§ (1) In the case of any person dying on or after the thirtieth day of April, nineteen hundred and nine, the proviso to Subsection (5) of Section seven of the principal Act (which relates to the estimation of the principal value of property for the purposes of estate duty) shall cease to have effect.
§ (2) In estimating the principal value of any property under Sub-section (5) of Section seven of the principal Act, in the case of any person dying on or after the thirtieth day of April, nineteen hundred and nine, the Commissioners shall fix the price of the property according to the normal market price at the time of the death of the deceased, and shall not make any reduction in the estimate on account of the estimate being made on the assumption that the whole property is to be placed on the market at one and the same time.
§ (3) An appeal shall not lie under Section ten of the principal Act, where the question in dispute is a question of the value of any real (including leasehold) property, but if any person is aggrieved by the decision of the Commissioners as to the value of any such property, that question shall, on the application of the person aggrieved, be referred by the Commissioners to one of the referees appointed for the purpose of Part I. of this Act, and the provisions as to appeals under that Part of this Act shall apply accordingly.
§ Mr. HICKS BEACHmoved to leave out Sub-section (1).
I very much regret the decision which the Committee has come to, because the point at which we have arrived is a very important point and mightily affects the most important industry in this country, that of agriculture. I consider that the House is not in a fit state now to enter upon the subject of the future valuation of agricultural property for Estate Duty, and I beg to enter a very strong protest. Clause 44 proposes to repeal the proviso to Sub-section (5) of Section (7) of the Finance Act of 1894. That proviso provides:
"That in the case of any agricultural property, where no part of the principal value is due to the expectation of an increased income from such property, the principal value shall not exceed twenty-five times the annual value as assessed under Schedule A of the Income Tax Acts, after making such deductions as have not been allowed in that assessment and are allowed under 'The Succes- 2095 sion Duty Act, 1853,' and making a deduction for expenses of management not exceeding 5 per cent. of the annual value so assessed."
That proviso was inserted in the Finance Act of 1894 by general agreement. It was opposed by the then Leader of the Opposition; it was accepted by the Government; there was no discussion upon it; and consequently it was an entirely agreed matter. The Chancellor of the Exchequer told us in his Budget Speech that he proposed to make a change in the valuation for the purposes of Estate Duty, and he said that under the present laws agricultural property enjoys the somewhat peculiar privilege that whatever may be its value in the market its valuation for Death Duty purposes cannot exceed 25 years' purchase of the net rental after allowing the expenses of management. The right hon. Gentleman went on to say that he proposed to change the law in regard to valuation, and that he hoped ultimately to derive a considerable access of revenue. I cannot reconcile that statement of the Chancellor of the Exchequer with the sentence with which he concluded his speech upon the discussion yesterday, when he said that this increase of the Estate Duties would do no damage to any industry. Anybody who knows agricultural property throughout the country will be constrained to admit that if the Death Duties have done any harm anywhere they have done particular harm in the case of agricultural property.
I suppose anybody who knows any part of the country intimately can at once call to mind various cases of property which has passed from one owner to another, and where real hardship has been caused to the owner, and consequently upon the people who live upon the property and depend upon the owner for their living. A man who is dependent solely upon the income of his agricultural property is affected very much more by the incidence of these Death Duties than a man whose income is derived from personal property. The framers of the 1894 Act thought Death Duties should be provided for in the form of an insurance policy, and if you take it in this way and compare the incomes of two men which in the eyes of the Income Tax Commissioners are £6,000 apiece—that is, a man with an income of £6,000 derived from personal property, and a man with an income from real property of £7,000 gross, which for assessment purposes would be £6,000—you will find that 2096 the respective charges upon these two persons are of very varying degree. You will find that in the case of the man whose income is derived from personal property the total charge is about 2s. 8d. in the £, while in the case of the man who derives his income from real property, it is about 4s. in the £, owing to the great expense of keeping his property in a proper state of repair, for which he is not allowed, so that his proper income probably only amounts to about £4,000. Consequently, these charges fall much more heavily upon the owner of real property than upon the owner of personal property.
The Secretary of State for War tells us that the duties are really chargeable upon capital, and I presume he means that whenever the estate changes hands a lump sum is to be taken out of it. What does that mean in the case of an agricultural estate? I am referring to those cases where the whole of the income is derived from real property. A man succeeds to an estate, say, of £500,000, on which he has to pay Death Duties of about 8 per cent., and it may be 9 per cent. He has got to find that lump sum of money to pay for those Estate Duties, and he has got nothing which he can realise at once as easily as a man with personal property. In all probability it is impossible for him to sell off a portion of the estate without seriously injuring the value of the remainder, and under the provision of the right hon. Gentleman, who proposes that with the consent of both parties the State shall take a proportion of the real property in exchange for the duty, I venture to say there will be very few cases in which the owner would be willing to part with a portion of his property by which the State would be able to say it is a good bargain. I daresay there are many cases in which an owner would be glad to get lid of an outlying farm in order to pay his duties, but I am not at all sure that it would be a good bargain for the State. In a great many cases it would be difficult for the owner of an estate to provide for the Estate Duties by realising a portion of his estate, and the only thing he has to do is to borrow.
Unless you are going to pile on interminable charges he must make provision to pay off some for a number of years, and that will involve a considerable additional charge upon the annual income of the estate. Can that be met? It can only be met by materially reducing the normal expenditure on the estate. That must mean the 2097 curtailment of the natural development of the estate. I am taking the case of the man who only spends an ordinary amount of money to keep up his estate in a proper state of repair, and in a case of that kind you must inflict considerable hardship upon the estate if it is to be kept in a proper state of agricultural value. The consequence wall be that this wall reflect in a serious degree upon the general condition of the farms and buildings on the estate, and will materially affect the welfare and livelihood of those people who have been in the habit of getting their living from the money spent in the employment of labour on the estate. These additional estate duties are a very serious burden upon agricultural property as apposed to other forms of property. Not only does the right hon. Gentleman vastly increase these duties, but he does a more serious thing under this Clause, and that is, he does away altogether with the original valuation of agricultural estates for the purpose of estate duty. We know that Lord Rosebery told us the other day at Glasgow that there was a solemn undertaking in 1894 that agricultural estates should only be valued at 25 years' purchase for the purpose of the Death Duties. I want to quote the words of Sir William Harcourt, who was in charge of the Finance Bill of that year. He said:—
It is not necessary for me to add many words to what the right hon. Gentleman the leader of the Opposition (Mr. A. J. Balfour) has said. It is a great satisfaction to the Government to know that as far as it goes this Amendment will be satisfactory to the Government interests on behalf of whom, in this respect, he speaks. The first part of the Amendment expresses what really has always been the intention of the Government. We always meant that the principal value should be the market value. I stated, when this measure was introduced, that it was to be what the property would sell for at the time. As regards agricultural land, I said, at a very early part of the proceedings, I was very desirous that the case of such land should be met in a fair and a favourable spirit.I do not think anybody denies that there was a solemn agreement that agricultural property should be valued on a different basis to other forms of property. The valuation was that Income Tax assessment should be taken, and there were to be allowances under the succession Duty Act and 5 per cent. on the expenses of management, and in respect to insurance and returns The Government, in the first place, proposed to adopt the 25 years limit. The Government entirely do away with the deductions that were allowed under the Bill of 1894, and I cannot understand why they have suddenly adopted this procedure. It is absolutely and entirely a violation of the agreement made in 1894, and if the right hon. Gen- 2098 tleman comes down to the House and tells us that these duties are not going to have a prejudicial effect upon any industry in the country, I think he is vastly and grievously mistaken as regards agriculture under this Clause. If it has not been the custom to have a 25 years limit in the past what is the Government's reason for raising it up to 25 or more? The right hon. Gentleman is going to put in that "the Commissioners shall fix the price of the property according to the normal market price at the time of the death of the deceased." There is no allowance under that for the expenses of management and upkeep. This simply puts agricultural property on the same basis as other forms of property, and is a violation of the arrangement made in 1894. If the Government do really intend to do something for agriculture in their Development Bill, I say they would do far more good if they left the Estate Duty as under the Bill of 1894 than by any new-fangled attempt to deal with the matter in their Bill. I cannot understand how the right hon. Gentleman can support this new Clause, which, as I say, introduces an entirely new principle for the valuation of agricultural property. I have another great grievance against this Clause, because it includes woodlands. Woodlands and agricultural property are on the same footing for the purposes of the assessment of Estate Duty. The rule has been to assess woodland at no more than £25 under Schedule A. The Poor Rate assessment of woodlands is supposed to be on prairie value. In a few unions of the country that is the assessment, but in a few instances it is assessed at agricultural value, now woodlands have not been over-assessed for Estate Duty purposes; but now you propose to do away with that present assessment altogether, and to substitute for it the normal market price of woodlands. Can anybody tell me what is the normal market price of a woodland which is not ripe to be cut for the next 50 years?Will any man here go and buy a wood which is not fit to be cut down and realised for the next fifty years? I daresay you can get at the price by a process of actuarial valuation. But that is not a real valuation, because forestry experts will tell us that in fifty years disease among the trees may ruin the wood and a gale may blow the whole wood down. [MINISTERIAL cries of "No, no."] Well, perhaps that was rather an exaggeration. A great portion of the wood might be blown 2099 down. Therefore, I say that the actuarial valuation was an entirely wrong basis. The basis proposed by the Chancellor of the Exchequer is absolutely wrong, and I do hope that the promise that the matter of woodlands should receive favourable consideration under the Chancellor's Finance Bill will be realised, and that the Chancellor of the Exchequer will give very serious attention to this matter. The Arboricultural Society have requested me to urge that the woodlands ought to be assessed only when the actual timber is realised, because then you get their real value. This is a very important subject indeed. I have a very strong case to bring against the right hon. Gentleman. In the first place he is largely increasing the burden on the agricultural industry; secondly, he is violating a solemn agreement arrived at between both parties in this House, when the Act of 1894 was passed, as to the assessment of agricultural property; and, thirdly, he is dealing a great blow at the arboricultural industry throughout the country. If the Government wish to help forestry they are taking a very odd step towards doing so.
§ Mr. JOHN DILLONThis Sub-section, proposing as it does the repeal of the proviso of the principal Act, hits Irish farmers in a most extraordinary way, and in a way which I think I shall be able to show the Committee is entirely unjust. I rise for the purpose of making a suggestion to the Chancellor of the Exchequer which I hope will abbreviate the discussion at this hour of the morning. I am quite convinced that the view we hold in this matter will be fully shared when it is understood by the Government and the Members of the Committee. It is a matter of extraordinary complication, and it would be hopeless to embark upon a full discussion of it at this hour. In order to allow the Committee to understand the full importance of the case I have to submit, I may say a few words, however, on the effect of the present Bill upon estates generally throughout the country compared with its effect upon the peculiar cases which I am here to defend. The Bill proposes to raise by a moderate percentage the charge upon estates passing under Death Duties, but as I understand the Bill it does not propose to add anything to the duty on any estate under £5,000. No person dying in England or Ireland with an estate under £5,000 will have his Death Duties increased by a single shilling. 2100 I am informed by experts—I do not profess to be an expert on the matter myself—that in consequence of the repeal of this provision it is the opinion of those who are engaged in passing these small estates through probate in Ireland, that the Death Duties of small farmers in Ireland will be doubled, trebled, and even quadrupled, and that will take place on estates worth £300, £400, £500, and £600. I am convinced that nobody on this Committee will say that it is a just Bill which would leave the man with £5,000 with an unchanged Death Duty, and would double or quadruple the Death Duty on a man whose whole means aggregate £500 or £600. That result is brought about by a curious process, and I cannot at this hour undertake to fully explain it, but it arises mainly from a well-known legal decision in an Irish case in the year 1901. That decision set forth the methods by which Death Duties were to be carried out in the case of Irish agricultural holdings, and it is in accordance with that decision that the Commissioners of Inland Revenue have acted, and in accordance with it that these calculations have been made by experts as to the effect of the repeal of this proviso. It was upon this proviso that this judgment was founded, and I am advised that the result of the repeal of the proviso will be that on small estates such as those of tenant farmers, which pay on £300 and thereabouts duty amounting from 30s. to 50s., the duty will be raised to £5, £6, and £10, and in some cases even higher. That would be a grotesque injustice in view of what I have said about the general effect of the Bill. I speak on the authority of solicitors and barristers engaged in these cases, and on the official statement of the Law Society in Dublin, who have sent us documents on the subject drawn up by the men who are engaged in passing these estates through probate. I cannot, as I have explained, attempt to go into this statement, but I may say they have sent us specimen cases showing the items under the present system, and calculations of what the Death Duties would be if this proviso were repealed. The cases I have in my hands according to the experts show that effect to be the doubling, trebling, and, in; some cases, the quadrupling of the Death Duties on small estates in Ireland. The Government, in the answers they have given to questions in the House, and in the statement made by the Chancellor of the Exchequer last night in reply to my appeal on this subject, clearly indicated 2101 that this effect upon Ireland is a result of misunderstanding on their part.
3.0 A.M.
I cannot believe the Government intended the Bill to have this effect. It is inconceivable. And I am strengthened in that view by the terms of a reply given by the Secretary to the Treasury some time ago to a question by the hon. Member for North Westmeath (Mr. Ginnell). I will only take the main point out of a long answer. He was asked what was the total of the increased Estate Duties from tenants and tenant purchasers in Ireland, and the answer was £2,500 from the whole of Ireland. Everybody in Ireland who knew the actual situation created by the Bill says that is an absolutely ludicrous estimate. If the Government understood the effect of the repeal of the proviso it would be much more, and I conclude from that answer, which was most distinct, that the Government did not understand its effect. The answer of the Secretary of the Treasury was most distinct and full, as its terms show. He said the £2,500 was the total annual increase expected to be derived from Ireland from the death of tenants occupying land, from the death of persons interested in land and paying interest in lieu of rent, and from the death of persons who had purchased land and were subject to an annuity for purchase. That covered the whole of the occupying farmers of Ireland, and the Government expected only £2,500 increase in the Death Duties from them. But with this proviso repealed, if I am rightly informed, the increase will be something nearer £80,000 or £90,000 or £100,000 than the figure named, which is an absurd estimate. Therefore I am entitled to conclude that the Government, or whoever drafted the Bill, was ignorant of the effect it would have upon the small farmers in Ireland. A promise was given by the Chancellor of the Exchequer last night when a question was put to him from this side, that he would accept three of the Amendments on the Paper in the name of my hon. Friend the Member for North Dublin (Mr. Clancy). The right hon. Gentleman stated that he was prepared to accept the Amendment of my hon. Friend, allowing the value of the tenant right to remain exactly where it is at the present moment.
One of the most important points was that the right hon. Gentleman was prepared to allow the tenant purchaser to have the right he now enjoys of deducting the amount of the advance remaining un- 2102 paid from the value of his land before he was assessed for Death Duties. These answers led me to believe that the Government had no intention of carrying out what I understand would be the effect of repealing this Sub-section. But the question to be faced is that the phraseology of the Amendments by which we can secure protection for tenant purchasers in Ireland from this injustice, and which at the same time will be so broad as to apply to the whole of the United Kingdom, so as not to obtain any special treatment for Ireland in the matter, would require most close consideration. Therefore the suggestion I desire to make is that if the Chancellor of the Exchequer can see his way to confirm the statement that the Government really do not desire to increase beyond the sum of £2,500 for the whole of Ireland the Death Duties on these farmers, we should agree to remit the whole of this question—which is difficult and complicated as regards phraseology even when we have agreed on principles—to be dealt with in a new Clause.
I daresay it would be possible to have the new Clause put on the Paper in agreed terms, and that would obviate the lengthy discussion with which we are loath to trouble the Committee at this hour of the night, but which otherwise I am afraid will be inevitable. I want to make it quite clear to the Committee that we are not in this matter seeking for any special treatment for Ireland. What we are seeking to do is to protect Ireland against a provision which operates in one way in England and in a totally different way in Ireland, owing to the different social conditions of the latter country. You may pass this Subsection for England and it will not affect any English farmers at all. It was the owners of the land, and chiefly, of course, the large owners in England, that the mover of the Amendment was concerned about. In Ireland it is all the other way. This Clause will affect the small tenant farmers, the purchasers, in Ireland, and to a degree infinitely greater than anything the hon. Member (Mr. Hicks Beach) claimed as regards the English landlords. He did not for a moment say that this repeal would in any case double the Death; Duties on landowners in England, whereas I say that it will treble the Death Duties on tenant purchasers in Ireland. What I would ask the Chancellor of the Exchequer to do would be to reassure us as to his intentions and to agree that a special Clause shall be put down so 2103 dealing with the situation that these special dangers and disabilities in the case of the tenant purchasers in Ireland will be obviated.
§ Mr. LLOYD-GEORGEBefore I deal with the general question raised by the hon. Member for Tewkesbury (Mr. Hicks Beach), perhaps I had better dispose of the suggestion put forward by my hon. Friend, the Member for Mayo (Mr. Dillon) in reference to the peculiar conditions of Ireland. I gave an answer yesterday on the subject in the course of our discussions, and the hon. Member now suggests that instead of accepting Amendments which have been put down by another hon. Member for Ireland it would be better to deal with the matter in the form of a new Clause. Since the hon. and learned Member made the suggestion the draughtsmen have been consulted and they inform me that the course suggested would be quite feasible. That being the case, I am prepared to undertake that the matter shall be dealt with in the form of a new-Clause. The grievance in Ireland is that there are certain anomalies which affect Ireland specially, and which do not interfere with the holding of land in this country. I have gone into the matter very carefully and that undoubtedly is the case. It would, however, be quite impossible to engage in this matter with the idea of making any special exemption which would be applicable to Ireland alone, and the Amendment put down by the Government would be of general application to the whole of the United Kingdom. The hon. Member for Tewkesbury pleaded to the Committee to retain the limitation which was imposed on the valuation of agricultural land in 1894. He has referred to that limitation as a solemn agreement, but that I can hardly accept.
§ Mr. HICKS BEACHI quoted Lord Rosebery's words.
§ Mr. LLOYD-GEORGEI can hardly accept Lord Rosebery as an authority on the Death Duties.
§ Mr. HICKS BEACHHe was Prime Minister at the time.
§ Mr. LLOYD-GEORGEI daresay he was, but he has placed an interpretation now on what he did fifteen years ago. He had to explain away why he consented to those drastic Death Duties in 1894, and lie says now that a comparatively slight extension would spread ruin and desola- 2104 tion. I repudiate the idea that what the hon. Member (Mr. Hicks Beach) refers to was in any sense a solemn agreement. It was the acceptance of an Amendment, and that is a matter of everyday occurrence during the discussion of a big measure in Parliament. If the Opposition on that occasion had withdrawn the whole of their opposition to the Bill on the definite understanding that this condition was inserted it might have been claimed as a definite agreement, but that was not the case. Further, I would point out that no Amendment accepted in 1894 could possibly bind Chancellors of the Exchequer for all time not to extend taxation. Such a proposition would be ridiculous. The Government merely accepted an Amendment at that time. They did so for reasons which were undoubtedly satisfactory and sufficient for the time being. That is not an agreement, and it could not possibly bind those who are responsible for raising taxation in the future, otherwise Chancellors of the Exchequer might bind their successors in regard to every tax. That would make the condition of things impossible as far as the finances of the country are concerned.
There was just a suggestion from the other side, as it appeared to me, that there had been a breach of faith on the part of the Government in dealing with the matter at all. You do not impose any limitation upon the value of shares or upon houses. You do not say there shall be ten years' purchase or five years' purchase of a business. You simply say that that business shall be valued at its market value, whatever that is. There is no reason in principle why you should impose any limitation of this kind in regard to agricultural land when you do not impose it in any other case. The hon. Gentleman complains that agricultural land is badly treated in other respects. Those are cases that have to be dealt with on their merits. He referred to the case of woodlands. Very well, we have promised to deal with the case of woodlands. I promised last year, when it was brought forward, to give it favourable consideration. As a matter of fact, I have had an amendment drafted dealing with the question of woodlands, and that will be placed upon the paper. I do not think I can extend that to purely ornamental lands, and I do not think that that is really the case put forward. The case put forward was that of a plantation and woodland generally, and I think it is desirable that they should be included. 2105 There is an Amendment put down in the name of the Government dealing with timber of that kind.
§ Lord BALCARRESIs it to be put down on the Report stage, or is it a new clause?
§ Mr. LLOYD-GEORGEI am rather afraid it will be on Report stage. I am not in a position at the present moment to make a statement; I am not quite satisfied as to the form of words, and I should be very glad if hon. Gentlemen specially interested would communicate with me in regard to the matter. I should like the clause to have the general consent of those who are interested in the matter. I think there is a very strong case, and a case we must deal with. Then the hon. Gentleman said there was another reason why agricultural land was treated badly, and that was, that when you came to compare increment in agricultural land with the increment on other property they were not really comparable because there were deductions of a most serious and substantial nature in agricultural land which were quite unavoidable owing to the exceptional circumstances of the case, and that what appeared to be a very large increment was not a real increment because of the repairs, management and other unavoidable expenses. There, again, I have admitted there is a case for special consideration, and I hope, on Monday, I shall be able to move an Amendment. I think there will be a special clause; at any rate, I will undertake to deal with that question. I do not say it will be altogether satisfactory, but I am perfectly certain of this, that the concessions made by the Government will be much more substantial in point of revenue than any that would be derived from the limitation of this 25 years' purchase in this Clause.
Therefore, taking the debit and credit accounts as between this Clause and what we propose to do in the matter of Schedule A, I have no hesitation in saying that the balance will be in favour of agricultural land. What is our reason for putting this down? The first is that by a limitation of this kind there is an inequality between agricultural land and other property. The second is that there is an inequality between one class of agricultural land and another. Take the class of land where you cannot get 25 years' purchase. This limitation is of no advantage to that land at all, and that land is valued up to its full value to the last 2106 penny. As far as that land is concerned this is no protection. Take the class of land, such as that in my own country, where you can get much more than 25 years' purchase as a rule. You can always get a purchaser and almost always at over 25 years' purchase. Even in the worst times if you put up land for sale you can always get a purchaser, when, perhaps, in parts of England you cannot sell at all. This land, then, which is always saleable, and for which you can always get 25 years' purchase has this privilege and protection over land where you can never get twenty-five years' purchase. In the latter case this Clause is of no use, so that the better class of land is protected and the poorer class of land has no protection. Here is another observation of a general nature. Generally speaking, the class of land which derives the most protection is the land which is most expensive to run very often. I venture to say that the class of land for which you get twenty-five years' purchase is a class of land in regard to which the percentage which you deduct in respect of repairs and other matters is much more than in regard to the class of land where you do not get your twenty-five years' purchase. Therefore you have an inequality not merely between realty and personalty, but you have an inequality between one kind of agricultural land and another. There is no reason for this. I am, however, prepared to consider the case of woodlands, and I am prepared to consider it in the case of Schedule A. I do not promise a concession the whole way. There are limitations by the financial exigencies of the Exchequer at the present moment, but I do promise amendment which, I think, will satisfy the Committee that we quite intend to meet the grievance from which owners of agricultural land suffer in respect to their obligations under Schedule A, where they are charged in respect of rents they only formally receive, and do not get credit for deductions which are made entirely in the interests of agriculture. I promise to submit an Amendment that will to a certain extent at any rate remove those inequalities, but in the meantime I cannot possibly accede to the Amendment of the hon. Member.
§ Mr. PRETYMANI see a great deal of force in the argument of the right hon. Gentleman, and I am entirely prepared to admit that so far as the mere maximum is concerned, I do not think there is very much in it, and the Chancellor of the Exchequer was absolutely correct when he 2107 said that poor land derives no benefit from this maximum. I am also prepared to go so far as to say that in the case he mentioned in his district, 25 years' purchase is considerably below the normal selling price of land. If it is below the normal selling price of land there is certainly no reason why the same principle should not be applied to it as is applied to other land. But the really important point is not in the maximum, which, so far as poor land is concerned, has never been operative, but it is in the matter of valuation. That is the point which concerns us. It is necessary in order to understand this to look at Sub-section (5) of Clause 7 of the original Act. You will see there that the value of the property shall be estimated to be the price which in the opinion of the Commissioners such property will fetch if sold in the open market at the time of the death of the owner. In respect to most forms of property there is a comparatively easy method of arriving at the value. But in regard to agricultural property, I do not know what test the Commissioners are to apply, and what has given rise to the greatest anxiety amongst all those who are concerned in land is the implication of the proviso that the method of valuation is to be the number of years' purchase in the market. The matter is left extraordinarily vague as it stands now, and there is a great danger of vagueness in the future. What excites our apprehension is that this proposal accompanies a Finance Bill which provides for a new system of valuation altogether. There is a new system of valuation provided in Part I. of the Finance Bill in which every separate occupation is going to be taken into account for another purpose. Are we going to have that valuation taken for this purpose as well? That means to say that the system of valuation which is going to be applied for the purposes of possible Increment Value Duty is going to be applied in this case as well, and what that may lead to it is impossible to say. That is what has excited so much apprehension. The property should be valued as a whole on a number of years' purchase.
§ Mr. LLOYD-GEORGEThat is valuation made on the passing of the Act. This is a valuation of the property on the market value at the date of death, subject to appeal.
§ Mr. PRETYMANYes; there must be separate valuation, but it is quite possible 2108 that the two things may be brought together. You are going to have two valuations on two different bases. You are going to have an increment value, whether increment is payable or not. The valuation before increment value is to take place whether increment is payable or not.
§ Mr. LLOYD-GEORGENot on agricultural land.
§ Mr. PRETYMANIt is the doubt on that point that is exciting the greatest possible alarm. Will the right hon. Gentleman assure us that so far as his intentions go the present system of valuing agricultural land will remain in force?
§ Mr. LLOYD-GEORGECertainly. I am not aware of any intention to alter the valuation, but I do want to get at the real value of the land where the maximum by no means represents the value at the present moment.
§ Mr. PRETYMANWhat I understand the right hon. Gentleman to mean is that where, under the present system, a limitation has been offered, and the Commissioners have said "We should have charged 30 years' purchase on this land, but under this proviso of the Act of 1894 we have been stopped, and we can only charge 25 per cent here," he wants to get at the real value of the land. There is to be no alteration whatever in the system of valuation, and it is maintained that by the removal of that limit the injury to agriculture is not very serious. I want to put a particular case in regard to cottages. Let us take the case of two such houses. Here you have a proposal already on the Vote for spending national money for providing houses. The typical case is simply this: The owner builds a pair of houses that cost him £400, and he receives £8—£4 each—rent from them. That is the ordinary rent of agricultural cottages. Under the ordinary system these houses come in and are valued on the rental. Are they to be valued at what they cost?
§ Mr. LLOYD-GEORGEAt their market value.
§ Mr. PRETYMANThe market value as part of the estate, which is really valued on the rental. As things now stand, the State, under the present system, is giving some encouragement to owners to build houses, because, if the owner has £400 in money and he has to pay Death Duty, he pays on £400; but if he spends the amount on cottages and they are rented at £4 each 2109 and 25 years' purchase, it is only £200 on which he pays the Death Duty. He therefore only pays half the full rate which he otherwise would pay. Are the houses let at £4 a year to be revalued? If so, I am sure it will be most injurious, and I am sure it will do more to stop the building of houses than all the Housing Bills introduced by the Government. If these kinds of elements are going to be brought in, you are opening a door which is going to do enormous harm to the development of agricultural interest throughout the country. Owners in some cases are receiving 1 per cent. in interest, and others are receiving no interest at all upon their agricultural property. On many agricultural estates—and I speak from bitter experience, because I have reason to know—no part of the income goes into the owner' pocket at all—the whole is spent on the estate. If in addition to this fearful burden of Death Duties you are not going to take into consideration the expenditure of the owner, you are going to inflict a most Serious injury on agriculture. I do most earnestly trust that the right hon. Gentleman will allay the apprehensions. Am I to understand the Chancellor of the Exchequer does not intend to do anything of the kind which has been suggested? I will not ask more now than that the right hon. Gentleman will take these points into serious consideration. The difficulty is a real one and I hope he will introduce words to meet it.
§ Mr. HICKS BEACHI am not quite satisfied with what the Chancellor of the Exchequer has said. I understand that all he intends to do is to remove the 25 years' limit, and that he does not intend to remove the basis of valuation, that is to say that agricultural land is still to be valued in the future on the Income Tax assessment of Schedule A, with certain deductions for management and maintenance. Are these deductions still to be allowed. The 25 years' limit is by no means of much importance; the really important matter is the basis of assessment. Is agricultural land to be valued on the capital value of the gross income or the capital value of the net income? That is the material point.
§ Mr. LLOYD-GEORGECertainly, deductions of the kind mentioned must necessarily be taken into account, and where the deduction are very heavy I should have thought that, on the whole, agricultural land would rather benefit by the method I have adopted here, because 2110 the deductions which are made under Schedule A do not represent the total deductions which can be made from the gross income. I cannot ask hon. Members to postpone this discussion until they get the whole of our proposals regarding agricultural land, because they might think they were losing an opportunity of putting their case, but I feel it is very difficult to discuss the matter without having the whole of the Government's proposals with regard to Schedule A before the Committee. When they see those proposals they will find that agricultural land is rather benefited than otherwise.
§ Mr. MUNRO FERGUSONI think the real security for a fair valuation is the recognition for the first time of the outlays which have to be made on agricultural equipment. This is the first Government that has really done that. It will be a valuable element in the valuations of the future. With the recognition which the Chancellor of the Exchequer has promised to make there is no ground whatever for the 25 years' limit. Schedule A and Schedule D and local taxation press heavily on agricultural land. There is no need to press this Amendment because the great security for valuations in the future will be that, subject to the right of appeal, the Commissioners will take under their notice the allowances for deductions which are made with respect to Income Tax. There is one point the Chancellor of the Exchequer might look into. I have an Amendment to this Clause down on the Paper with regard to woodlands. The question of deductions is raised in a very irregular way at the present time. Sometimes there are allowances of 5 per cent. for management and sometimes not. That all depends whether land is valued at 25 years' purchase or not. In some cases an allowance of 10 per cent. is made for maintenance, while in other cases we are told that anyone who has paid 10 per cent. for maintenance is very extravagant in management. In some cases the maintenance charge has been refused altogether. The whole subject is in a difficult position, and I hope the Chancellor of the Exchequer will look into it.
§ Captain CLIVEThe last nine speeches have all pointed to the same thing, namely, that it would be most desirable for the Chancellor of the Exchequer to accept now a Motion to report Progress. I do not understand the nature of the bargain 2111 to which the hon. Gentleman referred earlier in the morning, but I base my appeal to him on two grounds: He has said that if only we knew what were the great benefits of the proposals he is going to make with regard to agriculture, we should readily accept this Clause.
§ Mr. LLOYD-GEORGEThat had to do with the Income Tax.
§ Captain CLIVESecondly, the right hon. Gentleman said as regards woodlands, favourable consideration had been promised in that case a year ago. As yet, however, no amount has been placed on the Paper, and we are now asked to wait until the Report stage before we can see it. I envy the more fortunate lot of Members from Ireland. They put up one of their number to speak, and they are promised what might be called a most-favoured nation clause, whereupon the whole party retired to bed.
§ Mr. LLOYD-GEORGEI promised nothing to Ireland which is not also applicable to the whole of the United Kingdom. I made that quite clear yesterday, and again to-day. Members for Ireland clearly understood that I could not accept any Amendment which did not give the same benefits to the United Kingdom.
§ Captain CLIVEAt any rate, the right hon. Gentleman has given them the most-favoured nation treatment in the same way that if you promise special treatment for wine to Portugal you have to give the same treatment to Germany and Russia. After the speech of my hon. Friend (Mr. Hicks-Beach), and the somewhat vague statement we have had as to the new process of valuation that is to take place in consequence of this Sub-section, it would be most desirable that we should report Progress and deal with this matter next week. The Chancellor of the Exchequer gave us an instance of land in his part of Wales. That seems to be a very strong argument against the removal of the limit and the possible alteration of the method of valuation. I believe in Wales there is something similar to the land hunger which prevails in Ireland. No doubt that would give a fictitious value—perhaps it is not fictitious, because it is the actual value paid in the open market—at any rate, it would be a high value in the market. It is hard on a man whose family has for generations owned the same property to have to 2112 pay Death Duties on the normal market price, which will be based, I suppose, on the price some wealthy purchaser, who has saved money in America or elsewhere, would offer for the land. In Herefordshire there has been sold recently a large property at a price which is known to be very high, a price far beyond anything which would bring in any return. Is that to be taken as a basis for valuing other property? That is the sort of thing not unlikely to occur if this Sub-section is passed as it stands. The Chancellor of the Exchequer has foreshadowed some Amendments with regard to the Income Tax, which, he says, will be of considerable benefit to agriculture. It is not reasonable to ask us to set that benefit against the possible injury which may be done to agriculture under this Clause. I will not move to report Progress, but I will appeal to the right hon. Gentleman to say whether, when we have finished this Sub-section, he will not agree to that motion.
§ Lord BALCARRESI wish to make a suggestion to the Chancellor of the Exchequer. This will be a very difficult Amendment to draw up, and I very much doubt whether, even with all the resources of the Treasury, it would be possible for the right hon. Gentleman to frame a thoroughly satisfactory Clause. I understand that the right hon. Gentleman expects to do this on Report, and I would point out that it would be a great hardship to have to deal with the question at that stage without having already had the Amendment on the Paper. What I would suggest is that the Chancellor of the Exchequer should carry out his purpose now by means of a new Clause instead of by an Amendment on the Report stage. I believe that if the right hon. Gentleman tries to carry out the matter by an Amendment on the Report stage it will break down.
§ Mr. LLOYD-GEORGEI quite agree with the Noble Lord that it will be an exceedingly difficult Amendment to contrive. This is purely a non-controversial question, and I will accept the suggestion the Noble Lord makes by putting the Amendment on the Paper as a new 2113 Clause. I agree that there is a great advantage in dealing with the matter in Committee rather than on Report. It is very much more difficult to amend a thing when you have got to the Report stage than it is to do it in Committee. I will consider the whole matter, and I think it is very likely I shall be able to do as the Noble Lord suggests.
§ Mr. AUSTEN CHAMBERLAINI should like to ask the right hon. Gentleman a question, and I rather hope that his answer may avoid the necessity for a division. I understand him to say that the only change he wishes to make in the valuation is the removal of the arbitrary limit of twenty-five years. If that is the case then I do not think there is any difference between the two sides. What my hon. Friends behind me were afraid of was that, under cover of removing an arbitrary limit, the right hon. Gentleman was in fact contemplating a change in the system on which the valuations have been made. Of course, if an estate would have been valued at more than 25 years, and if you take off that arbitrary bar, it will make a change to that extent, but it will not make a change in the method. The reason why this proposal has caused so much anxiety in the minds of many of those who are interested in the matter outside, and of many of my hon. Friends here, is that certain phrases have fallen on occasions, I think both from the Chancellor of the Exchequer and the Prime Minister, as to the very large new revenue which the Government expected to get from this proposal. What I want the right hon. Gentleman to tell me is whether I am right in gathering from what he has said that the only effect of the change he proposes is to remove this arbitrary bar, and that there will be no change in the method or character of the valuation?
§ Mr. LLOYD-GEORGEI have no difficulty at all in giving that assurance to the right hon. Gentleman. If he will compare the operative words of the Act of 1894 with the operative words of my Clause he will see that they are exactly the same. I do not think that either the Prime Minister or myself have ever said that the Government anticipated any large increase of revenue from this proposal. It was entirely in connection with building land in the neighbourhood of towns that we looked for that increase. I will not say that the increase from this will be trifling, but, at 2114 any rate, I can say that it will not be very considerable.
§ Mr. HICKS BEACHI must confess I am not quite satisfied. Surely this is, according to the Bill, a different basis of valuation. You are going to take the normal market price and you say nothing as all about deductions. In the Finance Act of 1894 you began with the market price, and then there was a proviso to the effect that in the case of agricultural property, where no part of the principal value was due to the expectation of an increased income, the principal value should not exceed 25 times the annual value as assessed under Schedule A of the Income Tax Acts, "After making such deductions as have not been allowed in that assessment and are allowed under the Succession Duty Act 1853, and making a deduction for expenses of management not exceeding 5 per cent of the annual value so assessed." I still maintain that you are making a valuation for agricultural property different from that which was laid down in the 1894 Act.
§ 4.0 A.M.
§ Mr. LLOYD-GEORGEThere is no change in the fundamental basis of valuation. The only difference is that with regard to the limitation of 25 years.
§ Mr. WALTER GUINNESSmoved to leave out Sub-section (2).
The Sub-section forbids the valuer to make any allowance for the fact that a large block of property is put on the market at once, and to that extent it orders that the valuation shall be made on a fictitious basis. I do not know whether the right hon. Gentleman intends this to apply only to personalty or also to realty. As far as one can see it must inevitably apply to all forms of property, because it applies to the Act of 1894, and that applies not only to personalty, which I think the right hon. Gentleman dealt with in his Budget speech, but also realty. If the fact that property is to be sold as a whole, in a large block, affects the value surely it is only fair, in assessing that value, that that fact should be taken into consideration, and consideration of this kind is absolutely necessary unless you want to get an unfair valuation, because, if it does not affect the real value, it is quite certain that no valuer would dream 2115 of taking it into consideration. At the present time the valuer asks himself what the owner would get if he chose to sell his property, and if he is convinced that the property is of such a character that it would not suffer by its being sold together there is, of course, no question of any reduction in value. In the majority, perhaps, of landed estates a larger price can be realised by selling the property as a whole, but I think cases may easily arise where the opposite is the case. In the cases of building estates many cases could be imagined where you would get a far larger valuation if you valued the property in small parts than if you took it as a whole. You might take every field separately on the assumption that there was someone willing to buy them. You would allow nothing for the loss of interest, nothing for the period during which the owner would have to wait before he would be able to dispose of the whole By adding all those separate parts together you might get a very much higher figure than could possibly be realised if the whole at any moment by anybody who was not going to hold it and develop. When the value is made up by a very large prospective element it is surely fair to discount the ultimate figure which you expect to bring in when you are taking the present prices.
I think the right hon. Gentleman has taken a very unfortunate moment for stiffening the regulations as to valuation, because at the same time by this Clause he is taking the appeal from the High Court and he is substituting an appeal from one official to another. Naturally this will cause owners of property, who being assessed, to look with very great suspicion on the valuations of officials, and I do think, although no one could ask for lenient valuation, that a fair valuation should be allowed, and that the owner should get the benefit of what the property is really worth. In the case of owners of shares I do not believe anything is taken off in the majority of cases owing to the largeness of the holding. The general practice in the case of securities which are marketable is to take a price one quarter up from the lowest price, and the only case where that practice is departed from is where the quotations are merely nominal, because the securities are so very slightly dealt in that there is no real market value. In those cases I think you can only proceed by valuation, and a valuer must take into 2116 account whether the price has been inflated by the fact that there is no stock on the market, and where, if there was a fair supply of stock, the nominal price would not be realised. I think that valuation, whether it be personalty or realty, must take into consideration all the circumstances of the case. I do not think this Clause will really have very much effect, because I think that valuers will take into consideration all the circumstances of the case. But if it does have any effect at all it must tend to restrict the power of the valuer to arrive at a fair value of the estate—the price, that is to say, what the owner would get if he put it in the market. I beg to move to leave out the Subsection (2).
§ Mr. LLOYD-GEORGEI do not propose to deal with that part of the hon. Member's speech which refers to agricultural land. That has been discussed very extensively, and I think the Committee, having regard to the fact that no division was pressed, agree that there will be no fundamental difference in that respect in the future. The real difference is as to the valuation of shares. What is the position? You are to value a whole block of shares belonging to a man on the assumption that they are all sold at a man's death. That gives a purely artificial value to those shares. What you really want to do is to take the ordinary business view of what an ordinary trustee or executor would do if realising the stocks and shares, and no-trustee or executor would ever dream of putting the whole thing in the market the day a man dies. There are very few stocks or shares that would bear it. Take a man whose stocks and shares are worth a million of money. Take a partner holding about a million's worth of shares in a company. If they were put on the market the very day a man dies, down would go the value of the shares. I am not sure that he would get half the value; he certainly would not get two-thirds. What we propose to do is to take into account what every prudent executor or trustee would do—adopt the best method of realising a property a man has left at his death—and that the valuation should be on that basis. I think it is the only fair way of approaching the question and the only way of getting at the real value and not creating a fictitious value created by an Act of Parliament.
§ Mr. AUSTEN CHAMBERLAINI think there is some cause of criticism, even in 2117 the statement made by the Chancellor of the Exchequer of what he desires to obtain. But I think what he is obtaining is more than he thinks he is asking. Consider such a case as to that mentioned; the case of a partner in a concern, or an investor, who dies. He is known to hold a very large block of shares in the concern. You seek to charge him on the market price on the day of his death. But it is just in that case that death affects the market price, and when his death becomes known the knowledge that a good many of his shares may have to come into the market does depress the market for those shares. In that case. I think the right hon. Gentleman, if he takes the middle market price of the day—that, I am under the impression, is the genera] rule prevailing now—would get something more than he ought to have, and something more than even the prudent executor could get.
§ Mr. LLOYD-GEORGEThat will be taken into account.
§ Mr. AUSTEN CHAMBERLAINThat will be taken into account under the new regulations? That is, the normal market price at the time of the death, when, as a matter of fact, the death itself is the cause of the change. I will not say that the words of an Act of Parliament may mean the exactly opposite of what they say, but it does seem odd. I think some account ought to be taken of the magnitude of a man's holding where that magnitude really affects the realisable value of the security. You have not to consider that his executors are going to take his property away, but you have to consider that they have got to realise a part of it. They axe not in the position of the man who, when living, might presumably keep his property indefinitely until a favourable moment came. I want to call the night hon. Gentleman's attention to a specific case just brought to my notice. A firm of solicitors wrote to my hon. and gallant Friend the Member for Chelmsford, and he has placed the letter in my hand. The firm in question have recently had to present the Inland Revenue Commissioners with an affidavit in connection with a deceased client's estate, part of which consisted of between £10,000 and £20,000 of stock, quoted in the official list at a certain price. Having doubts whether that price could be obtained, they took the advice of a firm of brokers who, having made enquiries in the market, found that the price at which the stock could be sold 2118 was considerably below the quoted price. The Inland Revenue authorities refused to accept the lower value on account, as they stated, of the express provision contained in the Finance Bill, and insisted on having the price quoted in the Stock Exchange list.
§ The POSTMASTER-GENERAL (Mr. Sydney Buxton)Because that was the official record.
§ Mr. AUSTEN CHAMBERLAINBut is the official record to stop all enquiries?
§ Mr. SYDNEY BUXTONCertainly not.
§ Mr. AUSTEN CHAMBERLAINThe Chancellor of the Exchequer agrees with ma that this ought not to happen. This firm of solicitors say that the brokers informed them that for reasons well known to them there had been no dealings in the stock for some time. In consequence of the Inland Revenue authorities refusing the valuation of the brokers, the solicitors again communicated with the latter and ascertained that the best offer was 9½ instead of 10. Then the solicitors give what they understand to be the explanation of this difference between the quoted price and the obtainable price. They say
We believe it is a matter of common practice that where there have been no dealings in a stock for a long time, as was the case here, it is a matter of common practice for the official list to maintain the price at which business was last quoted.The letter concludes:—We again pointed out to the Revenue Authorities our brokers' views, but were informed that the directions they had received on the passing of the resolution relating to the Finance Bill gave them no discretion to deal with the matter otherwise than by insisting on the official quotations, although they recognised the hardship.I have only just had this letter put in my hands by my hon. and gallant Friend, and I judge from the terms of the letter that the correspondents are not people to whom he is known personally. There is the statement of a firm of solicitors that the Inland Revenue authorities twice insisted on a value in excess of the realisable value, and alleging as their reason the recent instructions they have received in consequence of the provisions of this Bill. That cannot possibly be right, and I do not think the Chancellor of the Exchequer thinks it is right.
§ Mr. LLOYD-GEORGEI have no hesitation in saying that there is nothing in the Clause submitted by the Government which would justify the view taken by the right hon. Gentleman. The normal market price is the price that the property would 2119 fetch at that date. I understand from the right hon. Gentleman that a firm of solicitors took the correct view. They interpreted this Clause exactly as I have done.
§ Mr. HILLSI think a misunderstanding has arisen over the use of the word "normal," and this sort of thing often occurs. It is perfectly well known that the price marked for unmarketable securities is often not a real price. The word "normal" imparts rather an artificial price, and I would suggest that instead of the words "normal market price" the words "the actual price current at the time," or some words of that sort, would be better. The thing we want to avoid is the fictitious price. Perhaps the Chancellor of the Exchequer will consider these words, and find some other form of words to meet the case. I am sure he wants to meet it.
§ Mr. LLOYD-GEORGEWhat I want to get at is the real market price at the date of the death. I do not object at all to the substitution of some better word for "normal."
§ Mr. G. L. COURTHOPEI want to ask the right hon. Gentleman whether he will expressly confine it to personal property or, at all events, exclude rural real property for this Sub-section? Because, as I read it, I think it is quite possible that that Sub-section will be taken to have some express application to the valuation of real property as well as to the valuation of personal property, and it will mean great hardship if it is considered, as it might be, to suggest that the valuation of an estate should be made in small pieces and so a larger total made up than if the estate was valued as a whole. I think if the right hon. Gentleman was sincere in saying that he intended it only to apply to personal property he will find some words to confine this Sub-section to personal property.
§ Amendment agreed to.
§ Mr. HILLSproposed to leave out the word "normal" ["the Commissioners shall fix the price of the property according to the 'normal' market price"]
§ Mr. LLOYD-GEORGEI accept that.
§ Amendment agreed to.
§ Mr. AUSTEN CHAMBERLAINproposed to omit the words "at the time of" 2120 ["according to the market price 'at the time of' the death of the deceased"] and to insert instead thereof the word "on."
You are bound, absolutely, by the price before the death is known—before these estates become marketable; but the Chancellor of the Exchequer said you must take account of the fact that the Chancellor must act at the proper time. I think the words "at the time of the death" does limit the meaning. The Commissioners may hold the words to mean that they are limited to taking the actual price on the day the man dies. That is tying them too tight, and tighter than the Chancellor of the Exchequer desires. I am not certain whether my words are well chosen, but I do not think the words in the Sub-section are right.
§ Mr. LLOYD-GEORGEI quite agree with the object of the right hon. Gentleman. I think he stated the proposition very fairly, and I accept it. I do not think that if the value of shares is depressed by the mere fact that an individual who constituted the important element in the success of a concern dies, the value should be taken as if he were still alive. I will look into the matter, and if it is necessary I will undertake to bring up words on Report to meet the case put by the right hon. Gentleman.
§ Mr. AUSTEN CHAMBERLAINI ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Mr. HILLSI wish to move the omission of Sub-section (3) in order to raise the question of appeals. As I understand the Sub-section it takes away the right of appeal on the value of landed property. I ask if the Government intend to deal with this question on the same lines that they have followed in regard to other appeals.
§ Mr. LLOYD-GEORGEHas the hon. Member's attention been drawn to the Amendment I have on the Paper, which gives a very much better form of appeal.
§ Amendment made:
§ In Sub-section (3) to leave out the words "that question shall, on the application of the person aggrieved, be referred by the Commissioners to me or the Referee's appointed for the purpose of," and insert the words "he may appeal against the decision in manner prescribed by"—[Mr. Lloyd-George.]
2121§ Question proposed, "That the Clause, as amended, stand part of the Bill."
§ Mr. WALTER GUINNESSI should like to urge the Chancellor of the Exchequer to carefully reconsider the words "market price." The word "normal" has been moved out, but I do not think that in any way meets the real difficulty. The point is that the market price will be taken as the Stock Exchange quotation, whether it is the normal market price or market price alone. Stock Exchange quotations are not reliable in the case of stocks in which there is not a free market. Market price, even if it stands alone, is open to the same objection as the words "normal market price."