HC Deb 22 June 1948 vol 452 cc1239-56
Mr. Turton

I beg to move, in page 35, line 34, at the end, to insert: (d) such amount of income from agricultural land within the meaning of the Income Tax Act, 1945, as is equal to 10 per cent. of the gross income from such land where the person in receipt of such income manages such land himself and does not employ any other person, otherwise than for the purpose of rendering clerical assistance, in the management thereof, or, where the person in receipt of such income manages such land and in addition employs another person for purposes other than of rendering clerical assistance in the management thereof, 10 per cent. of the gross income from such land less any sums paid to such other person. This Amendment seeks to deal with the anomaly which at present exists where land is managed in the case of a large estate by an agent, and, in the case of a smaller estate, by the owner himself, who looks after his own land. Under the Clause, the large landowner can deduct from agricultural rents the amount which is paid to his agent for management, but the small owner who is looking after his own estate cannot make this deduction.

I should like to give a concrete instance of how this works out, and, in order to make the point clear, I have to take a large rental. I will take the cases of two men each of whom has a net agricultural rental of £3,000 a year. In the one case, the man is earning £2,000 a year in a professional job, and, because he is not able to look after his estate himself, he employs an agent to do it for him at £1,000 a year. That man, under the present proposal, will pay no capital levy at all. The other man, who is getting the same amount of net agricultural rental of £3,000 a year, and who is looking after his own estate—and, as he is doing it himself, probably has professional qualifications—will be charged under this provision £825 as a capital levy.

I suggest that that is an unfair anomaly between two people in very similar situations, though not in the same financial position, because the man who is earning £2,000 a year and employing an agent is better off than a man who is looking after his estate himself. It is quite wrong that one should pay no levy while the other pays £825. If hon. Members like to reduce that sort of case to smaller proportions, they will find that the anomaly is there just the same, though the sums involved are not so great. The reason why this anomaly has been created is the fact that land quite unlike gilt-edged securities or debentures, cannot be managed of itself. One really cannot get agricultural rents without doing a great deal of work. The smaller landowner does that work himself. I suggest that it is reasonable that that man should be allowed to deduct something for the work he is doing in managing his own land.

9.0 p.m.

Many farmers who are getting a certain profit from their farms, and yet own outside their farms one or two other farms, will, if their profits are anywhere near the £2,000 limit, be forced under the provisions as at present drafted to pay the capital levy without being able to make any deduction. If the Financial Secretary replies and says, "What about Income Tax? They are not allowed to deduct the expenses they incur in management for Income Tax," the answer is very clear and simple. The reason why, under Income Tax law, the man who looks after his own estate is not allowed to make any deduction is because if he were allowed to make this deduction for his work in management, the deduction would be immaterial as he would be assessed for Income Tax on his earnings in looking after his own estate. Under the capital levy provisions, where earned income is being freed from the scope of the levy and unearned income is being brought in, there is an entirely different set of principles and, therefore, in my submission, different rules must be applied to deal with the case.

In the second half of this new paragraph we have dealt with the owner who, although he manages the land himself, employs a land agent as a consultant for certain specific purposes. There are certain landowners who, although they manage the land themselves, when there is a need of legal advice employ a qualified land "agent and pay a fee for that work. It is suggested that the deduction of 10 per cent. of the gross income should be diminished in the case where the owner has employed a consultant agent, by the amount he pays that consultant agent. We on this side of the House quite clearly have no desire to see an owner being able to get a deduction twice over, but we claim he should get that 10 per cent. deduction.

It is important, I think, that this House should clearly realise that the management of land is a business and, as a business, should be put in exactly the same position as other businesses under this Finance Bill. Let us regard the position of a rather large landowner who turns his land into a limited company—

Mr. Gallacher (Fife, West)

Our land.

Mr. Tuition

His land. No doubt in Fife the hon. Member for West Fife (Mr. Gallacher) owns large quantities of land, but we are dealing with the landowner who is not necessarily in West Fife. If he turns his land into a limited company, under the Tenth Schedule such a landowner would be allowed to make a deduction for his earnings in looking after that land. We are dealing here with the case of a landowner who is not so wealthy as to be able to turn his land into a limited company. We can justly claim that he should be granted a reduction similar to that which is granted for a working director of a private company.

For those reasons I commend this paragraph to the House. I do not think a great deal of money would be involved, but the paragraph has tremendous psychological importance. If it is accepted it will establish a fact which is often forgotten by some quarters of the House—that the management of land is a very important business in the national interest. A great deal depends upon the wise management of the land as to how far we shall be able to produce the food we require at the present time.

Mr. York (Ripon)

I beg to second the Amendment.

It is a very curious thing that the agricultural industry is the only industry whose working directors have been picked out to suffer the burden of the capital levy. One cannot help feeling that the Treasury has not been well advised about agricultural matters in connection with this Bill. So seldom have we seen the presence of the agricultural Ministers on the Front Bench opposite—and I see they are absent once again—that one can only surmise that they are not strongly behind the Government in their impositions on this industry.

In this case there is a special reason why the Treasury should accept the arguments put forward by my hon. Friend the Member for Thirsk and Malton (Mr. Turton), because if the Minister of Agriculture were here to advise the Financial Secretary, he would tell him that today the sons of the owners—indeed, the owners themselves—are in many cases actually qualified land agents. In many cases—in fact, in most cases—of estates of any size, the owners have been to Cirencester College where they have been fully trained in the art of land management. In a great many cases of which I know, the sons of owners have been trained by qualified land agents, who have themselves passed the qualifiying examinations; they are fully qualified land agents in all but having the letters after their names. The Government say that, even though these men are qualified directors of their businesses, yet they may receive no remission of tax on that part of their income which is derived from the rents of agricultural property. There can be no justification for differentiating between the working director in a private textile company and the working manager of an agricultural estate.

Let me say one word about the consultants my hon. Friend mentioned. This refers to cases in which the owner is managing his land and employs, perhaps, an expert forestry consultant and pays him either by a retaining fee, or by time spent. Although a case can be made out the other way, we thought it proper, in order to try to help the Government to do justice by the main argument, to deduct the consultant's fee from the 10 per cent. for which we ask as a proper deduction. Another point is how we arrive at the figure of 10 per cent. It is a general practice, subject, of course, to many variations, that where an agent is employed 10 per cent. is taken as the general level of the payment of the agent. Therefore, we consider that 10 per cent. should be the correct deduction for an owner managing his estate.

I believe this Amendment will commend itself to all fair-minded men. Whether the Government will accept it or not is another matter. However, I do consider that they should justify, if they can, and if they are not prepared to accept the Amendment, their differentiation between the manager of a private industrial business and the manager of a private estate.

Mr. Glenvil Hall

The object of this Amendment—and I think it has been put both by the mover and seconder, so that there can be no ambiguity about it—is to enable the owner of agricultural land who works in the management of that land to treat himself as though he were employed by himself and to deduct 10 per cent. from the gross income which comes to him from the land so that the total on which Special Contribution is charged is diminished by that amount. If he does employ a factor, or someone to manage his estate, he would be able to make a similar deduction of 10 per cent. which would include the maintenance claim in respect of the factor.

Mr. Turton

If he employs a factor then we deduct the factor's salary so long as it does not exceed 10 per cent. of the agricultural rent. If it is less than 10 per cent. we deduct the factor's salary and the margin between the factor's salary and 10 per cent.

Mr. Glenvil Hall

That is as I understood it, and what I was trying to state was the object of the Amendment.

When the Central Landowners' Association's representatives came to see us at the Treasury, they put forward three points. One was that they should be allowed to treat the year 1947–48 as the basis for the computation of expenditure on maintenance. They also put forward a claim that they should be allowed to deduct a notional sum for managerial expenses, even where no manager was employed. It is a fixed rule in Income Tax law that, if an expense has not been incurred, one cannot notionally assume that it has been incurred. Therefore, it was quite impossible for my right hon. Friend to accede to that request.

Where a landowner has actually been involved in this expenditure, then, under the present Income Tax law, he can enter it, as part of the management expenses of his estate. I want to make it quite clear that we are dealing here with landowners and not with farmers. Farmers are not touched by this in so far as they are farming and their farming profits are concerned. We are dealing here with landowners who must be in a pretty big way—[HON. MEMBERS: "No."]—oh, yes, for the simple reason that, if they are in a small way, the amount of Special Contribution which they will have to pay will be very small indeed. Therefore, the 10 per cent. gross indicated in the Amendment will be of little or no use to them; it will not be worth their while to pick it up.

Captain Crookshank


Mr. Glenvil Hall

The people who would gain will be the very rich landowners. I think that this is quite definitely the case if we look at the Clause as it is proposed to be amended. Hon. Gentlemen opposite seem to think that landowners, by looking after their property, are doing something which is out of the way. Surely, if they own property, it is their job to maintain it. Under the present law, Income Tax allowances are made for the fact that property has to be kept in repair, and we think that that is sufficient. It puts landowners on the same basis as other people, and we see no reason whatever why they should be put in a specially privileged position, as they would be if this Amendment were accepted. That, we could not contemplate for a single moment. It is true—and I have not the slightest doubt that it will be said again from the other side of the House—that the agricultural community is now engaged in providing as much food as it can for our people. That is undoubtedly true; but do not let us forget that we are now doing a great deal for agriculture, which was not done in the past.

Captain Crookshank

Where is the Minister?

9.15 p.m.

Mr. Glenvil Hall

Agriculture is de-rated, and considerable sums are given in subsidies. [HON. MEMBERS: "To whom?"] There are guaranteed prices and, in a great variety of directions, agriculture is not doing too badly.

Captain Crookshank

Why is not the Minister here?

Mr. Glenvil Hall

I must say, these continual attempts to get something extra for agriculture are grossly unfair to the community generally. [HON. MEMBERS: "Oh!"] I must ask the House to resist this further attempt to get something extra, which, quite frankly, it ought not to have.

Captain Crookshank

Unless the blue pencil is to be used, when what the Financial Secretary has just said appears in HANSARD tomorrow it will get a very strange reception from both the Chancellor of the Exchequer and the Minister of Agriculture, whose absence once again from this Debate I must call to the attention of the House; I cannot understand why he has boycotted all the proceedings on the Clauses—

Mr. Glenvil Hall

I wonder if the right hon. and gallant Gentleman could tell us how many times the Minister of Agriculture attended Debates on Finance Bills when he was Financial Secretary to the Treasury?

Captain Crookshank

I can tell him that at once: every single time there was before the House any Clause which dealt with agriculture matters. Tonight, and throughout this Debate, we have not had the advantage of the presence of the Minister of Agriculture. That is very unfortunate, because the Financial Secretary's explanations of what he thought this Clause did are so wide of the mark that a little instruction from the Minister of Agriculture would have kept him right. I entirely support the point of view put forward by my hon. Friends. It really is a very simple proposition, into which the Financial Secretary has tried to inject a great deal of prejudice, because, towards the end of his speech he said that this would advantage only the rich employer.

Mr. Glenvil Hall

The rich landowner.

Captain Crookshank

Well, why should he say anything of the kind?

Mr. Gallaeher

Because it is true.

Captain Crookshank

If the Communist Party has anything to say it can say it afterwards, or at Victoria Park, but not in the middle of my speech.

Why should the right hon. Gentleman try to prejudice the issue by saying that this could only help the rich landowner, when the case we are putting is that of a landowner who is using his own efforts to manage his own land? I should have, thought, ex hypothesi, if he were a very rich landowner he would probably get somebody else to do it; the long odds certainly are that he would. We are concerned with the small man who is far more likely to be managing his own land than the very large and rich landowner. Therefore, on this point the right hon. Gentleman was trying to raise prejudice, as also he was in saying that this was one more attempt to get help for the agricultural industry which was already being subsidised. It is not being subsidised. It is the people who buy the produce of the agricultural industry who are the subsidised folk, not the farming community or the landowners at all.

Mr. Follick (Loughborough)

They have guaranteed markets.

Captain Crookshank

The proposition before the House at the moment is perfectly simple, and is this. It is already conceded that in the case of other businesses and other companies there is such a position as a working director, and under this Bill the working director is given certain concessions with regard to investment income, arising from the fact that he is a working director. That is conceded by the Government, and the only point here at issue is whether in agriculture, a landowner who is himself the manager of his own land is, to that extent, akin to a working director in another industry or other company. We say that there is that similarity.

If it is accepted that there is a similarity between the working director in one kind of company organisation and the landowner manager in agriculture, then we put it to the Government that they should find some way of dealing with the problem. We have put forward this suggestion as being the best way we can think of to equalise the position. The right hon. Gentleman, without the advice of the Minister of Agriculture, has thrown it out, together with opprobrious remarks about the agricultural industry which all of us who sit on both sides of the House will, I am perfectly sure, resent.

Mr. Vane

I never expected that the hon. Member for West Fife (Mr. Gallacher)

would show any particular sympathy for this Amendment, but I was horrified with the reply of the Financial Secretary. It showed that he understood this point as little as he understood a similar point which we argued last night. He took refuge in a sort of playing-to-the-gallery speech, which I do not think was very worthy of him. His reference to the fact that the Amendment would benefit the larger landowners was particularly ill-timed. I do not know—and I have had some experience of managing property in a professional capacity—of one large landowner who manages his property without help—he would be extremely unwise to do so bearing in mind today's many complications. The point of this Amendment is to benefit the smaller landowners who, in the main, manage their own property, and I think it is a very good thing that they should do so, and, if possible, also study and obtain professional qualifications.

It is usual to declare one's interest, and I am going to declare my interest to show how foolish the present position is. It happens that I am qualified professionally, but since I am here in this House and cannot give the necessary time to my business, I employ an agent, and I am entitled to deduct the salary of that agent from the gross assessment to this levy. If I were not a Member and had more time to devote to my business, I should naturally be engaged in managing my own property, and in that case I should not be allowed to deduct anything. If anyone wants any further illustration to show how absurd is the position, then he cannot really be capable of understanding simple facts. I hope, therefore, that the Financial Secretary will recant and at least try to find some means of meeting this particularly foolish situation, of which he has been the creator.

Question put, "That those words be there inserted in the Bill."

The House divided: Ayes, 108; Noes, 287.

Mr. Donovan (Liecester, East)

I beg to move, in page 35, line 39, at the end, to insert: (4) Where in pursuance of any scheme for reconstruction or amalgamation a company is wound up, any income of the company which pursuant to subsection (4) of section thirty-one of the Finance Act, 1927, is deemed to be the income of the members of the company for the purposes of surtax but is not distributed to them, shall not be deemed to be investment income for the purpose of this Part of this Act. The amount of the Special Contribution depends upon the amount of investment income during the year 1947–48, and the amount of investment income for that year is to be calculated in the same way as income is calculated for Surtax purposes. Income calculated for Surtax purposes may, in certain circumstances, include a sum which is purely fictional—that is to say, a sum which the taxpayer never received as income. That, however, will make no difference to the amount of the Special Contribution.

The purpose of this Amendment is to avoid that result in a particular and special case. In 1922, by Section 21 of the Finance Act, Parliament passed a provision designed to force companies to declare higher dividends. The reason was that Surtax was being avoided through the non-distribution of companies' profits. The Legislature said that if companies controlled by five or fewer persons did not declare a reasonable dividend for any period, the whole of the company's income for that period should be deemed to have been distributed and the shareholders should pay Surtax on the basis that they had the income. There was a saving in favour of companies which could show that the undistributed income was all needed for the maintenance and development of the business. If that was so, the provision I have outlined had no effect.

In 1927, by Section 31 (4) referred to in the Amendment, Parliament enacted that when such a company went into liquidation the defence that it needed its undistributed profits for maintenance and development should not apply in the com- pany's last period of life. That made sense, because in most cases when a company was wound up it needed no income to put to reserve for maintenance and development since its business ceased. But business does not cease in the case of every liquidation. It does not cease when a company goes into liquidation as part of the process of amalgamating its business with another. A business does not cease when it is carried on by a reconstructed company with the old shareholders, the old company going into liquidation. Nevertheless, in a case of that kind such an amalgamation or reconstruction has always, since 1927, carried with it this threat of a possible Surtax penalty merely because of the reconstruction or amalgamation followed by a liquidation of the old company.

If such an amalgamation or reconstruction took place during 1947–48, the amount of the Special Contribution might be materially affected, because if the Special Commissioners directed that the whole of the income of that company for its last period of life should be deemed to be the income of the members, at once that enters into the calculations of the Special Contribution, although that amalgamation or reconstruction may have been a perfectly genuine commercial operation. I suggest that it would not be right that that result should follow in such a case; and that it would not be right because the Special Contribution depends upon the amount of investment income during 1947–48. In the case I have put and which the Amendment is designed to cover, no such income in fact arises, and there is no taint of tax avoidance about such a transaction which should attract such further penalty.

I am glad to think that there are no hon. Members in this House more anxious to avoid a conscious fiscal injustice than those who sit with me on these back benches; and I hope that the Front Bench will not lag behind, but will agree that the Amendment should be accepted, subject always to this: these cases under Section 21 of the Finance Act, 1922, have fallen off in recent years because of the incidence of Excess Profits Tax, now Profits Tax, and because it is public policy to which some companies conform, that high dividends should not be declared. Therefore, it may be that the Special Commissioners would not exercise their discretion—and it is entirely a matter within their discretion—to make a direction under Section 21 which would have the effect that I have indicated. If it is not their practice to make such a direction in the case of a genuine amalgamation and reconstruction, and that assurance can be given, I am quite content, and it will not be necessary to press this Amendment.

Mr. Selwyn Lloyd

I beg to second the Amendment.

It has been moved in a most admirable manner, by the hon. and learned Member for East Leicester (Mr. Donovan). He made only one controversial remark when he said that his friends on the other side of the House were anxious to check fiscal injustices. I wish that we could have seen more evidence of that willingness on other Amendments which have been moved in regard to the Special Contribution. It will be yet another anomaly if notional income of this sort is to be taken into account in reckoning the Contribution to be paid. I hope that the Government will accept this Amendment and remove one of the many anomalies brought about by this bad tax.

The Solicitor-General

As my hon. and learned Friend the Member for East Leicester (Mr. Donovan) pointed out in moving this Amendment, the provisions of Section 31 (4) of the 1927 Act do no more than make the income of the final period before the liquidation liable to a direction made by the Special Commissioners; that is to say, the Subsection only provides that the income of that final period can be treated as the income of the members of the company if the Special Commissioners make a direction to that effect. My hon. Friend went on to say in the course of his argument that if he could receive an assurance that during the relevant period, during the year 1947–48, it was not the practice of the Special Commissioners to make directions in the circumstances which the Amendment envisages, he would feel content and would agree that the Amendment should not be pressed. I can give him that assurance.

I can give him the assurance that where the liquidation takes place for the purpose of reconstruction or amalgamation and not for the purpose of withdrawing tunds from the company, in other words, that it is a genuine amalgamation or reconstruction, it was not during 1947–48 the practice of the Special Commissioners to make a direction in respect of the income for the final period. I understood from my hon. and learned Friend's argument that that assurance would satisfy him and that he would feel that the Amendment need not be pressed.

Mr. Donovan

These directions are sometimes made years late. I take it that the assurance would be that it would not be the practice for—and not merely in—1947–48 to make such a direction?

The Solicitor-General

It would not be the practice for 1947–48 in respect of the income of that final period. I except the case in which there was some kind of spurious quality in the transaction—where a liquidation although nominally for the purpose of reconstruction or amalgamation was really with the object of withdrawing funds from the company. In that case a direction might and would probably be made. In a genuine case it was not the practice in respect of that year to make a direction. In those circumstances, I hope that the mover and the seconder of the Amendment will agree that it is not necessary to press it.

Mr. Donovan

I beg to ask leave to withdraw the Amendment.

9.45 p.m.

Mr. Pitman

It seems to me that there are two outstanding points on this, first, that surely the Commissioners—

Mr. Scollan (Renfrew, Western)

On a point of Order, Mr. Speaker. Is it in Order to continue the discussion when the Mover of the Amendment has asked leave to withdraw?

Mr. Speaker

The hon. Member should study the rules. If anybody gets up it cannot be withdrawn. It can only be withdrawn by leave. Therefore, I deliberately called the hon. Member for Bath (Mr. Pitman) because I hoped that the hon. Member who wished to withdraw would be able afterwards to withdraw. That was my object in calling the hon. Member for Bath.

Mr. Pitman

The point I wish to make is that surely the Commissioners are not servants of the Treasury and are not, and may not properly be, directed as to what they are to do. They are judicial officers and they are expected to exercise their discretion. They would greatly resent an overriding direction in this respect. I would put that to the Financial Secretary. I go further and say that if he does accept, as I understand he does, the principle of the Amendment, would it not be a better way to accept the Amendment and not to affront the Commissioners by telling them precisely what they are to do in a situation in which their legal freedom should be protected?

Mr. C. Williams

The Solicitor-General gave a general promise that the Commissioners would act in the way that the hon. Gentleman wished. That being so, why should we not have it in the Bill? Why cannot we have it there? Surely it is much better to put it in an Act of Parliament than to leave it in this way. It does seem, from an ordinary and not a legal point of view, that it would add to the clarity of the Measure if we could have it in the Bill itself.

Mr. Stanley

Despite what my hon. Friend has said, I am satisfied by the assurance of the right hon. and learned Gentleman. As I understand it, the Commissioners are split into two parts, assessing and judicial. It is only the judicial Commissioners who will be acting in a judicial capacity. There is nothing wrong or improper in the assessing Commissioners giving attention to the kind of direction to which their attention has been called. I hope my hon. Friend will accept the assurance.

Mr. Donovan

I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.