This letter appears to have stimulated the BMB into reviving the topic, and a report of the General Purposes Sub-Committee was presented to the General Committee on June 16th 1924:

Income Tax on Depositors' Interest.

Your Sub-Committee have recently given further consideration to the question of the requirements of the Inland Revenue Authorities with respect to Income Tax Liability on interest allowed to depositors whereby the bank are required to furnish particulars of depositors who have been credited with over £5 interest during the year. In this connection it will be recalled that the suggestion was some time ago advanced on behalf of the bank as to a compounded payment being made by the bank of a percentage of the standard rate of tax on interest up to and including £15.

Your Sub-Committee had an opportunity of discussing this question with the Right Honourable Neville Chamberlain, MP, and as a result, the Trustee Savings Banks were approached with a view to concerted action being taken to obtain the desired amendment in the requirements of the Inland Revenue Authorities. The accompanying Reports sets out the subsequent action taken and the present position of the matter.

Report on Conferences in respect of amendment of Income Tax Act 1918

relative to Savings Banks.

Conferences have recently taken place between the Trustee Savings Banks Association and the Birmingham Municipal Bank with a view to joint action in an endeavour to obtain suitable amendments to the present Finance Bill, and interviews have taken place with the Right Honourable Neville Chamberlain MP who has consented to act therein.

The present law requires returns to be made to the Inspector of Taxes of the names and addresses of all depositors who have been paid or credited with interest during the year in excess of £5, together with the amount of such payment or credit in the individual cases. It is this requirement which the Conference believe should be amended.

The Birmingham Municipal Bank endeavoured in 1920 and 1922, to obtain an amendment, and in 1918, the General Manager appeared before the Royal Commission on Income Tax with the same object. The Trustee Savings Banks were not inclined to co-operate with the Birmingham Municipal Bank in 1920 and 1922 as the requirement did not seriously affect them, but they now find that they are expected to make returns in every instance as in the case of the Municipal Bank.

It should be explained that Trustee Savings Banks are divided into two departments, viz: (1) An ordinary department which accepts deposits at 2½% interest to an unlimited extent, the whole of which deposits are invested with the National Debt Commissioners, who allow £2. 17. 6 per cent interest to cover working expenses of the Bank; and (2) a Special Investment Department which accepts deposits in block sums, at a slightly higher rate of interest, to a total holding of £500, which may be invested in such securities as the Trustees, with the concurrence of HM Treasury, may determine. The Municipal Bank is, so far as accepting deposits is concerned, a combination of the two departments mentioned and, so far as investment of funds is concerned, equivalent to the Special Investment Department referred to.

An interview with Mr Chamberlain took place in London on May 22nd 1924 at which Mr W P Cobbett, Chairman of the Manchester and Salford Savings Bank, and your General Manager were present. The result of such interview was that Mr Chamberlain promised to introduce a suitable amendment providing he was fully authorised to do so by the Trustee Savings Banks Association, and Mr Cobbett undertook to convene a meeting of the Association to give that authority. Mr Chamberlain pointed out that time was very short, having regard to the stage which the Finance Bill had then reached.

A Conference of the Association was held at Manchester on the 29th May at which all the larger Trustee Savings Banks were represented. The General Manager was specially invited to attend the meeting. After a lengthy discussion a resolution was passed authorising Mr Cobbett and your General Manager to take what action they considered most suitable to secure - (1) an entire exemption from making the return so far as the depositors in the ordinary department are concerned and (2) to raise the figure of £5 to £15.

The following day Mr Cobbett and your General Manager conferred on the steps to be taken, and decided to wire Mr Chamberlain for an appointment, and to instruct Messrs Dyson Bell & Co, parliamentary agents to Messrs Cobbett & Son, to draft a suitable clause or clauses and submit same forthwith to Mr Chamberlain. Mr Chamberlain fixed the 3rd or 4th June for the interview and the latter date was decided upon.

The deputation which waited upon Mr Chamberlain on the 4th June consisted of Mr Spencer, J Portal, JP (Chairman of the Trustee Savings Banks Association, and Chairman of the London Savings Bank); Mr W P Cobbett (Deputy Chairman of the Association and Chairman of the Manchester and Salford Savings Bank); Mr Henderson, Actuary of the Glasgow Savings Bank; Mr Councillor Appleby (Chairman of your Committee) and your General Manager. The following drafted amendments were considered and agreed to:

(1)       Paragraph (ii) of the proviso to sub-section (3) (b) of Section 39 of the Income Tax Act 1918 shall apply and have effect as if the sum of fifteen pounds had been referred to instead of the sum of five pounds.

(2)       The requirement contained in the said paragraph (ii) as amended by this Section as to the making of returns by a savings bank and any branch thereof as a condition of the right of such bank to exemption from tax under Schedules C & D in respect of interest paid or credited to depositors shall only apply with respect to depositors to whom interest is paid or credited in the year for which exemption is claimed by the bank out of the income of its funds other than interest and dividends arising from investments with the National Debt Commissioners and to an amount exceeding in the case of any such depositor the said sum of fifteen pounds.

The effect of the amendment, so far as the Municipal Bank is concerned, is to raise the limit to £15, but to the Trustee Savings Banks it means no returns being made in the case of depositors in the ordinary department and the raising of the limit in the special investment department. From the conversations it would appear that Mr Latter, KC, has given his considered opinion that the present demand on Trustee Savings Banks for returns in respect of depositors in the ordinary department is illegal, having regard to the peculiar character of the investments, and as yet no returns have been made. If the proposed amendment is secured it will make the law clear - if it is not secured the Trustee Savings Banks will be at liberty to take the case to the Courts for a decision.

It was decided that every Trustee Savings Bank should be circularised and urged to actively associate themselves, and their members of Parliament, in this matter, and at Mr Chamberlain's suggestion a circular is to be addressed to every Member of Parliament on the subject, asking for support to the amended clauses.

Mr Chamberlain will table the amendments for consideration in the Committee stage of the Bill, probably on the 16th June.

At its meeting on July 25th 1924, the Committee were informed that in consequence of Neville Chamberlain's action, the following clause had been agreed on the report stage for inclusion in the Finance Bill:

Clause introduced by the Chancellor of the Exchequer in the Finance Bill 1924,

which has now received its third reading in the House of Commons.

Paragraph (ii) of the proviso to paragraph (b) of sub-section (3) of section thirty-nine of The Income Tax Act, 1918 (which sub-section provides for the exemption from tax of certain income of savings banks), shall have effect as though for the words "where the interest paid or credited to any depositor in the year for which exemption is claimed by the bank exceeds the sum of five pounds", there were substituted the words "where in the year for which exemption is claimed by the bank, the interest paid or credited to any depositor out of the income of its funds, other than interest and dividends arising from investments with the National Debt Commissioners, exceeds the sum of fifteen pounds."

Thus, thanks to the Bank's historical and Birmingham connection with Neville Chamberlain, the objective of raising the reporting level to £15 was achieved.

A second outcome from the Bank's pursuit of raising the Income Tax reporting limit was the involvement of the Trustee Savings Banks Association. The Bank decided to investigate the possibility of additional involvement with the Savings Bank movement and, on July 20th 1936, the Bank Committee passed the following resolution:

That the proposal to constitute a joint committee of representatives of the Trustee Savings Banks Association and the Municipal Bank to consider matters of mutual interest be approved, and that the Chairman and General Manager be appointed to represent the Bank and attend meetings when convened.

Following the introduction of the No 2 Department in 1957, the liability for Income Tax applied to both savings departments. However, no charge was made in the No 2 Department until 1959/60.

No taxation was charged in the years 1966/67 to 1975/76, the Bank benefiting from the fact that Local Authorities were exempt from taxation in this period. That exemption ceased when the Bank became a Trustee Savings Bank and profits were subject to Corporation Tax: