8 March, 1927.]

[Continued.

matter? Some of the members of the Committee were not on the Committee last year. I think this is a very important point. It is a case where securities are accepted in payment of income tax. I think last year we proved that the actual prices of securities was not watched, might I say, perhaps as efficiently as it should be. If the Committee would like a report on this matter perhaps Sir Richard would be pleased to send it? Perhaps you would like me to deal with the particular point you have mentioned.

145. I should like a list of what has been sold and what is held at the present time, and where the securities are kept? -Yes.t

Major Salmon.

146. And also the amount of the debt for which securities were received, and, when the securities were liquidated, how much was made or lost over the deal?I am not quite sure that the Honourable Member fully understands. When we take paper in payment of income tax the reason is that the income in respect of which the payment is taken has itself been paid in paper. Take, for example, the case of, let us say, the Chairman of an unknown Company who has been conducting the business of the Company for a number of years without attaining any large financial success in the finances of the Company itself. A time may come when it is necessary for him to retire and some other Chairman is elected to endeavour to rectify the fortunes of the Company. When he retires he may receive a considerable fee, but he cannot be paid in cash, because there is not any cash. He is, however, given some paper. If we attempt to make an assessment to income tax upon such a person in a sum o money, he would merely appeal to the local Commissioners against the assessment on the ground that the paper he had received was worthless, and we would get nothing. We say in that case: Give us the proper proportion of your paper. At the present time when income tax is 4s. Od. in the £ we would take four pieces of paper for every 20 pieces he receives.

Chairman.

147. At the market price of the stock? -If he is paid in paper we want 4/20ths of it, and we do the best we can with it.

+ Not printed.

In those circumstances the mass of stuff we get is of a very worthless character. You were saying, Mr. Chairman, that you thought the original arrangements for watching the securities were not as satisfactory as they might be. May I say that in the course of the year we have engaged the Government Broker as regular adviser and he watches for us every month and advises us upon sales, we, of course, holding the paper ourselves. We also watch it, and keep in touch with him, and as soon as it seems that a reasonable opportunity has occurred for realising at a price which is not an unduly depressed price from momentary circumstances, we try to get out.

148. I do not want you to give us a list if you think it would affect the market in any way. That was passing through my mind.

149. What do you think, Sir Malcolm? -(Sir Malcolm Ramsay.) I think it might be rather awkward. Perhaps Sir Richard could define for the Committee the area within which this problem moves. I think I am right in saying that in 1926 there were only 11 cases where securities were accepted, and the number has been falling in recent years. I think it now moves within comparatively limits

narrow

Mr. Ellis.] I should like to suggest that it is extremely undesirable that any list the Government holds should become public.

Colonel Vivian Henderson.] That would not affect what has been sold.

Mr. Ellis.] I agree. But the present holdings should not in any sense become public.

Colonel Vivian Henderson.

150. I agree, I do not think what the Government holds should become public, but I think what the Government has held and has sold might be given to us either confidentially or otherwise. I would like to support what Major Salmon says. I think the Committee would like to know the price at which the securities stood when taken over by the Government, and the price at which the Broker sold, and would also like to know what gain or loss the Government made on the securities. In any of these holdings which you accept in lieu of Income Tax, do you ever accept any on which there is a liability?—(Sır Richard Hopkins.) Oh, no, we would not do that.

8 March, 1927.]

[Continued.

151. You would rather take nothing at all?—Yes, because the stuff we take is such bad stuff that if we took it with a liability it would be a minus quantity.

Mr. Briggs.

152. Who fixes the market price?-We look at the market and we get a Broker s price, or a quotation.

153. In a case between you and the taxpayer, do you impose upon the taxpayer your views as to the market price, which may differ from him?-No. We take the paper from him and wait until we can sell it. We take it on a proportion. If £20,000 is due for Income Tax, and the tax stands at 6s. in the £, we would take £6,000 on paper.

Chairman.

154. May I ask what the Treasury think of these transactions?—(Mr. Phillips.) The position appears to us to be satisfactory. I take it that if there were any marked fluctuation in the price of any stock at any time between the dates of the monthly examinations, that would be brought to notice and attended to. (Sir Richard Hopkins.) There 18 always a very strong preference in favour of selling.

Chairman.] We will now turn to the Account on page 16.

Sir Robert Hamilton.

155. With regard to the first item in the Account, would you tell me what is the total number of personnel?-About 4,000, mainly part-time people, and i think about 13,000, or probably 14,000, whole-time people.

156. How does that compare with the staff in 1913-14?-It is very much larger.

157. Has there been any recent material increase?-No. The staff of the Tax Inspectorate and Estate Duty Office is not at the present time full, but it is very nearly full. We are bringing it still closer up. There would be small increase in numbers year by year, but it is quite small. It is more or less static now.

158. Have you, as a matter of fact, the figures of 1913-14?-On the 1st August, 1914, the total number was 16,000, and on the 1st April, 1926, it was 20,000. But there is a larger proportion of wholetime people in the latter figure than in the former.

159. What was the number of wholetime people in 1913-14?—I have not got those figures, but probably the number of whole-time people would at that time be 12,000, while now it is 17,000.

160. I thought you said just now that at the present time there were 14,000 whole-time people?-Yes, but I regret to say that I was not quite correct. The figure as now given to me is 20,000 including both branches. I should have said previously 17.000. There would be in 1913 about 12,000 whole-time people, and at the present time about 17,000. In 1913-14 there would be about 4,000 part-time people, and there are now about 3,000. That, I believe, is broadly the situation.

161. Are you thinking of reducing the staff, or is it likely to increase?-I see extraordinarily little chance of materially reducing it. On the other hand, I do not think it need greatly increase. We are now reaching a time when the adult population of this country will, before long, become more or less stationary, and therefore the volume of work to be performed will be more or less stationary.

162. You mean the number of people from whom you have to collect taxes?Yes.

163. Turning to Subhead E., I do not quite understand the explanatory note. -There was an over-expenditure of £9,000.

164. As you will see, the note says: "Due to (1) payment of bonus at a rate higher than that provided in the estimate (£9,000); (2) the provision for poundage

was

an under-estimate (£9,000); modified by (3) an over-estmate of the amount required for increases (£9,000.)”—The two last items cancel each other out, and the first item there stands as an

excess.

Sir John Marriott.

165. With regard to what you have said about the adult population, that is not at all the calculation of the National Health Commissioners, is it? On what do you base your calculation?-I expect I used the wrong term. I thought I was right in saying that it is anticipated that before many years the adult working population-that is the earning population which is our real clientele will be more or less stationary.

166. On that my question is whether you have consulted the National Health Commissioners or the Ministry of Health

8 March, 1927.]

[Continued.

on the point?-Not in the least degree. I was asked whether I thought the staff of the Department would increase.

167. And you based your answer on the fact that the adult population had reached its maximum ?-I based my answer on a prima facie belief of my own which may require a great deal of modification. I do not know. But if, in fact, our clientele is going to increase greatly, then I am afraid we shall want a corresponding increase of staff.

168. I think your answer would require considerable consideration before it could be accepted?-It may be so.

Major Salmon.

169. You were speaking of the question of quarter-time officials. What are quarter-time officials?-Collectors and Assessors. A great number of them are employed for collection in quite small parishes, and they have very small sums of remuneration for it. They are quartertime, and many of them less than quarter-time officials.

170. With reference to Subhead K.1., I see that the cost of manufacturing &c. of Currency Notes was less than granted by £9,000. How does that arise?-We are responsible for the actual supervision of the production of the paper and the printing of the Currency Notes, and the elements included in those are the cost of the paper, the cost of the printing, and the services of the Bank of England. The particular figure here was due to the actual price which was paid for the printing of the notes being slightly less than anticipated. The price has been

broadly fixed on a costing basis.

171. Who purchases the paper-does your Department?-There are separate contractors for the production of paper and for the actual printing.

the

172. But the Bank of England do the actual printing, do they not? Oh, Waterlow's do the printing.

no.

173. The Bank of England issue them? -The Bank of England do the issuing, and they do the cancellation.

175. What does it mean ?-It means the settling of the staff down into cadres appropriate to the post-war work.

176. Was that only done in this year? -Oh, no, it has been working gradually. The cadres were fixed shortly after the War.

177. Have you had an excess in this particular vote in several successive years because of your regrading?-I do not think we have.

178. Why should it suddenly occur in this one year?—We had a large number of removals, and we have been gradually filling up the new cadres.

179. I am only wondering whether you are justified in your excess expenditure on a heading of that kind if, as you say, it has been done gradually since the end of the War?-In this particular year we had a considerable number of removals. I think you will understand that on the basis on which we work with decentralised offices all over the country, with people at reasonable intervals changing their offices and undertaking new areas, you are bound to have a very considerable travelling expenditure, but we regard that as well repaying the cost.

180. I presume if you are in the habit of doing that you can estimate accordingly? Yes, we ought no doubt to estimate better than to a margin of £13,000.

a

181. It is not as if the total vote was a very large one?-I do not think you will find we have been so far out on heading of that kind in other years. If you would care for it, I will send you the actual comparison.

182. When the note says "revised removal regulations," does it mean revised in favour of the individual or revised in favour of the Treasury? I presume it means revised in favour of the individual? I think that is not entirely true. It may have been on balance in favour of the individual, but the actual additional cost which it involved here was the payment of legal expenses in connection with the sale and purchases of houses where necessary in the present housing shortage.

183. With regard to Subhead K., you say you found it was necessary to increase the stock of paper in reserve, because you changed your contractors?Yes.

184. Was the stock of paper you increased the stock supplied by the old contractor or the new one?-I think it

8 March, 1927.]

[Continued.

We

was on the change of contractor. have a larger stock from the new people. This is not the Bank of England; it is not the note paper. This is paper for medicine stamps and playing cards, and wrapper labels. (Sir Malcolm Ramsay.) Was it not the case that you made a new contract for paper of a new mixture, and you were not certain whether it would be successful? Therefore you ordered extra quantities of the old to fall back on in case the new mixture was a failure? (Sir Richard Hopkins.) Yes, I think that is so.

Major Salmon.

185. Would that mean that the second year would right itself?—Yes, I think it will. (Sir Malcolm Ramsay.) They went in for a mixture of rag and pulp.

Colonel Vivian Henderson.

186. Was it successful?-(Sir Richard Hopkins.) Yes, I think so. I think we shall show a saving next year.

Chairman.

187. Could you explain Subhead A.2 on page 19 a little more fully ?-That was work which was done for us by the Bank of England in the nature of statistical returns with regard to the War Loans. We wanted it for a number of purposes, amongst others this one. Income tax is not assessed by deduction at source upon War Stocks. We issue forms to taxpayers and they are expected to make a return of their untaxed interest from that source. It was important to know how much the total holdings by individuals really were, in order to compare them with the actual returns of interest that we had upon individual returns and ascertain whether increased machinery was necessary. We wanted also particulars of the distribution of the income in classes. We wanted to know the amount held abroad, and also in a minor degree the amount coming from Northern Ireland in connection with the contribufion to revenue of Northern Ireland.

Mr. Briggs.

188. It puzzles me to know why so many cases under Subhead O. are not proceeded with. In very many cases it says the circumstances did not warrant the institution of proceedings?--You are speaking of collectors?

189. Yes. Another feature that occurs to one with regard to Subhead O. is also

this. The sentences appear extraordinarily light even in the cases where there are convictions?-That, of course, is a It matter for the magistrates. probably is the fact on the whole.

190. Unless it is due to your prosecution being somewhat tender?-I think you will find that the general tendency in cases of this kind, particularly in dealing with young people, is for the police magistrates to impose light sen

tences.

191. Are there many young people?— Yes, very often they are young people.

192. In some of the cases I see it says the circumstances did not warrant the institution of proceedings against the delinquent?-May I be allowed to qualify what you have said by saying that I think if you look at page 22 you will find that the frauds which are recorded there in almost every case have been the subject of prosecution except in cases where the man could not be arrested. As regards the early cases where a prosecution has not been undertaken, it was simply due to the fact that the deficiency was owing to muddle and not owing to any criminal intent.

193. What is the position with regard to Item 26 of Subhead O. on page 22? Who was the culprit there?-That was a matter which you had before you, I think, last time.

194. Did we deal with it last year?Yes. But I will be most happy to deal with it again if you like. Nobody really was the culprit in that case. The repayment was made upon a statement which was bona fide put forward by the Accountant for the parties. That statement was wrong, and had we ascertained at the time that it was wrong we should not have made the repayment. Later on, having discovered that the facts which had been certified to us were not correct, we tried to get the money back, but we were advised by Counsel that in the circumstances of the case it was not recoverable. It was not really a mistake of ours, but a mistake of the taxpayer's Accountant. On the other hand, as you know, the Excess Profits Duty was a strange tax, and in some cases the exactions which arose on it were extraordinarily hard, and this was one of those cases which, had the money been exacted, would have been an extraordinarily hard

case.

195. I do not want to re-open it as you say it was dealt with last year, but still I do not see at all how the taxpayer's

8 March, 1927.]

Accountant's error could justify the wrong claiming of the tax?-The point was this. The tax was paid, and the taxpayer put in a claim for repayment, and his advisers supported it with a certain statement which was bona fide made, but which was not true. That statement was accepted. We might have caught them out, but we did not. The statement having been accepted, the money went back. In the circumstances of this case, which were admittedly unusual, we were lacking legal power to get the money back from the taxpayer, whose case, if he had had to bear the duty, would have been a very hard one, and he was not willing of his own free will to give it to us.

Mr. Ellis.

196. There was a mistake in fact and not in law?-Yes.

Mr. Gillett.

197. I should like to know whether any explanation could be given as to why in some of the cases given on page 23, even where the deficiency seems to have been met by some assessor or official, the man is prosecuted in one case and not in another case?-The circumstances in which collectors used to be required to carry on their duties until to some extent we could reorganise the matter after the War, were very difficult, and there were many cases of muddle. For example, in the first case which is given there was a very large sum involved. The man in that case only held his collection for a short time. He was an ex-Service man and was appointed immediately after the War, in the hope that he would be capable of undertaking his duties. He inherited a collection which itself was in an awful muddle when he took it over, and he devoted six months to making it very much worse. At the end of that time he was dismissed. He had done his best, but it was a very bad best. That was not a case for prosecution.

198. Why should No. 7 be prosecuted? -Because there was really evidence of fraud there.

199. You mean that you were satisfied if it had not been discovered it would have gone on?-Yes, quite so. Moreover, at the time when he took it, he meant to take it.

[Continued.

Sir Robert Hamilton.

200. With regard to No. 27, how did that fraud arise? Had that been extending over some time? It is a large sum of money? That is the largest but one of the rather painful series of cases of fraud by clerks in Inspectors' offices by forgery of Income Tax claims.

201. Was he a whole-time man?-Yes, he was a whole-time man. I have given a great deal of evidence at one time and another upon this matter, but I can say one thing on this occasion which, I think, is encouraging, and that is, that I think we have entirely stamped it out. There were no new cases at all discovered in the last 12 months.

Mr. Ellis.

202. In repayments?—Yes.

Sir Robert Hamilton.

203. Are the methods sufficient to check such a fraud now ?-I think so. We have, of course, devoted a very great deal of attention to the matter, and a good deal of money to it too. I think we have entirely stamped it out now.

204. As regards Subhead 0.1, "Losses, etc., in connection with Currency Notes," will you tell me what is the meaning of that? Those are people who burn their notes and bring along the burned fragments of them to us. If they can produce two numbers and certain requirements, they get a new note in exchange.

205. Is that the cost of buying new notes for notes that have been destroyed? -(Sir Malcolm Ramsay.) Yes, that is right. There is no real loss at all. The note has been paid for on original issue. The holder burns the note, and if he produces the fragments he is supplied with a new note. This new note, again, is paid for, and the cost is charged to this subhead as an ex gratia allowance. Of course, there must be thousands of notes lost in respect of which no claim is made, as a contra to this £4,000.

206. Case 39, which was a case in which stamps were issued on credit to a member of the Stock Exchange, is a peculiar one. -(Sir Richard Hopkins.) No, I do not think it is, is it? You see, the practice in connection with the London Stock Exchange for 50 years, and probably