§ Mr. PRETYMAN
I desire to raise a point arising out of a question asked by the hon. Member (Mr. Royds) on Wednesday last. My hon. Friend asked the Chancellor of the Exchequer—whether, in view of Mr. Justice Horridge's recent decision in the case of the Commissioners of Inland Revenue v Lumsden, whereby payment of Increment Value Duty was directed to he made on a builder's profit and where there had admittedly been no rise in the value of the site, he will introduce legislation to indemnify owners of houses and land against liability for payment of Increment Value Duty in cases where there has been no rise in the value of the site since 30th April, 1909?Mr. Lloyd George: Payment of Increment Value Duty was due on the case referred to in the question because the builder realised a price considerably in excess of the combined market value of the laud and the building erected by him. In estimating the increment value full allowance was made for the value of the house, including builder's profits; and the excess of price over value was in the nature of a fortuitous windfall, which under the Statute is liable to taxation I do not propose to introduce amending legislation."—[OFFICIAL REPORT, 22nd January, 1913, cols. 406–7.]The point which I propose to raise is not the effect or the legality of this judgment, as the matter will probably come before the Court of Appeal. I desire merely to state the facts and to quote certain definite pledges and statements made by the Chancellor of the Exchequer, to compare those 1466 statements with the claims which are now made under his directions, and to ask him how he proposes to make his pledges good. The facts are that a builder, a Mr. Lumsden, of Newcastle, erected a house during the year 1909 upon a plot of land which he had purchased, and the house and land were subsequently valued at a total of £625. Mr. Lumsden, like many thousands of others, not understanding the consequences of not objecting, made no objections within the statutory sixty days, and that £625 became statutorily fixed and incapable of alteration as the value of the premises. He sold the house and land three months later for £750, on which the Commissioners served him with a notice of £125 of increment, and claimed Increment Value Duty of £22. The case came before a Referee, and has recently come before the High Court, and the material point is that in the evidence it was stated, and it was definitely accepted by the Crown, both in the High Court and before the Referee, that the site upon which the house stood, the bare land, had not altered by a halfpenny, but the builder had sold the house and land together at a profit, and the claim of the Crown was that the builder's profit, being in the nature of a fortuitous profit, came under the head of increment, and was chargeable with Increment Value Duty. That is the claim which is made by the Chancellor of the Exchequer in the reply to my hon. Friend, and that is how the matter stands.
I desire to place before the House the definite pledges and statements which were made by the Chancellor of the Exchequer as to how Increment Value Duty was to be charged at the time the Act was passed. First of all, I will say that nobody can produce a single statement made during the passage of the Bill which indicates that there was any intention on the part of the Chancellor of the Exchequer or the Government to charge Increment Value Duty upon profits. The whole ground and basis for the charge of Increment Duty was that it was only to be charged on that part of the increase on the bare land which was attributable to the growth and action of the community, and that the object was to specially guard the subject against any levy of duty upon profits apart from any increase in the value of the bare land due to the growth of the community. But in the course of the passage of the Bill, as the Chancellor of the Exchequer will very well remember, there was a shifting 1467 of the Clauses. In the Bill, as originally introduced, the deduction on the "occasion" and the original deductions were repeated verbatim. That was departed from at a later stage, and it was anticipated on this side of the House that that might give rise to some claim of this kind, and the then Leader of the Opposition (Mr. Balfour) raised that very point. He then received assurances in this House, which I have not time to quote in full, but which are well known to the Chancellor of the Exchequer. They have recently been stated in the Press. I desire now to quote the definite statements which have been made in writing by the Chancellor of the Exchequer on this very point. I have here three definite statements by the right hon. Gentleman, and I will take them in chronological order. The first was written to the hon. Member for Tottenham (Mr. Alden) on 28th October, 1909. It is signed "D. Lloyd George," and the first sentence is quite sufficient for me. It is in these terms:—Unless the bare value, of the land, apart from anything done to it in the meantime, had risen while the house was being constructed, he would not be taxed at all.If that is not plain language, I do not know what is. The second letter was written to Mr. Lowell on 5th December, 1910, and in that letter, which is signed by "R. G. Hawtrey," he says:—I am desired by the Chancellor of the Exchequer to inform you that in the case quoted by the solicitor, if the house was built and cost £400 on a site worth £100, and was sold for £600,"—a case absolutely parallel to this one in every particular—not merely is it a complete mistake to suppose that duty will be payable on the sale price for the site value, subject to the 10 per cent, allowance, but duty would not even be payable on the builder's profit. From the price of £000 obtained on sale there would be deducted not merely the cost price of the house, but the whole value attributable to the house, unless there were extraneous causes tending to produce an increase in the value of the bare site.No such causes are alleged in this case—
§ Colonel GREIG
Is the hon. Member at liberty on a bare statement in a case still sub judice to ask the House to go into the question of what may be decided hereafter?
§ Mr. SPEAKER
The hon. Member is calling attention to what was said in this House or during the passage of the Bill. I do not see anything out of order in that.
§ Mr. PRETYMAN
In this case it is admitted that there has been no increase in the value of the bare site at all.The amount attributable to the value of the house would be the whole additional sum of £500,What could be plainer than that? The third letter is dated 22nd December, 1910, and is signed "W. H. Clarke," and begins,I am directed by the Chancellor of the Exchequer.Here is the point:—If when you sell your properly, the value of the bare land has not increased over the corresponding value on the 30th of April, 1909, the Increment Value Duty would not be payable.Here is a case where it was admitted in the Referees Court on behalf of the Crown, when the Solicitor-General was present, that the value of the bare land had not increased. If the quotation is wanted I have it here:—Mr. Stanley then called Mr. Howell Davies, deputy chief valuer for England and Wales, who gave evidence in favour of the Commissioners assessment accepting the effect of the valuation as on April 30th. 1909, and as on the occasion of the sale. He stated that in his opinion there had been no rise in the value of the land, but he thought that nevertheless the amount of Increment Duty had been correctly ascertained.That is the evidence before the Referee. There was no rise in the value of the land, and yet Increment Value Duty was payable. Of course, obviously that builder had proceeded knowing the statement of the Chancellor of the Exchequer.If, when you sell your property, the value of the bare land has not increased over the corresponding value on the 30th of April, 1909, the Increment Value Duty would not be payable.Yet a claim is made on behalf of the Chancellor of the Exchequer now by the Commissioners of Inland Revenue, in direct opposition to the statement which was made to the builders, and to these correspondents in the letters written by the Chancellor of the Exchequer. I could say a great deal upon the consequences of these claims, but in the half-hour which we have I confine myself to the point, that the Chancellor of the Exchequer has made to the building trade and to the country definite statements, and those statements were in consonance with all the statements made on behalf of the Government when the Bill was passing through its various stages. One more point: When all these letters were written on 21st January, 1911, we found the origin of these claims. The origin of those claims was the Instruction laid upon the Table of the House, and issued to the Revenue Department of the 1469 Inland Revenue Commissioners. In that Instruction these words occur:—By this method——that is the method of valuation prescribed—the following results should be obtained: Increment value should he collectable in all cases where the unit of valuation or the interest therein has actually been sold for more than its worth at the time.That is the claim. It amounts to this, that the House was told, and the Chancellor of the Exchequer's correspondents were told, that the Increment Value Duty would be levied on the actual increase of the bare land due to the growth of the community. The Increment Value Duty is actually being claimed, and the price at which the property is sold differs from the figure which the Commissioners have fixed as its value. It is an absolutely different proposition from, and absolutely contrary to, the statement made when the Bill was introduced, and absolutely contrary to the pledge, which I have said was made to the House by the Chancellor of the Exchequer. I only ask now that the Chancellor of the Exchequer shall fulfil his pledges, and if the Law Officers advise him that the law allows him to withdraw this claim, which has never been authorised by the House of Commons—it is an official ramp, if I may use the expression—then the Chancellor of the Exchequer should amend this Instruction and should levy the duty upon the value of the bare land. If the law cannot be amended, I ask the Chancellor of the Exchequer if he is prepared now—his words have been quoted— to make good the pledge which he gave, and to bring the law into accordance with the statement he made in the House, and the pledges he has given since?
§ The FINANCIAL SECRETARY to the TREASURY (Mr. Masterman)
When I had to answer a similar charge last July, the charge was a somewhat different one— differing in character, though emphasised with similar violence. The hon. Member then stated that we were levying the tax against the authority of Parliament. He stated that we had given instructions to the Inland Revenue authorities behind the Act passed by this House and against the Act passed by this House. We then pleaded that the case was sub judice, but he was confident that the Land Union was going to obtain a victory, and brushed aside that plea. The authorities of Somerset House, he said, were levying taxes that were never authorised by this House.
§ Mr. MASTERMAN
In face of the judgment you have received and examined, and the pleadings which were advanced by your union? I thought in this House the judges' verdicts stood without challenge until they were upset, and I am amazed that the hon. Gentleman should come down to this House and declare, in view of that serious judgment, that he still believes the judge is absolutely wrong in his law.
§ Mr. PRETYMAN
I made no such statement as that. I imagine it would have been out of order. Of course it is not for me to decide what is a point of Order; I leave that to the Chair, but I never thought of making such a statement. I carefully guarded myself against saying one word about the judgment. My statement was absolutely the same as that I made before, namely, that the House had never knowingly authorised any such tax as this, and that the wording of the Statute was based upon—[HON. MEMBERS: "Order, order."]
§ Mr. MASTERMAN
The hon. and gallant Gentleman never said anything of the kind. He never said the House never knowingly authorised. He said that the considered determination of one of the judges of the High Court was associated with an official ramp done by the Inland Revenue. I have some experience of the hon. and gallant Gentleman in controversy, and I think sometimes when he makes charges he really does not know what he says. What are the facts of this case?
§ Mr. MASTERMAN
We had not the advantage of the criticism of the hon. Gentleman who interrupts when the Bill was being passed through Parliament. Therefore I may suggest that my remembrance of what did actually happen is fresher than that of the hon. Gentleman.
§ Mr. MASTERMAN
I would appeal to the hon. and gallant Gentleman, and anyone else who was present during these long Debates will remember that there were changes in the Bill, there was a shifting of Clauses from place to place, and alterations made as the result of criticisms, but I on this one point there never was, from the 1471 day the Bill was introduced until it was passed, any doubt on the point now challenged, never any doubt at all as to how we measured Increment Value Duty. The method by which you obtained the subject matter of that Increment Value Duty was to subtract from the money actually paid, that is the consideration, the total value which is attributable to the building on the land at the time of the event.
§ Mr. MASTERMAN
The hon. Gentleman occupied a good deal of time, and he has referred outside and in the Press to what he calls alterations which were made in connection with speeches made by Lord Robson in connection with criticisms of the right hon. Gentleman the Leader of the Opposition. I remember the Debate at the time, and I have refreshed my memory. The references which he has given are utterly irrelevant to the point at issue, and the changes which were made in the Act, now embodied in the Act, in response to the appeal made by the right hen. Gentleman the Member for the City— changes which dealt with the point utterly unaffected by the question of whether you deduct from the consideration the value attributable to the buildings. What the right hon. Gentleman said was that in your first estimate of value you estimate the value of the building, in your second estimate of value you estimate the value attributable to the building. He said those might be quite different entities. Lord Robson agreed and said it would not be fair because you might be taxing builders' profits, which we did not intend to tax, and do not tax. Therefore ho promised that the like deduction should be made in one case as the other, and that if you deduct the value attributable to the buildings in the one case you do the same in the other. That change was made in the Act, and that is the change under which the authorities of the Inland Revenue are working. The hon. and gallant Gentleman says that we are taxing builders' profits. He says that the promise which has been made by the Chancellor of the Exchequer that all value which can be attributable to the buildings at the time the land and building together are sold, has not been deducted. He suggested to the House that in that very case, which he says now is in the Court of Appeal, 1472 profit made by the builder has been taxed or claimed to be taxed by the Inland Revenue. Nothing could be further from the facts than that. The cost of the building was estimated at a certain sum and put in at a certain sum. A claim was made by the builder for a value attributable to the building very much greater than the cost of the building, legitimate builders' profits due to the skill and foresight of the builder. I have got the actual figures here. Though the actual cost of the building was only some £280, our valuers allowed on the claim of the builder a value attributable to the building of £430. That was very nearly twice as much. The statement that the hon. Member has allowed to go forth in the Press that we only deduct the builder's cost of building when we come to estimate the proportion which ought to be the right subject of Increment Value Duty is an absolute travesty of the facts. What we say is that we give the builder all the value of the profits which are attributable to the building. That is subtracted from the consideration, which is the actual cash in his hands. That was explained by my right hon. Friend in the very first speech he delivered on the Budget. That is what we learned to know in the debates as the Frankfort system: that is, to proceed on the cash in hand rather than on an ad hoc valuation, at the time. All that under the Act—and I have not the slightest doubt it cannot be challenged in law—is the legitimate subject for Increment Value Duty, is that which remains after you have taken away from the price realised the full value there and then attributable to the building on the site.
Let me give one or two examples of what might happen. Take a site valued at £100 and a house built on the site costing £500 to build. That is put on the original valuation of the house and site together at £600. Suppose that is sold for £700, that is £100 more. The question then arises: Of that increase how much is attributable to the building? All that increase, as my right hon. Friend said, in 99 cases out of 100 is attributable to the building. It is due to the builder having the foresight and skill to build a building which, apart from the land, has gone up in value. In that case the value attributable to the building is put in at £600 instead of £500. The subtraction is only £100, and no Increment Value Duty at all is charged. The builder has his legitimate profit. Take another case. I am 1473 not sure that the figures are quite accurate, but the case very much resembles that which has been disputed in the I inferior Court. A number of houses are situated in a terrace. They are all exactly similar, valued at £500 each, and £100 for the site, £500 being the price upon which Death Duties would be paid, and £500 being the value which any valuer in the town, if called in, would give as the value of every one of those houses. The case I have in mind was the case where one house was adjacent to a nursing home, and it was necessary for the extension of the nursing home that the house should be bought by the home. Although the value of the house as put in for Death Duties would have been £500, the composite subject as bought by the nursing home is bought for £700. There is no builder's profit there. There is a monopoly value held by the builder as against one individual, and not as 1474 between a willing seller and a willing buyer. You may say that that is not strictly the value of the site. That is the criticism the hon. Gentleman makes upon my right hon. Friend the Chancellor of the Exchequer. But it is not the value of the building; it is not value attributable to the building; it is not the value of the builder's profits. It is a windfall on the site as much as on the building—perhaps more on the site than on the building. It is a legitimate subject for taxation. It was explained for seven months in this House, and it is the subject we are discussing at the present time.
§ It being half an hour after the conclusion of Government business, Mr. SPEAKER adjourned the House, without Question put.
§ Adjourned at Twenty-five minutes before Twelve o'clock.