§ For the purpose of the valuation under the Finance (1909–10) Act, 1910, and the assessment of Increment Value Duty there-under, whenever the original site value of any land is less than nothing it shall be deemed to be nothing, and in cases where the original site value is nothing, or deemed to be nothing, on the first occasion for the collection of Increment Value Duty the increment value shall be deemed to be reduced by an amount equal to ten per centum of the site value on such occasion, instead of ten per centum of the original site value.
§ The new Clause which I propose to move has a marginal note which may, perhaps, rather astonish some Members. The Clause is, "To make provision for valuation resulting in minus quantities." This is a matter which is of very great importance, and when the House has listened to what I have to say I think hon. Members will consider that the case is absolutely unanswerable for making the Amendment for which I ask. The object of this Amendment is simply to prevent a man from having to pay Increment Value Duty until the site value of his property rises above zero. [An HON. MEMBER: "Rubbish!"] The right hon. Gentleman says "Rubbish!"
§ Mr. CASSELI understood the right hon. Gentleman to say so. I think he will find out before I have done that it is the Government Act which is rubbish and not the Amendment which I propose. One might almost think that this minus value was an algebraical problem. The Finance Act of 1909–10 gave us a few remarkable things, but the most remarkable of all was this minus value. On 24th October I asked a question as to how many valuations had up to 30th September resulted in minus quantities. The astounding reply that I received to that question was 30,610 valuations up to that date had resulted in minus quantities, and that the largest minus quantity ever arrived at was minus 7325. Just fancy what a man thinks who is told that the valuation of his property is minus 7325? This is not a small matter which may be dismissed with an airy wave of the hand of the right hon. Gentleman. 2242 I am going to show the right hon. Gentleman that there are many more cases than those given which resulted in minus quantities. In each of these pieces of land not only one person, but a large number of persons are interested, so that the thing affects thousands, and possibly hundreds of thousands of people. The particular cases with reference to which the answer was given were only cases in Scotland and Lancashire, and cases where the minus quantities resulted in this fact: that if there was a perpetual feu duty or a fee farm rent, and the capitalised value of that feu duty or fee-farm rent was greater than the value of the property itself. There were other cases, one of which was cited to-day as an example by the hon. Baronet (Sir F. Banbury), who gave a case he had himself where the minus quantity resulted from a different reason, but in that case the absurdity followed from the fact that the capitalised value of the feu duties or fee-farm rent was greater than the value of the land. That means that since the feu duty or fee-farm rent was imposed, the land failed to have any value. I put it that at least you ought not to charge an Increment Value Duty until the land has got back to the point where it is worth less than nothing. You ought not to charge Increment Duty until you gel back to zero. This is in strange contrast with one of the reasons given by the Prime Minister for the imposition of Increment Duty at all, because he distinguished land from all other classes of property on the ground that it had a certain continuous rise in value. In remarkable contrast to that, the fact is that about 10 per cent. of the valuations up to the 30th September have resulted in these, minus quantities, and show that since feu duty or fee-farm rents were imposed, the land must have fallen in value to the extent of the minus quantity. It is absolutely unworkable to apply the provisions of this Act at all to minus quantities.
I am quite sure the House, in passing the Finance Act, never had any idea in its mind that it was going to impose duties upon minus values. I contend there is no such thing as a minus value, and the first time these values come before the Court, the Courts will say that these minus values are mere nonsense. You cannot have a minus value any more than you can have a minus asset. To talk of minus value is in itself a contradiction in term, and it never was intended by this Act to tax them. In spite of this, we have 2243 actually got 36,000 cases. The Solicitor-General, whose absence we all regret, because he always treats us with such fairness and courtesy, defended himself by talking about Fahrenheit and Centigrade, but all the arguments about Fahrenheit and Centigrade would carry but cold comfort to the mind of a man who was told that the value of his property was minus £7,320.
I am sorry the hon. and learned Gentleman is not here, because if he were, I should like to challenge him on this amount of £7,320, and as to whether my statement is not correct. If the owner of that property was successful in giving it away, it would not be open to any deduction at all, for this reason: that a gift is something upon which Increment Duty is not charged. There are three cases in which Increment Duty is charged, namely, transfer on sale, on lease, and on death. So I put the proposition that a gentleman owning a property of minus £7,320 value, if he could get it away as a gift would pay no duty.
§ Mr. DEPUTY-SPEAKERIt seems to me the hon. and learned Gentleman is introducing rather a wider question than that opened up by his now Clauses on the Paper.
§ Mr. CASSELI will explain. The Clause is intended to do away with the payment of any duty until you get to zero, and to provide that there should be no Increment Duty payable until the value of the property rises to zero. Unless the Government accept this Amendment we have this extraordinary anomaly, that in the case of a man whose property had a minus value of £7,320 giving it away he would pay no duty at all, but if he sold it for £100 he would pay Increment Duty of £1,484, If the Attorney-General was here I am quite sure he would confirm the correctness of that proposition, because the man who sold his property for £100 would pay Increment Value Duty on the difference between £7,320 and £100, which would amount to £1,484. Anything more ridiculous than that has never been produced by any legislation submitted to reasonable men. It means that a man who sells something for £100 would have to sell out other investments in order to pay Increment Duty upon that sale. It is said it does not matter from what datum line you start, whether a minus datum line or a plus. I will show that a minus datum line is absurd and unworkable 2244 under the provisions of the Act itself. Take the case of the 10 per cent. allowance. The House decided that before you charge a man Increment Duty he should have 10 per cent. deducted from the amount of the increment before you assess the duty. That is under Section 3, Sub-section (5) of the Act. How are you going to apply that to a minus quantity? Supposing the minus £7,320 goes up to £4,300, that is an increment of £3,000. How are you going to deduct your 10 per cent. of the minus quantity? I think it would baffle the wit of man to apply 10 per cent. to the case of a minus quantity. Will the right hon. Gentleman give me an explanation in this particular case where there has been a rise from minus £7,320 to minus £4,320. How is the man to get the benefit of the 10 per cent. in that case? Since the right hon. Gentleman the Secretary to the Treasury did me the honour to call the Amendment rubbish I think I am at least entitled to ask him to explain how he proposes to deal with a 10 per cent. allowance in that case. Let me ask further how are you going to deal with the allowance under Section 25 (4). That Section provides that if a man spends money on making roads or improving his property he is allowed to deduct that from the total value when arriving at site value, so that he might be saved from paying Increment Value Duty on his improvements. If you have a minus quantity how will you apply that? Because if you deduct that it will make the minus quantity still greater. I have given a case of a property which is valued at minus £7,320. Let us assume that man spends £1,000 on making roads and under Section 25 (4) you want to give him the benefit. You want to give him the benefit of that Section, which provides that the value of the land means the total value after deducting any part of the value which the Commissioners deem directly attributable to works executed or expenditure of capital of the person interested in the land, or the gift of any land by any person for streets, roads, squares, or gardens. Supposing that Gentleman had spent £1,000 on the road, how are you going to give him the benefit of that deduction in case of a minus quantity? The result of this operation is that instead of saving Increment Duty you make him pay more. How are you going to make apportionments as between freehold and leasehold interests when you have a minus quantity? If the value of the fee simple is zero, what is the value of a leasehold interest for fifty years. 2245 I venture to tell the right hon. Gentleman that the whole of this attempt to get at minus values is absurd, and when it gets to the courts I think they will say that it is sheer nonsense. If any part of this Bill is likely to make a laughing-stock of the Government it is these minus quantities. In no legislation that has ever been passed by any reasonable body of men has there ever boon a provision which has led to results so inexplicable on the face of them, so ludicrous and wholly indefensible as these absurd minus quantities.
§ Mr. NEWMANI beg leave to second the Motion.
Mr. McKINNON WOODMy hon. and learned Friend has excelled himself in invective and strong expression, but the ludicrousness of the whole business is his misapprehension of what is meant by a minus quantity. He seems to think that a minus quantity represents the value of the land.
§ Mr. CASSELThe site value.
§ Mr. CASSELThat is what the valuers say.
Mr. McKINNON WOODIt means the value of the land less the rent charges upon it, and that is not the same thing as the value of the land. It is a purely artificial figure. It is not the figure of the value of the land, but the figure subject to the fact—the purely artificial fact—that a rent charge has been created on that particular land. The hon. and learned Gentleman says that he received the astounding reply that there has been 36,610 such cases. Why is it astounding, and what is there surprising about it? The hon. and learned Gentleman is doubtless more familiar than I am with the fact that it is the constant practice to take a piece of land, erect buildings upon it, and then create a feu duty or rent charge which exceeds the value of the land. I know the case in London of a building erected on land, and the actual rack rent of the building in the course of a few years was turned into a ground rent. I know of many cases where a permanent rent charge is created upon land which very considerably exceeds the value of the land. The Government could have said, "We will take the actual site value." What they did say is, "We will take the actual site value, and to arrive at the starting figure of 2246 assessable site value we will take the permanent rent charge." Of course, you arrive at the figure which is not the value of the land, and the absurdity of the whole case is supposing that it is the value of the land. The hon. and learned Member asked what you would do in case of a minus value of £7,300 where £1,000 had been spent on roads, and he said, supposing that land had gone up to zero, what would you do with that £1,000? You would take it off the difference before you arrived at the Increment Value Duty. What the hon. and learned Member proposes is that in all cases where you arrive at the minus quantity we should assume that it is zero, and start from zero.
Let us take a simple concrete case. Supposing you have a plot of land, the full site value of which is £100; there is no rate charged upon it of any kind, and that is the assessable site value. That is your original valuation. You start with that, and unless the land goes up to £200 after allowing for the 10 per cent. you charge your increment value on the difference. Supposing there was a rent charge of £200 on the same land, the value of the land is £100 just the same, but because you have decided to take off the fixed rent charge or feu duties and so forth, you arrive at a negative value of minus £100. Supposing those two identically similar sites both increase in value equally, they both go up £200, one would then be worth £200 assessment value and both of them would be worth £300 real site value, but in assessable site value one would be worth £300 and the other £100. What is there to distinguish between these two cases to justify one being subject to a different Increment value than the other. There is no reason under the sun why you should discriminate. The difficulty of my hon. and learned Friend really is not a difficulty in the nature of the case, but the difficulty arises merely because he has misapprehended what the nature of the case is. There is nothing to be surprised at. This is a concession to the landowners, and does my hon. and learned Friend say we ought not to take off the amount of the rent charge? If that is his view, and if that is the view of the party to which he belongs, I am sure the Chancellor of the Exchequer will not be altogether reluctant to consider his view. That is not what he wants. If you do maintain this concession of allowing for rent charges, you cannot help arriving at minus quantities. You will arrive at a great many, and there is nothing in the least to be surprised at.
§ Mr. J. M. HENDERSONMy right hon. Friend has laboured more or less under a misapprehension over this question. A man is assessed at his interest in the land. His interest in the land is a minus quantity—that is to say, his interest is so many pounds less than nothing. Suppose the property goes up, his interest in the land may still be worthless, and yet the Government propose to take Increment Duty from him for something which is still absolutely worthless and less than worthless. That will not commend itself to any man who can follow these things with anything like consecutive thought. Of course, it is only, I believe, in Scotland that up to now these minus quantities have come forward. [HON. MEMBER: "No, no."] It simply means that the land has for some reason or other gone down in value. The whole theory upon which these taxes are founded—and I have always been in favour of an Increment Tax—is that a man's interest in land increases and that upon that increment he should pay some duty to the State. The reason he pays that duty is because the State, the community, has increased the value. If the community have decreased the value, is it unfair to ask the community to stand till it gets back to the point at which Increment Value Duty is payable? Are you going to say, "We are going to take the increment which the community create and tax you on the decrement plus the increment which the community create?"
I cannot conceive of a position in which you are going to say to a man, "You have taken a feu duty. If you took that land to-day, you could get it so much cheaper." The Courts have decided over and over again that a man is not bound to reckon a loss until he realises it. If a man has bought a piece of land for £100, it is nothing to him that the value of adjacent land may have receded to £50. The law has decided he is entitled to take it and put it in his books at £100, and he is not bound to write off any loss upon it until he has actually realised it. Here is a man who has not realised it; he has not attempted to realise it, but you say to him, "We will realise it for you in figures at this moment." I say you have no right to do that. You have no right to say to him, "You have made a loss. If hereafter you recoup that loss, we are going to charge you duty to the extent to which you do recoup that loss." That cannot be right. It offends almost every principle of justice. My right hon. Friend cited a case of a plot of land at £100 and of another plot at 2248 £200. He was confusing two parties. He was taking in the one case the freeholder and in the other case the leaseholder. There cannot be any decrement in a freeholder; there cannot be a minus quantity in a freeholder. I never heard of a piece of land worth nothing. It is always worth something. It is only when it has a burden on it that it has a minus quantity.
The whole trouble has arisen in the very cumbersome way in which the House set out to find various values. If you look at the Act you will find this is how we have got to get at the assessable site value. You have to take the gross value, and the gross value minus the divested value equals the full site value. Having got that, you start again. The gross value, minus deductions for fixed charges, is the total value. Having got that, you start again. The total value minus the fixed charges plus works executed equals the assessable site value. Why should there be all this mathematical calculation to find out what was perfectly easy to find out in the records of all the valuers and assessors in the country? So far as Scotland is concerned, I have never yet been able to understand why this complicated method of valuation should be applied. You have in the valuation roll of Scotland the whole of the values, including also the feu duties, so there is absolutely not the slightest difficulty in getting at the value by any valuer, because the facts are all disclosed every year in the valuation roll. Of course, I know it is a mathematical formula of a Member of the Front Bench, who happens to be a Fellow of Trinity. If you look at the Section and work it out you will find I am exactly correct.
Of course, I can quite understand what my right hon. Friend says. He says: "Here is a piece of land that has a certain feu duty on it, and the feuer is bound to pay that feu duty. The gross value for both building and feu duty is so much. Deduct the feu duty, and it becomes a minus quantity, having regard to the price at which you could get the same land at that day. I say again, if I made a purchase of a feu which is, say, £10 a year, you will value the superior at £10 a year, and make no deduction for him. You have, on the other side, the feuer who is charged £10, and now, for the purposes of valuation, you put the other man down at £5. That cannot be right, because you have the same piece of land valued at two different sums. I do not know how far the Government will meet 2249 this case, but it seems to me an extraordinary thing, and I feel sure, with the hon. and learned Gentleman opposite, that [...] it comes to a Court of Law the judges will not understand it, and, if they do, they will put it aside. I appeal to the Government to come to a straightforward business proposition. If a man has bought land and made a loss, he is entitled, not to write that loss off, but to keep it as a cost to pay off when he realises it. If there is a profit, you are entitled to Increment Duty, but if there is a loss, you are not entitled to it. That is the plain basis of the thing, and it is nothing but justice.
§ Mr. AUSTEN CHAMBERLAINThe hon. Gentleman opposite has made an extremely clear statement, and I do not desire to add anything to what he has said on that part of the question over which he has traversed except this. I do not know how the hon. Member can expect the Government to meet him. It would indeed be to run counter to the whole principle of their legislation if we were now to provide that if a man has made a loss he should not be taxed as if he; had made a profit. The contention the hon. Member put forward to-day he himself, unless my memory misleads me, and many hon. Gentlemen on this side of the House, put forward repeatedly when the Finance Bill of 1909 was under discussion. He got no satisfaction, and we got no satisfaction, and now, two years after, not only is the hon. Member——
§ Mr. J. M. HENDERSONMinus quantities were never believed in or thought, of until last year. I was the first man to call the attention of the House to them, to the great surprise not only of the House, but also of the Government.
§ Mr. AUSTEN CHAMBERLAINNobody has been more surprised by their own case than the Government have and they have good reasons for it. I am not suggesting that the minus value could have been foreseen by the Government or anybody else when the Act of 1909 was under discussion. But the question whether a man should be taxed when he has made a loss was foreseen, and it was argued over and over again. In the argument I think the hon. Gentleman opposite gave his assistance.
§ Mr. AUSTEN CHAMBERLAINI accept the statement of the case by the hon. Member for West Aberdeenshire.
§ Mr. J. M. HENDERSONIf there is not a loss there cannot be a minus quantity.
§ Mr. AUSTEN CHAMBERLAINThe question is as to the intentions of the Government. Take the 10 per cent. allowance; that is intended to be universal. But can anybody say that a man whose property taxably is worth less than nothing is more deserving of the 10 per cent. than a man whose taxable interest is very valuable. You cannot apply the 10 per cent. in these cases, and the Government do not pretend that they can. There is a case under Section 25, which has already been referred to. My hon. Friend took the specific case of a man whose property site value was minus £7,000. He had spent £1,000 on roads, and it was asked how he would benefit? The right hon. Gentleman said, "You will deduct that from the difference between the original site value and the site value on the occasion before you tax it." Therefore, if the original site value was minus £7,000 and the present site value is nothing the difference is £7,000, and with the deduction of £1,000 spent on roads you fix the amount at £6,000. That apparently is the best case the Government can make out. Where is the right hon. Gentleman's authority? Not, I think, in the terms of the Act. I take it that the assessable site value of land means the total value after deducting any part which can be proved to be attributable to the works executed thereon. I am sorry there is no Law Officer present at this moment. This is a matter with which a Law Officer ought to deal. I think the answer which has been given is a very perfunctory answer. The Government deny there is any case worth consideration at all, and that reply, to my mind, is wholly unsatisfactory. I hope my hon. and learned Friend will insist on a Division as a protest against that answer.
§ Mr. LEIF JONESI really cannot understand how anybody with an elementary acquaintance of algebra can talk about minus quantities in the way the hon. Gentleman opposite has done. He does not seem to realise that a very little practice in handling minus quantities enables one to add or to subtract from one thing, and by thus handling minus quantities to convert them into positive quantities. This difficulty of minus site 2251 values arises solely from the policy adopted by the Government in deciding what they would call an assessable site value. They took the value arrived at after deducting the charge on the land, and they called the assessable site value the original assessable site value. If the property increases in value it is probable that the assessable site value has also increased. The hon. Member put forward a case in which the original assessable site value of a property represented a minus of £7,300, and it subsequently proved to be a minus value of £4,300. The hon. Gentleman says that to take an increase from a minus of £7,320, which becomes £4,320, is an absurdity.
§ Mr. CASSELI said it was unreasonable to put a tax upon an increment when it reached zero.
§ Mr. LEIF JONESThat raises a wholly different issue than was put forward by the right hon. Gentleman (Mr. Austen Chamberlain). It is wholly apart from the purpose of this Clause. The whole of the hon. and learned Gentleman's speech was to point out that there was no increase in value from minus £7,320 to minus £4,320, and that you ought to call both these quantities zero. I say the substraction of minus £7,320 from minus £4,320 is no more difficult than the substraction of £4,320 from £7,320, and the result is—as every boy in school with an elementary knowledge of algebra knows—£3,000, and that under the Bill is the taxable increment, subject to the 10 per cent. deduction. You are taxing not assessable site value, you are taxing the difference between the original site value and the site value on the occasion of the tax, and the difference between the two minuses must be a positive quantity, because there is an increase in value, and in the case in question it is £3,000, just as if the site value had increased from £4,320 to £7,320. The other question is as to whether it is right to tax a man whose property, owing to the fixed charges upon it, has a site value of minus £7,320, and then only rises to minus £4,320. That is quite another issue from that raised by the hon. and learned Gentleman.
§ Mr. CASSELNo.
§ Mr. LEIF JONESI think so. I want to enable the hon. and learned Gentleman to do these sums for himself without trouble, and I want to offer him a very simple formula which will dispense altogether with minus quantities. Let me in 2252 the case, both of the original site value and of the subsequent site value add £10,000. I will take his own case. We start from minus £7,320. Let him add £10,000 to that. I do not know whether the hon. and learned Gentleman's arithmetic will enable him to arrive at the result. The result is that there is a positive quantity resulting, which is £2,680, for £7,320 taken from £10,000 gives you £2,680. Let him add to the subsequent site value of minus £4,320 the £10,000. He will then reach a positive quantity of £5,630. Now let the hon. and learned Gentleman deal confidently with two positive quantities. Let him take his new original site value, arrived at by this process, of £2,680 from the £5,680 arrived at as the subsequent site value, and he will reach the identical result of subtracting the two minus quantities, namely, a positive quantity of £3,000. That, simple method of adding £10,000, or by adding £100,000, if he is dealing with larger quantities, to his site value will enable him always to deal with positive quantities which he understands, and not to meddle at all with those minus quantities which so befog and puzzle his mind. The hon. and learned Gentleman took the case of a landowner who had spent £1,000 on his property. Is there any difficulty in that? We have got £3,000 taxable increments, but £1,000 of that is due to the expenditure by the landlord of £1,000. The taxable increment is therefore not £3,000, but £2,000.
§ Mr. AUSTEN CHAMBERLAINWhere does the hon. Gentleman find in the Act any authority to treat that £1,000 in that way? The £1,000 is to be subtracted from the value, and it makes the minus smaller still.
Mr. McKINNON WOODIf the right hon. Gentleman will look at Section 25, Sub-section (4), he will find the fact is exactly as I stated it.
§ Mr. LEIF JONESMay I point out to the right hon. Gentleman another feature of elementary mathematics, which is that it does not in the least matter at what point in this long chain of mathematical operations you perform this subtraction of the £1,000.
§ Mr. AUSTEN CHAMBERLAINIt makes all the difference in the world whether you deduct the £1,000 from the value or from the difference between the two values. In the one case you increase the charge and in the other case you diminish it.
Mr. McKINNON WOODI should like to understand the point. Does the right hon. Gentleman really suggest that the £1,000 spent by hypothesis on roads will increase the increment?
§ Mr. AUSTEN CHAMBERLAINYes; that is the effect of the Act.
Mr. McKINNON WOODBecause I have had an opportunity of consulting the Chairman of the Board of Inland Revenue, and he agrees with my view. I hope that will be a relief to the right hon. Gentleman's mind.
§ Mr. LEIF JONESMay I point this out to the right hon. Gentleman. Supposing earlier in the chain we had got a site value which is increased from minus £7,320 to minus £4,320, the right hon. Gentleman says in that case the landlord has spent £1,000, and therefore the assessable site value on the occasion is not to be minus £4,320, but minus £5,320.
§ Mr. CASSELThe hon. Gentleman has misunderstood the point I made.
§ Mr. LEIF JONESMay I then go on. May I take this point. I think I have really got a case which illustrates the problem. We have got an original assessable site value of minus £7,320, which is increased to minus £4,320, but the landlord has spent £1,000 in improving the property. Therefore you are to subtract £1,000 in order to arrive at the site value, and instead of it being minus £4,320, the site value on the occasion is minus £5,320. That is making it smaller, says the right hon. Gentleman. Quite so, because you are deducting a fresh charge laid on the property by the landlord's expenditure, and therefore the assessable site value is smaller than if you had not spent that £1,000. You have made it minus £5,320 instead of minus £4,320, and that is quite right. If you take the minus £7,320 from the minus £5,320, you again arrive at the taxable increment of £2,000 which you would have arrived at at the end of the process instead of arriving at it earlier. There is really not any difficulty at all if hon. Members will accustom themselves, as they can do by an elementary course of algebra, to handling minus quantities with the same facility as positive quantities.
§ Mr. CASSELThe hon. Member has not really appreciated my point. The point was this. What we are to arrive at is the original site value, and you do it in 2254 this way. Your total value is minus £7,325. The total value is what you arrive at by deducting the capitalised value of the duty from the gross value. Having got that total value you then have to make the other deduction under Sub-section (4) of Clause 25. Assuming the deduction you have to make in respect of roads to be £1,000, how do you arrive at the original site value so as to give effect to the £1,000 spent on the roads?
§ Mr. LEIF JONESI think the hon. and learned Gentleman has now produced a fresh instance. I do not think it is necessary to go through the form again. If they were not the figures used by the hon. and learned Gentleman it is a possible case, and I hope I have succeeded in making it clear. It seems perfectly clear to myself. I very likely have failed, but I have endeavoured to put clearly before the Committee, without touching on the larger question raised by the right hon. Gentleman (Mr. Austen Chamberlain), how far it is right to tax this increment, which is an increment, although it has not resulted yet in getting back to the zero point which they regard as the proper starting point of taxation.
§ 10.0 P.M.
§ Mr. BONAR LAWIt is extremely interesting to know that the hon. Gentleman still remembers the mathematics which most of us have forgotten, although as a matter of fact I think he rather remembers that he once learned them, for when he rose after the interruption of my hon. and learned Friend (Mr. Cassel), I did not see that his instruction in elementary algebra and higher mathematics enabled him to apprehend in the least the point which my hon. and learned Friend made. As regards what has been said by the right hon. Gentleman (Mr. McKinnon Wood) that the Commissioners of Inland Revenue tells him that he does deduct this £1,000 for roads from a minus quantity, I am quite willing to believe that he does that, but I am not in the least willing to believe, without some argument, that he has any authority in the Act to deduct it in such a way as he points out. But the real point for which I have risen is that, like the hon. Member (Mr. J. M. Henderson), I do not think we should collect taxes by means of higher mathematics. We should levy them by means of commonsense. The hon. Member has put a question, and until the Government can give an answer to it, I do not see how they can go on levying taxes in this way. The 2255 question is: how can a man's interest in land be less than nothing unless he has made a loss, and if he has made a loss how in the world are you going to tax it. That is the whole case. It seems to me that elementary justice and elementary common sense also should lay this down as one of the most obvious maxims of taxation, that if you are imposing an Increment Value Tax you should not impose it on a man because he has made a loss. What my hon. and learned Friend is trying to do, and what, I believe, his Amendment does, is simply this, to ask the Government to take the view that is now taken by every Court of Law, that a man is not bound to consider that he has made a loss because the nominal value of his property has fallen until he is compelled to realise. What the Government do is to compel him in practice, to realise his property at the wrong time for him, and then, because of that, to tax him on account of his having to realise it. All through the discussions on this Finance Bill I did not feel, and I think the majority of my Friends behind did not feel, that the Increment Tax, provided it was really levied on profits, was anything more than unfair for this reason, that it did not go all round. We do not say it is an improper form of tax if it applies to every kind of property, but since it is shown by practice, and by the experience of the working of the Act, that what you do is to tax for increment a man who has made a loss, it is the clear duty of the Government to reconsider the position and put an end to so scandalous a method of collecting taxes.
§ Mr. M'CURDYI think on the subject of minus quantities it is obviously suitable that private Members might be heard. The interesting speech we have heard from the hon. Member (Mr. Leif Jones) made me hope it might be possible, when we are revising the procedure of the House, that the use of the blackboard may be permitted. The Finance Act of the late Government is at any rate having one useful effect, and that is that it is encouraging the study of mathematics and arithmetic by hon. Gentlemen opposite. On this occasion I think they have been misled very much by the remarks of the hon. Member (Mr. J. M. Henderson). Both the right hon. Gentlemen opposite (Mr. Austen Chamberlain and Mr. Bonar Law) founded their remarks expressly upon the question put by the hon. Member (Mr. 2256 J. M. Henderson) as to whether it was possible that there could be a minus quantity where there was no loss. I think I can satisfy the House that there has been a confusion between two entirely separate subject matters. The question of whether there has been a loss upon the property has now, by a Sub-section of Clause 2, which was in virtue of a pledge given by the Chancellor of the Exchequer, further amended in the Revenue Act, been satisfactorily dealt with. That is Sub-section (3) of Section 2 of the Act which, as originally passed by the House, provided that where it was proved to the Commissioners that the site value of any land, at the time of any transfer on sale of the fee simple of the land which took place at any time within twenty years before 30th April, 1909, exceeded the original site value as on 30th April, 1909, there should be substituted for the purpose of Increment Value Duty the site value at that time for the original site value as ascertained under the Act. Everyone remembers that that was extended so as to cover the entire lifetime of the purchaser. If there is any case of loss arising, the purchaser is protected. If there has been any loss sustained—any depreciation in value—between the time the purchaser first bought it and the time when the Increment Value Duty has to be paid, the vendor is now protected by the provisions of Clause 2.
Minus quantities do not arise in connection with these losses at all. Minus quantities are another branch of the subject altogether. They arise, irrespective of loss or profit, in this way. I purchase to-day a plot of land of the value of £100; £5 a year is the annual value. I put upon it buildings of the value of £500. The value of the plot of land, with the buildings upon it, is now £600. You can now charge upon that land a perpetual ground rent, a Feu Duty, or whatever the Scots legal expression may be, of £10 or £15, and that £10 or £15 will be reasonably, though perhaps not amply, secured by the value of the house and the buildings put upon the land. The value of the man's property is the value of the house and the land less the value of the rent charge which he created, for which, presumably, he has received the full market consideration at the time of its creation. When you come to make an assessment for the purposes of Increment Value Duty under this Act you do not make it upon the total value of the man's land and house. You proceed to take away such portion of that 2257 value as represents the value of the building—the superstructure value, as the Solicitor-General called it. The result is that when you artificially divide the property into two halves for the purpose of taxation, taking the value of the buildings on the one hand and the value of the land on the other, you will, of course arrive, if no rent charge has been created, at the position at which you started, the building value of £500, and the land value of £100; but if in the meantime you create a rent charge which is secured by both, and that rent charge is a charge of £10 a year—of the value of say £250—then under the Act that rent charge is to be deducted from the full site value in order to arrive at the total value. Section 25, Sub-section (3), of the Finance Act, 1909–1910 says,
The total value of land means the gross value after deducting the amount by which the gross value would be diminished if the land were sold subject to any fixed charges.…Therefore the whole of the argument of the right hon. Gentleman the Member for East Worcestershire (Mr. Austen Chamberlain), expressly and avowedly based on the statement of my hon. Friend the Member for West Aberdeenshire (Mr. J. M. Henderson), that there could be no minus quantify except where the owner of the property has sustained a loss, disappears, and the argument of the right hon. Gentleman the Leader of the Opposition, expressly and avowedly based upon his inability to answer the same conundrum of how there could be a minus quantity arrived at by the valuation where the owner of the property sustains no loss, suffers the same fate.
§ Mr. BONAR LAWWhat I wish to know is how you can tax a man for increment where the taxable interest is less than nothing?
§ Mr. M'CURDYThe absence of a blackboard makes explanation not so easy and simple a matter as it otherwise would be. But I think I can explain the right hon. Gentleman's difficulty to him. He must remember that the taxable interest is
§
neither the original assessable site value nor the site value on the occasion. He asks, What is it? Section 1 of the Finance Act, 1909–10, gives the answer. In the first three lines it says,
Subject to the provisions of this Part of this Act, there shall be charged, levied and paid on the increment value of any land a duty, called Increment Value Duty …
The only value on which Duty is payable is Increment Value, and therefore I think I shall be able to answer the question of the right hon. Gentleman. Although assessable site value may be a minus quantity, there may be a positive increment value which may properly be taxed. To explain this in detail it would only be necessary to repeat the perfectly lucid speech of my hon. Friend above the Gangway. Let me take a simple illustration in order that the right hon. Gentleman may follow me the more easily. Let me take the case of a plot of land worth £100, a house of the value of £500 put upon it, and a rent charge of £10 a year by marriage settlement in favour of the owner's wife. Let us assume that owing to the opening of a tube railway undoubtedly all land in the neighbourhood doubles in value. The assessable site value on 30th April, 1909, was £100, being the value of the land divested of the buildings, less £250 value of the rent charge. The value of the assessable site value upon the occasion is £200, less the same deductions as before. There is an obvious increment in value which will be immediately reflected in the market price if the property is put upon the market. It is upon the positive increment value of £100 that the Government levy the modest tax which is imposed. I think I have answered the right hon. Gentleman. I do not hope to satisfy my hon. Friend the Member for West Aberdeenshire, but I trust the explanation is satisfactory to the rest of the House.
§ Question put, "That the Clause be read a second time."
§ The House divided: Ayes, 108; Noes, 188.
2261| Division No. 447.] | AYES. | [10.15 p.m. |
| Anson, Rt. Hon. Sir William R. | Barrie, H. T. (Londonderry, N.) | Burn, Col. C. R. |
| Ashley, W. W. | Bathurst, Hon. A. B. (Glouc, E.) | Butcher, John George |
| Astor, Waldorf | Bathurst, Charles (Wilton) | Campion, W. R. |
| Bagot, Lieut.-Colonel J. | Beach, Hon. Michael Hugh Hicks | Carlile, Sir Edward Hildred |
| Baird, J. L. | Beck, Arthur Cecil | Cave, George |
| Baldwin, Stanley | Bigland, Alfred | Cecil, Lord R. (Herts, Hitchin) |
| Banbury, Sir Frederick George | Bird, A. | Chaloner, Colonel R. G. W. |
| Banner, John S. Harmood- | Boyton, J. | Chamberlain, Rt. Hon. J. A. (Worc'r) |
| Barlow, Montague (Salford South) | Bridgeman, W. Clive | Chaplin, Rt. Hon. Henry |
| Courthope, G. Loyd | Ingleby, Holcombe | Rutherford, John (Lancs., Darwen) |
| Craig, Norman (Kent, Thanet) | Jardine, E. (Somerset, E.) | Salter, Arthur Clavell |
| Craik, Sir Henry | Kerr-Smiley, Peter Kerr | Sanders, Robert A. |
| Denniss, E. R. B. | Kerry, Earl of | Sanderson, Lancelot |
| Dixon, C. H. | Knight, Captain E. A. | Sandys, G. J. (Somerset, Wells) |
| Doughty, Sir George | Larmor, Sir J. | Smith, Harold (Warrington) |
| Du Cros, Arthur Philip | Law, Rt. Hon. A. Bonar (Bootle) | Starkey, John R. |
| Eyres-Monsell, Bolton M. | Lewisham, Viscount | Staveley-Hill, Henry |
| Fell, Arthur | Lockwood, Rt. Hon. Lt.-Col. A. R. | Stewart, Gershom |
| Fletcher, John Samuel (Hampstead) | MacCaw, Wm. J. MacGeagh | Swift, Rigby |
| Foster, Philip Staveley | Mackinder, H. J. | Sykes, Alan John (Ches., Knutsford) |
| Gardner, Ernest | Macmaster, Donald | Talbot, Lord E. |
| Gibbs, G. A. | Magnus, Sir Philip | Terrell, G. (Wilts, N. W.) |
| Gilmour, Captain J. | Malcolm, Ian | Thompson, Robert (Belfast, North) |
| Gordon, John (Londonderry, South) | Mason, James F. (Windsor) | Thynne, Lord Alexander |
| Goulding, Edward Alfred | Mount, William Arthur | Tobin, Alfred Aspinall |
| Grant, J. A. | Newdegate, F. A. | Tryon, Capt. George Clement |
| Greene, W. R. | Newman, John R. P. | Valentia, Viscount |
| Gretton, John | Nicholson, William G. (Petersfield) | Ward, Arnold (Herts, Watford) |
| Haddock, George Bahr | Orde-Powlett, Hon. W. G. A. | Warde, Col. C. E. (Kent, Mid) |
| Hamersley, A. St. George | Pease, Herbert Pike (Darlington) | White, Major G. D. (Lancs., Southport) |
| Hamilton, Marquess of (Londonderry) | Peel, Captain R. F. (Woodbridge) | Willoughby, Major Hon. Claud |
| Harris, Henry Percy | Pole-Carew, Sir R. | Worthington-Evans, Laming |
| Henderson, Major H. (Berks., Abingdon) | Pretyman, Ernest George | Yate, Col. C. E. |
| Henderson, J. M. (Aberdeen, W.) | Pryce-Jones, Col. E. | Younger, Sir George |
| Hills, John Waller | Rawlinson, J. F. P. | |
| Hope, Harry (Bute) | Rothschild, Lionel de | TELLERS FOR THE AYES.—Mr. Cassel and Sir W. Bull. |
| Hume-Williams, W. E. | Royds, Edmund | |
| NOES. | ||
| Abraham, William (Dublin Harbour) | Furness, Stephen W. | Lynch, A. A. |
| Acland, Francis Dyke | Gelder, Sir W. A. | Macdonald, J. M. (Falkirk Burghs) |
| Adamson, William | George, Rt. Hon. D. Lloyd | Macphersen, James Ian |
| Ainsworth, John Stirling | Gibson, Sir James P. | M'Callum, John M. |
| Allen, Arthur Acland (Dumbartonshire) | Gill, A. H. | M'Curdy, C. A. |
| Allen, Charles P. (Stroud) | Gladstone, W. G. C. | McKenna, Rt. Hon. Reginald |
| Armitage, R. | Glanville, H. J. | M'Laren, Hon. H. D. (Leics.) |
| Baker, Harold T. (Accrington) | Guest, Hon. Frederick E. (Dorset, E.) | M'Laren, Hon. F. W. S. (Lincs., Spalding) |
| Baker, Joseph A. (Finsbury, E.) | Hackett, J. | M'Micking, Major Gilbert |
| Barlow, Sir John Emmott (Somerset) | Hall, Frederick Normanton) | Markham, Sir Arthur Basil |
| Barran, Sir J. N. (Hawick) | Hancock, J. G. | Marks, Sir George Croydon |
| Barton, W. | Harcourt, Rt. Hon. L. (Rossendale) | Marshall, Arthur Harold |
| Benn, W. W. (T. Hamlets, St. George) | Harcourt, Robert V. (Montrose) | Masterman, C. F. G. |
| Bentham, G. J. | Harvey, A. G. C. (Rochdale) | Meehan, Francis E. (Leitrim, N.) |
| Black, Arthur W. | Harvey, T. E. Leeds, W.) | Meehan, Patrick A. (Queen's Co.) |
| Bowerman, C. W. | Harvey, W. E. (Derbyshire, N. E.) | Morrell, Philip |
| Brunner, John F. L. | Haslam, James (Derbyshire) | Munro, R. |
| Burke, E. Haviland- | Haslam, Lewis (Monmouth) | Murray, Captain Hon. Arthur C. |
| Burns, Rt. Hon. John | Havelock-Allan, Sir Henry | Needham, Christopher T. |
| Burt, Rt. Hon. Thomas | Haworth, Sir Arthur A. | Nolan, Joseph |
| Byles, Sir William Pollard | Hayden, John Patrick | Norton, Captain Cecil W. |
| Carr-Gomm, H. W. | Hayward, Evan | O'Brien, Patrick (Kilkenny) |
| Cawley, Sir Frederick (Prestwich) | Helme, Norval Watson | O'Connor, John (Kildare, N.) |
| Cawley, Harold T. (Heywood) | Henderson, Arthur (Durham) | O'Connor, T. P. (Liverpool) |
| Chapple, Dr. W. A. | Henry, Sir Charles S. | O'Doherty, Philip |
| Clough, William | Higham, John Sharp | Ogden, Fred |
| Clynes, John R. | Hinds, John | O'Grady, James |
| Collins, Stephen (Lambeth) | Hobhouse, Rt. Hon. Charles E. H. | O'Shee, James John |
| Condon, Thomas Joseph | Hodge, John | Parker, James (Halifax) |
| Cornwall, Sir Edwin A. | Holt, Richard Durning | Pearce, Robert (Staffs, Leek) |
| Cotton, William Francis | Hope, John Deans (Haddington) | Pearson, Hon. Weetman H. M. |
| Cowan, W. H. | Horne, C. Silvester (Ipswich) | Pease, Rt. Hon. Joseph A. (Rotherham) |
| Crawshay-Williams, Eliot | Howard, Hon. Geoffrey | Ponsonby, Arthur A. W. H. |
| Crumley, Patrick | Hudson, Walter | Power, Patrick Joseph |
| Dalziel, Sir James H. (Kirkcaldy) | Hughes, S. L. | Price, C. E. (Edinburgh, Central) |
| Davies, E. William (Eifion) | Isaacs, Rt. Hon. Sir Rufus | Raffan, Peter Wilson |
| Davies, Timothy (Lincs., Louth) | Johnson, W. | Raphael, Sir Herbert H. |
| Dawes, J. A. | Jones, Edgar (Merthyr Tydvil) | Rea, Walter Russell (Scarborough) |
| De Forest, Baron | Jones, H. Haydn (Merioneth) | Reddy, Michael |
| Denman, Hon. R. D. | Jones, Leif Stratten (Notts, Rushcliffe) | Rendall, Athelstan |
| Doris, W. | Jones, William (Carnarvonshire) | Richardson, Albion (Peckham) |
| Duncan, C. (Barrow-in-Furness) | Jones, W. S. Glyn- (Stepney) | Richardson, Thomas (Whitehaven) |
| Edwards, Enoch (Hanley) | Jowett, F. W. | Roberts, Charles H. (Lincoln) |
| Edwards, Sir Francis (Radnor) | Keating, M. | Roberts, Sir J. H. (Denbighs) |
| Edwards, John Hugh (Glamorgan, Mid) | Kellaway, Frederick George | Robertson, Sir G. Scott (Bradford) |
| Elibank, Rt. Hon. Master of | King, J. (Somerset, N.) | Robertson, J. M. (Tyneside) |
| Elversten, Sir Harold | Lambert, G. (Devon, S. Molton) | Roch, Walter F. (Pembroke) |
| Essex, Richard Walter | Law, Hugh A. (Donegal, West) | Roe, Sir Thomas |
| Esslemont, George Birnie | Lawson, Sir W. (Cumb'rld, Cockerm'th) | Rowlands, James |
| Falconer, J. | Levy, Sir Maurice | Rowntree, Arnold |
| Ferens, T. R. | Lewis, John Herbert | Scanlan, Thomas |
| Ffrench, Peter | Low, Sir F. (Norwich) | Seely, Col. Rt. Hon. J. E. B. |
| Fiennes, Hon. Eustace Edward | Lundon, T. | Sherwell, Arthur James |
| Shortt, Edward | Trevelyan, Charles Philips | Whitehouse, John Howard |
| Smith, Albert (Lancs., Clitheroe) | Ure, Rt. Hon. Alexander | Williams, J. (Glamorgan) |
| Spicer, Sir Albert | Wadsworth, J. | Williams, P. (Middlesbrough) |
| Stanley, Albert (Staffs, N. W.) | Ward, John (Stoke-upon-Trent) | Wilson, Hon. G. G. (Hull, W.) |
| Summers, James Woolley | Ward, W. Dudley (Southampton) | Wilson, W. T. (Westhoughton) |
| Sutton, John E. | Wardie, George J. | Wood, Rt. Hon. T. McKinnon (Glas.) |
| Taylor, John W. (Durham) | Watt, Henry A. | Yoxall, Sir James Henry |
| Tennant, Harold John | Webb, H. | |
| Thomas, J. H. (Derby) | Wedgwood, Josiah C. | TELLERS FOR THE NOES.—Mr. Illingworth and Mr. Gulland. |
| Thorne, G. R. (Wolverhampton) | White, J. Dundas (Glasgow, Tradeston) | |
| Toulmin, Sir George | White, Patrick (Meath, North) |
§ Mr. CASSELIn view of the last Amendment having taken some time, I do not propose to move the next which stands on the Paper in my name. With regard to the third Amendment in my name, in reference to tobacco, I can see that it is impossible to introduce any change in the duties at present, but I have put it on the Taper in order that the Chancellor of the Exchequer may have in mind the fact that the small tobacconists and retailers are feeling the effect of the tax extremely. I believe they have presented a memorial to him on the subject. I do not propose to proceed further with the new Clause standing in my name on the Paper in regard to the Tobacco Duties.
§ Mr. NEWMANI beg to move that the following new Clause be read a second time:—