HC Deb 26 March 1947 vol 435 cc1355-63
Major Mott-Radclyffe

I beg to move, in page 4, line 28, to leave out "advances," and to insert: amount of the advances after deducting therefrom any income tax and surtax charged and paid thereon. This Amendment raises the whole question of whether forestry grants are regarded as income or capital, and, accordingly, whether they are or are not taxable. If they are regarded as income, then, of course, they are subject to tax, if the woodland owner is assessed under Schedule D. He will, in that event, receive a proportion of the grant according to the rate of his tax assessment. It seems unjust to us that, when repayment is asked for, in the event of his woodlands being compulsorily acquired, he should have to repay the whole amount of the grant and that the 3 per cent. rate of interest should be calculated on the whole amount. I suggest that it is very doubtful whether it would be permissible to claim tax against the interest, because it would be a deduction against the compensation received, and I should have thought that the compensation received would be regarded as a capital sum against which no tax allowance would be deducted. The object of this Amendment is to make quite certain that Income Tax and Surtax are deducted from the advances, for the purpose of repayment calculations under this Bill, at the rate of tax current when the grants were received, as, otherwise, we might easily get the anomalous situation where the current rate of tax differed from the rate paid on the original grants.

10.0 p.m.

The Solicitor-General (Sir Frank Soskice)

If I may say so without offence, I thought I detected a slight confusion in the mind of the hon. and gallant Gentleman the Member for Windsor (Major Mott-Radclyffe) between the interest charged and the grant itself. In point of fact, what will happen is almost exactly what the Amendment aims to introduce. What will happen is this. In so far as the 3 per cent. is concerned, that will rank for ordinary Income Tax and Surtax purposes as a charge against income, and it will be available as a deduction both for Income Tax and Surtax. That is the interest, but that is one item only. The other question is the grant itself. The position with regard to that is that, when an owner receives a grant, it may be taxed under Schedule D. Perhaps I should digress to say that he has the option, under Rule 7, to be taxed under either Schedule D or Schedule B. He can exercise an option and be charged under Schedule B by which he pays a fixed charge of one-third of the annual value. He can also elect to be charged under Schedule D in which case he is charged tax on the annual balance of his profits and gains. Suppose that he is taxed under Schedule D. If he gets a grant for revenue purposes, the grant is counted as a revenue item and is subject to tax, and, equally, the revenue expenditure which he incurs and upon which he expends that grant is allowed as a deduction against his profits. He brings it in on one side and pays tax, and on the other, he deducts it as a revenue expense on appropriate grounds and gets a deduction.

When an owner, as an owner, has land compulsorily acquired, and he receives compensation, there will be deducted from the compensation the amount of the grant he has received. But, inasmuch as that grant was originally regarded as a revenue item, when he repays it, it will be equally regarded as a revenue expense and, therefore, he will be allowed to set out that expense against his income and thus save tax on it. What the Amendment really does is that it asks for Income Tax and Surtax charged upon the grant should be deducted. That would not work out administratively. One charges upon a balance of profits, and what will be done is that the amount of the grant will be allowed as a revenue expense and will proportionately reduce profits both for Income Tax and Surtax.

Captain Crookshank

When the learned Solicitor-General says that these things will be done, does he mean by administrative practice?

The Solicitor-General

It will be done because, in the ordinary way a revenue expenditure goes to reduce profits. The Amendment would not affect the position, but it would, in its drafting, not be possible to work it. There will be variations of tax and it is true that an owner who received a grant when tax was low and has to repay when tax is high will benefit, and, vice versa, he will lose if tax falls. But the Act is designed to run for a great many years, and tax will go up and down and in some cases the man will lose, and in some cases he will gain on the balance. It would be fair that his loss or gain should vary according to whether Income Tax gags up or down.

In point of fact, it would not be practicable, in the case of many grants that were made many years ago, to discover exactly what the tax appropriate to those grants was, so that it would be very difficult to work out arithmetically. I ask the Committee, in view of the explanation which I have sought to give, to say that the position as it is is satisfactory, and that it is not necessary for this Amendment to be made in the Bill.

Major Mott-Radclyffe

I am grateful to the Solicitor-General for clearing up that point. There was a good deal of doubt in many quarters as to the tax position. In view of the hon. and learned Gentleman's assurance, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Major Mott-Radclyffe

I beg to move, in page 4, line 34, to leave out "the rate of," and to insert "a rate not exceeding."

It would, I think, be convenient to discuss together with this Amendment the next Amendment, in line 37, at the end, to insert: Provided that in determining the rate of interest payable under this Section the Commissioners shall have regard to the age and type of the timber growing on the said land. If woods are acquired by reason of the mismanagement of the owner within 30 years of the date of planting, under the Bill the planting grant, the maintenance grant, and interest at three per cent. per annum will be deducted from the compensation which the owner receives in respect of the acquisition of his woods. In our view, three per cent. is too high for a fixed rate of interest, and, moreover, it ignores the age and type of timber grown. For instance, a 29 years old beech or oak plantation would certainly not earn three per cent. on the grants received on the previous 29 years. The object of the Amendment is to ensure that the rate of interest repayable by the owner for compensation shall vary according to the type, the age and the quality of the timber in the woodland concerned, because in the early days of a plantation the rate of growth, particularly in the case of hard woods, is not nearly as high as three per cent. We consider that three per cent. should be the upper limit, and that if it were adhered to rigidly, irrespective of whether woodlands are hard wood or soft wood, it would be an unfair rate.

Colonel Clarke

I wish to support what was said by my hon. and gallant Friend the Member for Windsor (Major Mott-Radclyffe). I see no reason why 3 per cent. should continue as a flat even rate. Trees do not grow at a flat even rate, nor do various types of trees increase at the same value. There is also the fact that at certain ages trees pass from one money class to another. This year, for example, a plantation may be worth 8d. a cubic foot, but in 15 years' time, in addition to the increment of wood which has grown during the 15 years, it may have passed into another money group, and in addition to being larger trees, the wood may have greater value, and may be 10d. or 1s. a cubic foot. There is great unevenness in the natural growth and increase, and it is wrong that 3 per cent. should be based on what, I think, is called geometrical progress when the progress of growth is not even arithmetical. We ask in the Amendment that the actual condition of the plantation shall be taken into account when assessing the interest rate. I hope that point will be considered.

Mr. Gallacher (Fife, West)

Hon. Gentlemen opposite are often in the habit of declaring that Socialism is a materialist philosophy and that it lacks spiritual force; but listen to them, when there is any money involved. They are always after more graft for the landowners. I ask the Minister why he should allow this Committee to be turned into a sort of Wailing Wall. Why does he not nationalise the land and put hon. Gentlemen opposite out of pain?

The Joint Under-Secretary of State for Scotland (Mr. Thomas Fraser)

The reason why we have three per cent. in the Clause as the rate to be charged on grants is that it was fixed for loans that might be made available to landowners under the scheme. It seemed appropriate that we should fix the same rate of interest to the grants that might become repayable under the Clause. I am assured that it would be most difficult for the Commission to use the yardstick suggested in the Amendment. Supporters of the Amendment would give a right of discretion to the Forestry Commissioners, if they could foresee circumstances in which they would be warranted in departing from the three per cent. We are not merely concerned with the age or the type of tree but with the amount of grant payable, and which has now, perforce, to be repaid. We consider that the percentage to be paid on the money ought not to be different from the percentage on the loan for the same purpose. For those reasons we cannot accept the Amendment.

Mr. Charles Williams (Torquay)

We have had one of the most typical Whitehall answers. We are dealing with a loan which is dependent upon trees, and the Joint Under-Secretary of State for Scotland says that we must keep our eyes fixed on the loan and not on the trees on which it is being paid. He said in the very charming way we always expect from those who have a nice Civil Service brief and who have no knowledge of the countryside, that we must not think of the age of the trees, but simply of the loan. I would like to know whether the Law Officers have put the Joint Under-Secretary of State up to that answer, or whether it was merely the Minister of Agriculture. I do not know. The proposal we have put forward is a practical one, although it might be a little difficult of administration; but look at the hundreds of thousands of superfluous officials that the Government could turn on to this job. I will not develop that point any further. I was trying to anticipate what might be the argument. No reason has been given to us why this Amendment should not be considered.

The only reason against the Amendment that I can think of is that it might be difficult to balance the large cubic capacity and the growing capacity of the various trees for which compensation is payable. If that is the real reason for the objection of the Government to this Amendment, as I presume it is, I have shown them a way out. I will leave it there, because, obviously, it is not a thing of which the Government have thought.

10.15 p.m.

Under this Amendment there is something practicable. I believe that we should try extracting compensation for forestry in these matters. I am not thinking of forests like the Forest of Dean but of the great forests of the country and I am looking at this question from a practical point of view. There are other places besides the Forest of Dean, and I say guile frankly, that to pay compensation on this three per cent. basis, in some cases on trees which are well over 100, years old, is quite impossible. To take the viewpoint of fixing three per cent. is most insulting to the Chancellor of the Exchequer, because he is working on an entirely different basis today. For that reason I think the compensation should be very much lower than three per cent., unless the Minister really wants to go against the Chancellor's wishes. May I be allowed to say one other thing? Forestry does not particularly affect my constituency, but I thoroughly agree with one hon. Member in all these matters, that it is best to agree to what the Communist Party boss asks for. [Interruption.] My hon. Friends opposite must respect the miners' leader. He says that we must not give too much to the landowner. I think that that is right. We should not give too much money to any section of the community, but we should always safeguard the funds of the community. Nothing would induce me to appeal for more money for any section of the community except on the basis of what is absolutely fair and practicable. For that reason I hope that this Amendment will be considered by the Government, and that for once they will see their way to deal with the Treasury on this matter and try to meet the views of the Opposition.

Mr. Philips Price

I am sorry to detain the Committee but the hon. Member for Torquay (Mr. C. Williams) referred to the Forest of Dean. However, that was not the real reason why I rose. I want to say that the idea behind this Amendment is a good one, but to my mind it is absolutely impracticable, for the simple reason that it would be most difficult to relate the interest to a basis of the age and condition of various trees. In a forest in this country there may be hard and soft woods, and a general mixture which would make the task one of great difficulty. How can such a plan be applied when one area might earn 2 per cent. and another 3 per cent.? The thing will not work. Certainly, if we had the big forests like there are on the Continent, where there are thousands of acres of the same kind of tree, it might be possible. In practice, such a scheme would not work here. The idea is certainly a good one, but in practice it would not work, particularly in the home counties of England.

Amendment negatived.

Major Mott-Radclyffe

I beg to move, in page 4, to leave out lines 38 to 42.

We hope that the right hon. Gentleman will be able to tell us what this proviso means. It is in order to obtain this explanation that we move the Amendment. Does it mean the case where a portion only of a woodland property is compulsorily acquired or, on the other hand, does it refer to a case where a person who is liable to repay the grant is the owner of a leasehold property? As I read the Subsection it might refer to either of those two cases, but perhaps the Minister can tell us what it does mean.

The Solicitor-General

We on this side of the Committee thought that this proviso was rather necessary, and I will endeavour to explain why. If the proviso w ere not inserted the result would be this. Supposing you had a forest which is let out to a leaseholder and which is owned by a freeholder—that is, there are two interests, a freehold interest and a leasehold. When compensation comes to be payable upon a compulsory acquisition of those two interests the deduction of grants will have to be made in full, first as against the amount which is paid to the leaseholder and then, secondly, in full against the amount which is paid to the freeholder. In other words, deduction would have to be made twice over and the object of the proviso is simply to prevent that. Where there are two interests—a leasehold and a freehold—both of which are being acquired, then when you are making your deduction from the compensation, you apportion to each interest that amount of the deduction which is appropriate to the value of that interest. If the proviso is deleted, it will work most unfairly upon persons who own leasehold or freehold interests in forest land because each will have to pay the full amount of grant. If hon. Members look at the first part of the Clause I think that they will agree that that is the effect because it provides that when a grant has been made, and an interest in the land compulsorily acquired, the amount of the grant has to be deducted. The consequence would be that the full amount of the grant would have to be deducted from the amount of the compensation payable to each of the holders. That would obviously be grossly unfair and the proviso is designed to prevent that. In these circumstances I hope the hon. and gallant Gentleman will be prepared to withdraw the Amendment.

Mr. Vane

Can the Solicitor-General say whether the proviso will also apply in this kind of case? Assume that a certain owner receives grants in respect of a woodland and later sells it to two persons, one of whom manages it according to the rules of good forestry while the other fails to do so. The interest of the man who fails, is acquired by the State on behalf of the Forestry Commission. In that case, would the division of the amount due in respect of the original grant, plus interest, be decided by this proviso? If so, this would necessitate going through the same process of valuation which has just been rejected as impossible under the previous two Amendments.

The Solicitor-General

That case would not come within the terms of the proviso at all. There would be purchase of only one interest—namely, that of the person who had bought the land and was using it for forestry purposes.

Mr. McKie (Galloway)

The Solicitor-General has given a very fair explanation of this proviso, and has dealt with the point as far as England is concerned. I would point out, however, that leaseholds do not exist in Scotland. I am sorry that the Lord Advocate is not present to deal with the case of Scotland, but I would ask the Joint Under-Secretary of State for Scotland to be good enough to assure me that no interest in Scotland will be adversely affected by the passage of this Bill in its present form.

Mr. Thomas Fraser

Of course we have leaseholds in Scotland.

Mr. McKie

No.

Mr. Fraser

We have leases in perpetuity, but they are called feus. What has been said about leaseholds in England would apply equally in the case of Scotland.

Amendment negatived.

Clause ordered to stand part of the Bill.

Clauses 7 and 8 ordered to stand part of the Bill.

Bill reported, without Amendment.