I should like to deal with a suggestion which has often been advanced in recent weeks that there is some very unique distinction between the activities of co-operatives and of businesses. It has been suggested that in some way or other there is something lacking in the Government's understanding of this unique difference. It is said that it is wrong to align co-operatives and private enterprise for similar tax treatment. As I pointed out, there are a number of very significant areas of major business generating considerable activities where the co-operative movement and private enterprise are in direct competition and it is impossible in equity to justify continuation of a situation in which one group are exempt from tax in respect of profits derived by them from such business or from business so closely allied with and related to it as to make it extremely difficult to distinguish between exempt and non-exempted activities.
The truth is—and this is to the credit of the co-operative movement and I am not saying it to their discredit or in criticism of them—that the co-operatives particularly over the last decade, entered markets and engaged in business on a scale that was never contemplated when the exemptions were first introduced. They entered these markets and engaged in business using their tax-free advantages to compete against private firms who do not enjoy such advantages. Even if some of the activities are not themselves exempt they can be, and frequently are financed by accumulated co-operative profits which have not borne any tax whereas private enterprise has to invest its own money after it has borne tax, so that from the start of the race as it were, co-operatives have a considerable advantage over private enterprise.
Furthermore, the line between exempted and non-exempted capital expenditure, overhead expenses, services and materials supplied to such enterprises by co-operatives can often be so blurred that the proper treatment of the tax exemption system is a near impossibility. The suggestion is made that co-operative societies do not engage in activities with a view to making profit but do so purely to render service to their farmer members. This statement must be looked at against the background of some activities carried on by co-operatives for which they have sought exemption over the years. Some of the exemptions they have sought have been so extreme as to include exemption for retail sales of ice cream, milk and honey. Recent items in the public Press indicate that they have been participating in a very substantial way in an enterprise which is selling imported motor cars and, on the very day that the movement held a mass meeting to pass a unanimous resolution condemning the proposals for this very modest tax, that same meeting was encouraged to invest £400,000 in prospecting for offshore oil.
Other activities in which the co-operative movement is engaged—legitimately, I emphasise, but because they are engaged in it I think they must be treated on equal terms with others— include insurance, property development, the manufacture of tankers and silos and even the importation of fruits and foodstuffs from abroad and their distribution to their members. All these activities I regard as very desirable ventures but can hardly be in keeping with the statement that the co-operative movement is not similar to private enterprise in its activities and in the type of services which it renders.
It is suggested that if the tax proposal which will collect a couple of million pounds on a turnover of over £750 million goes through it will so denude the societies of their profits that these societies will be left without capital and that as a result they will be put out of existence. At the same time we are told that co-operatives are unique because they are not private enterprise operations; they are the farmers themselves. It is very difficult to reconcile the two arguments. It is suggested that because of disinclination to pay tax that farmer members of co-operatives would wish to destroy businesses which can render such useful service to them. It is a nonsensical argument that I fear is on a par with many of the arguments advanced since this issue was raised. Even if the tax charge on co-operatives were to impose some liability on the farmer, the burden on any particular farmer would be minimal. In fact, having regard to the impact of the tax, certainly in the early years, and the membership of the societies which we are told is about 180,000, the figure would be about £10 per farmer but we know in truth that they will not even be called upon to pay that tax because the vast majority of those who are shareholders are not within the tax net or within 1,000 miles of it, or perhaps even that many years of it also.
All that has to be compared with the figures I gave last night of the average tax that has to be paid without any possibility of avoidance by people on comparatively small wages. I accept that the farming community are willing to pay their share of taxation. They have said that again and again. They have been party to discussions with me as how best to devise a system of taxation affecting farming profits and I will be having further discussions with farming organisations to discuss their problems as they see them. Of course their view may not correspond with the view of others in regard to the amount of tax they should pay. That is not peculiar. Most people think others should pay more tax and they should pay less. One thing is certain: they will not be left in the gutter where a previous administration left farmers when they came to see them about what they considered to be their legitimate grievances.
The amendments go a long way towards meeting the current problems of the co-operative societies. The principal problem of some of these societies at present is that they have borrowed very heavily in recent years, borrowings on a scale they would possibly not have made if they had had a liability to tax. That is why we are not proposing to impose the tax in relation to profits previously made and why by and large the first payment of the tax will be in October, 1977. This allows the co-operative societies to adjust their affairs so as to take account of the liability to tax. It will also mean that they will be able over the next year to adjust the very substantial borrowings they have made and will therefore be in a healthier position.
I said last night—I have good reason for saying this because it has been represented to me by competent accountants—that the measure the Government are introducing has obliged many co-operatives to take a hard look at their financial business arrangements. As a result many have identified practices which were not in their own interests and which got not a few of them into some trouble in recent years. I would hope that when the emotion and political opportunism has evaporated, as it ought to very soon in the interest of the co-operatives themselves, people will settle down to accept what is a very reasonable system of taxation on what is a very substantial business.
Yesterday I was challenged to give names of particular co-operatives and individuals. The Revenue Commissioners do not furnish me with names of particular co-ops. It would be quite wrong for them to give any particulars to me or to anybody else about the tax liabilities of individuals or of organisations. The profits of co-operatives are published annually and anybody can see the size of their profits, even if they are not aware of their tax liabilities.
I would like to give a few examples so that people will see the position we are trying to adjust and the justice of our proposal having regard to the very large number of societies involved and the very large profits some of them make. As I pointed out last night, the profit made by the largest co-op in recent years was £4.7 million. Naturally the figures vary, but the profits of the top ten were between £4.7 and £.7 million. Here are a few examples: a co-op with a profit of £212,000 paid tax of £3,700; a co-op with a profit of £770,000 paid no tax; a co-op with a profit of £240,000 paid £12,000 tax; another co-op with a profit of £1.8 million paid no tax; another with a profit of £1.1 million paid £13,000 tax; a co-op with a profit of £390,000 paid no tax and a co-op with a profit of £1.75 million paid £1,300 tax.
Some people might ask: ".Why have they paid tax? I thought they were exempt." All their activities are not exempt. For the reasons I stated earlier, the difference between exempt and non-exempt activities have become extremely blurred and the actual tax paid, as revealed by those figures, show they have not been burdened with any significant amount of tax in the past and, for that matter, I do not believe they will be in the future. They will be asked to pay a little more and it is proper that a section of the community which have been increasing their income very substantially in recent years should now begin to make a more significant contribution towards the overall costs of running the country than they have in the past.
I want to summarise our approach to this matter. The Government's policy is to broaden the tax base and to establish an equitable system of taxation under which equivalent incomes, out of equivalent activities, will pay equivalent amounts of income tax. It is, we believe, unfair to the general body of taxpayers and also to those businesses with which co-operatives are in direct competition to exempt from taxation a business which has a turnover of over £750 million a year. A tax charge of a couple of million pounds related to a turnover of £750 million cannot be regarded as an unjust burden or as a penal tax. If this charge falls, as has been suggested, on the members of the co-ops, it is only a tiny charge per head on the people who are involved. Most of these people are not paying tax and certainly they are not paying tax on their farming profits.
Societies with no profits will, of course, pay no tax. Societies with little profits will pay very little tax. Those making large profits will contribute the largest share of the tax and there is no good reason why they should not. If anybody can advance a good reason why they should not I will be only too happy to hear those people make that argument in public and not by way of threats issued in the dark of the night to individual Members of this House, warning them that their activities have been listed in dossiers so that they may be punished in due course for discharging their public duty as public representatives, in endeavouring to vote for and implement a system of equitable taxation.
