thompson.) I am not very familiar with many of the details of the detailed cases which are given here.

859. Also you have been out of the country for some time?-That is so.

860. If any point arises that requires notice, I have no doubt that members of the Committee will give it, and you can put your answer in in writing afterwards. -Thank you very much.

861. Paragraphs 7 to 11 of your Report, Sir Malcolm, on page 5, refer to Inland Revenue; do you wish to add anything on Paragraph 7, on the question of remissions? (Sir Malcolm Ramsay.) That is the customary paragraph, analysing the claims remitted, of which particulars are always furnished to me by the Inland

9 March, 1926.]

[Continued.

deal of negotiation, the matter was settled by the Inland Revenue accepting £300,000 as the tax which they could claim and exact, and the balance of the assessment, which was considerably more, was remitted.

865. There is an enormous increase compared with 1922-23: it is nearly double? Yes. The tax eventually accepted, on the advice of technical officers, was £300,000 for income tax and excess profits duty. The original assessment was for more than double that; so that one item more than accounts for the increase over the previous year.

866. This includes excess profits duty? -Excess profits duty and income tax together.

867. How much of it is excess profits duty? The bulk of it is excess profits duty. Out of the £300,000 that was actually received in the final settlement only £75,000 represented income tax and £225,000 was excess profits duty.

Major Salmon.

868. 1 should like to know why it is that you make requests for payment if there is no legal liability?-(Sir Percy Thompson.) At the time we make requests for payment we do not know there is no legal liability. This relates to taxes which have been quite properly assessed under the ordinary procedure, but, subsequently, further information is received from the taxpayer, from which we know the actual sum in respect of which there is liability.

869. Does that cost both the applicant and the Government a large sum of money in the way of law costs?—I should say there were no law costs at all in a case like that. If the assessment is legally discharged under an Act of Parliament it would not come into that heading at all. These are sums which have been discharged not by the ordinary legal procedure.

was

870. As I understand it, the liability was too doubtful to make it advisable to take legal proceedings. If it was too doubtful how was it that an application was made? Do I understand it because of prima facie evidence you did not feel justified in not making the application?-On prima facie evidence we thought there was a liability; it was only when we pressed for payment, and further explanation was forthcoming, that we realised the liability was so doubtful that it was not worth while taking legal proceedings to enforce it.

Chairman.

871. Paragraph 8 deals with a case of the acceptance of securities in discharge of Income Tax, which, instead of being sold at par, as had been intended, were sold at 31d. each. Would you like to add anything to that paragraph, Sir Malcolm?-(Sir Malcolm Ramsay.) I think the paragraph tells the story fully, sir. I think it is an isolated case of a mistake; I think a bad one, but there may have been circumstances of which I am not aware which would alter the view I take of it. After these 10s. shares had been tendered to the Inland Revenue, for a considerable period they were quoted up to 11s. or over, but the Department missed their market, and did not sell until the price had fallen to 31d.

872. I think the Committee would be interested in two points on this: first of all, the general practice of the Department in matters of this kind, and, secondly, what steps you have taken to prevent a recurrence of this loss.-(Sir Percy Thompson.) May I say, as a preliminary, that before the war, and when things become normal again, practically speaking we shall not get any securities that are really of any value. What I mean is this, that before the war these shares and things were tendered in payment of Income Tax. For instance, if a man had got a lot of shares by way of promotion profits, in nine cases out of 10 those shares were almost worthless, and at the time we got them and for years afterwards were perfectly unsaleable; but during the war a different position arose; you had cases of Corporations which were perfectly solvent, but which, at the time, had no liquid assets, and could not pay their interest; so they paid their interest in fresh Debentures, and we took our share of the Income Tax in those Debentures, and some of those kinds of securities have since become quite valuable. At the time we got them, in many cases, they were probably very difficult to sell indeed; and our policy has been, where our brokers advised it, to retain these securities until we could sell them at a reasonable price. In the particular case to which the Comptroller and Auditor General refers it was due to a sheer breakdown of the machinery that these shares were not sold when they reached the value of par. Our general practice is that when a security or a share which we have had in payment of Income Tax, or taxes generally, reaches par we

9 March, 1926.]

quoted, at 31d. what had been nominally 10s. shares?-I admit that there is an error of judgment there, and possibly a grave error of judgment. There was one officer in the Department whose duty it was to look after these things, and what he ought to have done was to bring the matter to the notice of his superior officer, with a view to those shares being sold, but he did not do so on this occasion.

884. Perhaps he hoped that if he held them a little longer they would go higher? -I think that is in fact the case.

885. You speculated a little on behalf of the Inland Revenue?-That is not a policy which the Inland Revenue is pursuing.

Sir Robert Hamilton.

886. Do we understand that the shares taken in that way are not taken at a valuation at all, but you take one-fifth of the shares which the company promoter has taken over? Do you attach any real value to them when you take them over?-We take them over and at the time we take them over, as I say, in 99 cases out of 100 they are really absolutely worthless. In possibly one case out of 50 they subsequently attain some value.

887. I asked that question to lead up to the point I really want to ask, which is this: Do you consider you are justified in selling them when they reach 34d.?We should feel justified in keeping them until they attain par value if our brokers advised us that that was the prudent course to adopt.

888. You are simply speculating in the shares as to whether you will sell or hold? Within certain limits I should admit that.

Mr. Baker.

889. I take it that the reference here to "a number of fully-paid shares" is an indication that the number was small. Was the number small? The actual number was 1,600 odd.

Mr. Gillett.

890. Do you still take the share, even if the man who is liable for the payment obviously is a man who could easily afford to pay you in cash?-We really do not know what he owes us in equity. What he owes us in equity depends on the value of those shares. If the question is, if a man was a very wealthy man, should we adopt this system of taking shares, I think my answer is that we

[Continued.

should, because we could not really know his liability until we can put a value on those shares, and we feel that if we have got, assuming Income Tax at 4s. in the £, one-fifth of what he has made in shares out of that transaction, we have got the full sum for which he is liable.

891. In the case of a man wanting to pay you in cash, would you allow him to pay in cash, supposing his view was that the shares were rather valuable?-Oh yes. If he chose to pay the amount assessed we should certainly never refuse to accept that. These questions only arise when the man represents that the shares are not worth par value, and no value can be realised in the open market. It is only then that we consent to accept shares instead of cash.

892. Do you know at what these shares were being quoted on the market wher you took them over?--(Sir Malcolm Ramsay.) Between March, 1923, and the end of April, those shares varied between about 9s. 6d. and 15s. 14d.

893. These were taken over in 1920?— They were taken in 1920.

894. You do not know at what they were quoted on the Stock Exchange at that time?-I do not think they were quoted then; it was a question of the Board of Inland Revenue, finding they could not realise anything on them at the time, holding them for a rise, and when the appropriate moment came they were overlooked. (Sir Percy Thompson.) I think at the time we took them over they were really unsaleable. They were shares issued to debenture holders by a very old company in lieu of principal and four years' arrears of interest.

Chairman.

895. I think it has been made clear that in this transaction you related this recovery strictly to the transaction itself; the rest of the individual's income was a totally separate consideration?Quite.

896. That is the point I think we should get clear?-That is so.

Sir Fredric Wise.

897. Surely a promoter does not only take shares; but takes so much cash for underwriting the issue, or whatever it may be. Does that promoter produce to you a balance sheet of his account for that transaction before you accept shares? Oh certainly, and so far as he received cash we should insist on getting cash.