HC Deb 21 June 1948 vol 452 cc1048-54

Subsection (1) of section fourteen of the Income Tax Act, 1945, shall be amended by the insertion after paragraph (b) thereof of the following proviso—

Provided that there shall not be included in expenditure referred to in paragraph (a) of this subsection any capital sum payable to the Central Land Board by way of development charge under section sixty-nine of the Town and Country Planning Act, 1947, in respect of the permission to undertake such construction.—[Sir P. Bennett.]

Brought up, and read the First time.

Sir P. Bennett

I beg to move, "That the Clause be read a Second time."

The point which arises relates to the Town and Country Planning Act. Industry generally is very concerned about that Act on one or two points. One is the question of the development charge and the taxation arising from it. Many manufacturing processes require specialised buildings. Alterations to processes carried out in many manufacturing industries call for alterations to buildings. One cannot handle certain manufacturing processes without making very considerable alterations in the structure of buildings, possibly pulling down and re-building. It is necessary to remain up to date. It is no use suggesting that this is done for any other reason than sheer necessity. We are all urged to keep our manufacturing processes up-to-date in order to compete with the foreigner. I believe that certain parts of the country depend upon large home markets and have to be constantly altering and developing their processes. It will be agreed that constant changes are necessary if we are to keep up-to-date and to keep our costs down.

Under the present law, new buildings, with very slight exceptions, carry the possibility of an additional development charge. It is clear that development charge has to be paid on a building which has not an unlimited life. Further there is the possibility of development charge being levied even without any new building. If an existing building is put to a new purpose, a new development charge can be levied upon it. We have seen businesses develop. We have seen residences turned into factories. We have seen factories extended from warehouses and offices altered and turned into factories. All that is subject to a development charge theoretically. If a light industry changes to a heavy industry, the Act says it is a different class of industry and there is a liability to a charge.

Section 14 of the Income Tax Act, 1945, regards industrial sites as having permanent value. That is, they are not appropriate subjects for depreciation allowances. That may be true of a site used for its present purpose and its present purpose only, but it is certainly not true of the cases which I have been outlining where the development charges for a particular permission to use those buildings for a specific purpose are on the site. In Committee the answer was made that development charges are attached to sites and not to buildings, I have been trying to show that in this respect that is not the case and that the development charge attaches to the building and not the site and is altered and increased when the building is modified. I am aware that at the present time few assessments are likely to take place, but this is a matter which should receive the attention of the Solicitor-General and the Chancellor of the Exchequer because we feel that it can be dealt with now before anomalies develop and before trouble and difficulty arise.

Mr. Pitman

I beg to second the Motion.

The Solicitor-General

As the hon. Gentleman the Member for Edgbaston (Sir P. Bennett) knows, prima facie the development charge is part of the cost of the land. May I put the answer which I would make to his argument in this way? The Income Tax Act, 1945, as was stated when it was introduced by the right hon. Gentleman the Member for the Scottish Universities (Sir J. Anderson), had the object of assisting toward the cost of various types of industrial building and various other kinds of industrial expenditure. It was to provide for allowances against the cost of the buildings, when one is talking about buildings, and it was not—and it was expressly so provided in the Act—designed to assist towards the purchase of the land. The question really is: In its nature, is the development charge part of the cost of the land or part of the cost of the buildings? If it is part of the cost of the land, unless one throws overboard the policy on which the Income Tax Act, 1945, was based, this new Clause cannot be accepted. I submit there can be no question, when one looks at the nature of the development charge, that it is only part of the cost of acquiring the land.

What happens is this. The person who desires to acquire the land, now that the 1947 Town and Country Planning Act has been passed, really pays to the previous owner of the land the value of the land in its existing use condition; that is to say, the value that the land bears when it can only be used for the existing purpose for which it is used. He has to pay to the Central Land Board a development charge which is the charge attributable to the increase in the value of the land—the increase in the value of the land and nothing else—by reason of the fact that the permission for the new development has been granted. Supposing there had not been the 1947 Act, the person who bought the land would have paid to the previous owner a sum precisely equivalent to the present price which he pays to the owner and the development charge. Instead of paying separately to the owner and the Land Board for the land, he would have paid it all to the previous owner. Under the new Act he pays that proportion of the price which is attributable to the increased value of the land in connection with the building permission being granted, to the Land Board, and he pays to the owner himself the value of the land for its existing use purposes. Viewed in that light, surely it cannot be said that the development charge is anything else than part of the price of the land?

If I am right so far in my argument, my next step is to submit to the House that unless one discards the policy on which the 1945 Income Tax Act was based it would be quite impossible to accept the Clause. Why should it in present-day circumstances be discarded for that purpose and not for other purposes? It is not argued that the principles upon which the 1945 Act was based are in general outmoded and that they have no sort of very useful purpose and should be reconsidered in toto. It is still conceded, if I understand the hon. Gentleman's argument, that the 1945 Act provides the proper relief, but in this one respect it is sought to alter it and it is sought to provide that the industrialist shall have part of the price of the land which he gets available for purposes of the allowances under the Act, whereas before he could not have done so. No case has been made out for that. The charge varies according to the increase in the value of the land and that is provided for by Section 70 of the 1947 Act. In assessing it, the Land Board has to have regard to the increase in the value of the lands, the emphasis always being on the land.

If I am right in these steps in my argument, I hope the hon. Gentleman will agree with me that there is no case for the Clause. He is seeking to have for an industrialist what an industrialist did not have before the 1947 Act was passed. Before that Act was passed, he would not have got allowances for the proportion of the price which he paid for the land which is now represented by the development charge, and there has been no change which would justify a claim being put forward now for him to have that proportion of the price of the land written off in terms of the 1945 Act.

Mr. Stanley

This is, of course, a very complicated subject. As I take it, a great deal turns on whether we are to regard this development charge as inevitably and always part of the cost of the land, or in certain circumstances, which have been detailed by my hon. Friend the Member for Edgbaston (Sir P. Bennett), as really part of the cost of the buildings which as such could be written off as the buildings are written off. To prove his contention, the right hon. and learned Gentleman took one case, that of somebody buying land in order to erect industrial buildings on it. Is it not perfectly possible for an industrial company which already owns the land to incur a development charge without buying one foot more land than it had before? If that is so, and I believe it to be the case, how can we say in that case that the development charge attaches to the land? It does not. There has been no change whatsoever in the amount of land which the industrial company owns. What has happened is that the industrial company has put up a new building on the land, and therefore the development charge in that case quite clearly attaches to the building.

8.30 p.m.

However, that development charge is, in a way, as subject to decay as is the building which it covers, because as soon as the building requires either alteration or rebuilding, new application has to be made and a development charge may have to be paid. Therefore it is only right that the industrialist should be able to depreciate the development charge as he depreciates the building which it covers, so that when the necessity for a new building arises and, therefore, the possibility of a new development charge, he will be allowed to write off both of them. I think it is the case that it is possible to have a development case arising without the purchase of a single foot of extra land. In that case I submit that the development charge attaches not to the site but to the building, that the development charge is not permanent in character—that is to say, it does not frank for ever any building of whatsoever character is upon that site, but merely franks that particular building which in course of time will decay—and that, therefore, what is asked for in this Amendment is reasonable. It is no good going back to the provisions of the 1945 Finance Act which was passed before, and in ignorance of, the rather foolish provisions of the Town and Country Planning Act.

Mr. Henry Strauss (Combined English Universities)

I hope that the Solicitor-General will give some reply to the speech just made by my right hon. Friend the Member for West Bristol (Mr. Stanley). The right hon. and learned Gentleman gave one example when he talked of the purchase of land, meaning a site, but he knows perfectly well that the development charge is made either when land is developed or where there is a change of use of the land within the meaning of the appropriate Section of the Town and Country Planning Act. Land for this purpose, in accordance with the general rule of English law, includes the buildings upon it. I think unwittingly the right hon. and learned Gentleman has given a slightly false impression, when he contrasts the site with the building. Land includes both under the provisions of the Act, and the development charge can be incurred not merely where a man owns land and buildings and builds something more, but also when he simply devotes that land, including the building, to a new use. For that reason, and for the others given by my right hon. Friend, I hope that the Solicitor-General will expand his reply.

The Solicitor-General

May I answer both the right hon. Gentleman and the hon. and learned Gentleman who, I think, made the same point? If the owner of land wants to carry out fresh building on the land and, therefore, has to ask for fresh permission to develop of course a development charge may accrue. May I just correct that in a point of detail which does not go against the principle? It is the case that under the Town and Country Planning (Development Charge Exemption) Regulations, 1948, a certain amount of rebuilding within a 10 per cent. limit is permitted, but that does not affect the principle of the argument. The answer to the principle of the argument is that when the owner himself gets development permission he thereby increases the value of his own land. For example, supposing he wanted to sell the land with the new building on it, he would get a bigger price for the land itself.

Mr. Pitman

Why?

The Solicitor-General

Because there is no development charge. A development charge is only made so as to be equivalent to any increase in the value of the land. It is not obligatory. The Board is not bound to charge it and, when it does so, under the provisions of Section 70 (2) of the Act it must have regard to the increase in the value of the land itself which accrues from the development permission being given. In other words, if the result of giving development permission is not to increase the value of the land itself, there is no development charge. If there is a development charge, it means that the value of the land itself has been increased proportionately and, if that is so, notionally at any rate the owner of the land possesses land which is worth more after the development permission has been granted than it was before. Supposing he wanted to sell it, he could get a larger price for it.

Mr. Stanley

If it is the case that because of the building on it, the value of the land increases, will not that increased value begin to fall, and continue to fall, as the building itself begins to waste, and by the time that the building requires rebuilding or has to be scrapped altogether, will not the increased value of the land disappear?—[HON. MEMBERS: "No."] I would prefer to have the opinion of the Law Officer on a rather complicated point of this kind.

The Solicitor-General

It depends more on the type of the land than the building but, as I say, in assessing the development charge one has to take that kind of consideration into account, and it is only if there is an increase in the value of the land itself that a charge is made.

Mr. H. Strauss

The Solicitor-General says, "the land itself," but does not he agree that in law what he calls "the land itself" includes the building on it? It is an increased value in the land plus building.

The Solicitor-General

indicated dissent.

Mr. Strauss

Yes.

Sir Peter Macdonald (Isle of Wight)

Is it not a fact?

Question, "That the Clause be read a Second time" put, and negatived.