NEW CLAUSE.—(Valuation of farm workers' cottages.) (Hansard, 12 July 1938)

§ Mr. W. Roberts
I beg to move, "That the Clause be read a Second time."
At the present time the valuation of farm workers' cottages for purposes of Income Tax is governed by the First 1143 Schedule to the Income Tax Act, 1918, which provides that the valuation shall be: The amount of the rent by the year at which they are let, if they are let at rackrent and the amount of that rent has been fixed by agreement. … But in those cases, which are increasing in number, in which the cottage is let, not at what can be called rackrent, but at a figure which may be fixed by, for instance, the agricultural wages committee, then the valuation is assessed according to the next paragraph, which reads as follows: If they are not let at a rackrent so fixed, then the rackrent at which they are worth to be let by the year. I suggest that this results in a somewhat anomalous and unjust position. A man whom I know took two cottages recently. One of them was let to an ordinary tenant at £32 a year, and was valued accordingly. The other cottage was let to an agricultural worker. The maximum rent which may be charged, under that particular agricultural wages committee, was 4s., and that figure was therefore charged; but the valuation of that cottage is the same as the valuation of the one that is let at£32 per year, and so the owner is charged Income Tax on the basis that both cottages are let at the higher figure.
I have often heard a Minister, in replying to Amendments dealing with agricultural landowners' Income Tax, suggest that this is a hardy perennial which comes up every year. But this proposal is not like that of the much wider Clause which was moved last night; it deals with a very small problem, and a special problem which really arises out of recent legislation. It arises also in connection with the Housing (Rural Workers) Act, where the rent is fixed by the local authority, and possibly the rent thus fixed is not the rent which could be obtained in the open market. There also, although, as in the case I have just mentioned, the landlowner is not in fact receiving the income, he is taxed on the basis of a larger income than he in fact receives. The present Clause proposes that the owner should be taxed on the income which he in fact receives, and not on some hypothetical income which he might receive; and it seems to me that that very limited proposal is a fair 1144 one which should commend itself to the Minister and to the House. I know that hon. Members on the Labour benches sometimes feel that in these Clauses we are making a special plea for one particular class, but in this case I am making no suggestion that the ownership of agricultural houses or agricultural land is in any way different from the ownership of other houses or land; I am only suggesting that the owner should be taxed on the income which he actually receives, and not on something which it is presumed he might receive in other circumstances. It may be said that the provision of such houses, even if the rents are limited, improves the capital value of the land in question, but I am not suggesting that, so far as Death Duties or Estate Duties are concerned, the landowner should have any advantage; I am only suggesting that he should be assessed for Income Tax purposes on the basis of the rent that he actually receives.
I have not been able to make any estimate of what this might cost the Treasury. It cannot be a very large sum, though I admit that it may be a growing sum. If more houses for agricultural workers are to be provided under the new Housing Act by private individuals and not by local authorities, this same question will arise again. It also arises in connection will the question of rating, and it does appear to many owners to be a great hardship that they should be rated on a higher basis than the rent which they actually obtain. This is not the opportunity to deal with that anomaly, but I think the Chancellor, in dealing with a similar problem in connection with air-raid precautions at an earlier stage of the Finance Bill, suggested that it would be better that the assessment for purposes of Income Tax and rates should be on the same basis. If it should happen that he should accept this proposed new Clause now, perhaps some other opportunity might be afforded of altering the situation so far as it affects rating. As I was saying, I do not think it can involve a very large sum at the present time, but it is one of those small anomalies which prevent owners from increasing the number of their cottages, either by building new ones or by repairing old ones under the Housing (Rural Workers) Act, and for that reason, although the matter is a small one, I 1145 think we might well do something to encourage owners to make an increase, which is badly needed, in the amount of accommodation available for agricultural workers on the land.

§ Mr. Pethick-Lawrence
Would the hon. Member explain how his proposal would operate in such a case as this: Suppose that a farm worker is living in a tied cottage, and that he is receiving£2 a week and is getting his cottage at 6s. a week. What is to prevent the owner from saying "I will cut down the rent of your cottage from 6s. to 1s., and will cut down your wages from £2 to £1 15s."? That would make no difference to the agricultural worker, but it would relieve the owner of the cottage who employs the workman from a charge which he would otherwise have to meet.

§ Mr. Roberts
I do not think that that could occur under this Clause. The wages committee for the district fixes a maximum rent which may be deducted from the agricultural wage. It is possible that the valuation of the cottage at the present time might be less than that maximum rent, and the Clause would not increase the valuation above the existing figure. Similarly, the valuation could not be reduced, by an arrangement such as the right hon. Gentleman suggests, below the figure which the agricultural committee has fixed, provided that the valuation was not originally lower than that figure. I suggest that a new arrangement could not be made under the Clause by which such a reduction could be effected. If the valuation had previously been 6s., and the allowance which might be deducted under the regulations of the agricultural wages committee was 4s., 4s. would be the lowest possible figure which could be deducted.

§ Mr. Pethick-Lawrence
I should think that as regards the second part of the Clause, where no wages have to be paid, the hon. Member is correct, but as regards the first part I do not think so.

§ Sir Hugh Seely
I beg to second the Motion.

§ The Attorney-General (Sir Donald Somervell)
The right hon. Gentleman opposite raised a point with regard to the first part of the Clause, but, as the hon. Gentleman who moved the Clause might say, that was a matter which could 1146 be adjusted. I would like, quite briefly, to state our objections to the Clause on rather wider grounds. If is quite clear that this is dealing with Schedule A assessments, which fall on the landowner or the farmer. Farm workers are not themselves assessed in respect of their cottages. If they were, they would be able to recover any of the Schedule A taxation which they were not able to pass on, because their incomes would be below the Income Tax limit. I think the Mover of the Clause was contemplating the ordinary case, in which the Schedule A assessment is on the landowner or the farmer. He said that under this Clause the effect would be to tax the landlord on the income which in fact he received, and not on a hypothetical income. Those familiar with the principles which underlie Schedule A taxation will realise that the principle which the hon. Member suggested is entirely contrary to the principle of Schedule A. Schedule A might be described as the tax on the landlord's interest and the rent represents the value of the landlord's interest, upon which it is, of course, based. It is fundamental to Schedule A that if the landlord of a house lets it for nothing, or for something below its value, that in no way affects Schedule A liability, which is intended to fall on the landlord in respect of the annual value of the land.

§ Mr. Craven-Ellis
Is my right hon. and learned Friend speaking with respect to valuation for rating?

§ The Attorney-General
No; I am speaking of Schedule A Income Tax. That is what the Clause deals with. I think it is relevant to consider what is the position of a farmer under the Income Tax Acts. He can be assessed under Schedule B, which is an artificial method, or under Schedule D, whichever is the more favourable to him. What the hon. Member who moved the Clause was saying, in effect, is that where a farmer-landowner lets a cottage at a rent below the rack rent he is, to that extent, of course giving that value as wages, or at any rate, as expenses of the business he is carrying on, to the farm worker. If he chooses to he assessed under Schedule D, he can deduct as an expense the annual value of a cottage which he is letting rent-free, or the difference between the rent he is in fact getting and the annual value. Therefore, I think 1147 there is no real unfairness in the operation of this rule when one analyses the position of the farmer. To that extent, he is already given the benefit of the Schedule B measure if it pays him. If, on the other hand, it does not pay him and he chooses to come under Schedule D, in the case which has been put he can deduct as an expense the annual value of the cottages which he lets rent-free.
Therefore, we do not think that a case has been made out for accepting what would, in fact, be a principle in respect of these houses fundamentally at variance with the principle on which Schedule A is based. The hon. Member gave a specific instance of two houses side by side, one let to a farm worker and the other to a non-farm worker. In that case, the annual value to the farm worker is very considerably above the rent received. I do not dispute that case, but I do not think it is a common one. I believe that in the case of most cottages, acting on the principle on which these cottages are valued, the Schedule A valuation is very little, if anything, different from the agricultural rent in the district.