At end of subsection (2) of section twenty-seven of the Income Tax Act, 1945, insert—
Provided that where the undertaking consists mainly in the mining of tin, tungsten or lead, the person carrying on the trade or business may elect that in lieu of the annual allowance computed as aforesaid there shall be made to him a percentage depletion allowance, that is to say, an allowance calculated on the realised value during the basis period of the year of assessment of the extracted mineral products at the site where they are extracted. The percentage to be applied shall be at the rate of twenty-five per cent. of such realised value.—[Mr. D. Marshall.]
§ Brought up, and read the First time.
§ Mr. D. Marshall
I beg to move, "That the Clause be read a Second time."
This Clause is primarily concerned with mining in the United Kingdom. Although it applies to mining generally, the Financial Secretary can assume that my hon. and gallant Friend the Member for Camborne (Commander Agnew) and I have at heart the interests of the Cornish tin miners in particular. The Financial Secretary is fully aware that in countries such as Canada and the United States, as well as others, there are depletion allowances for metal mining. Anybody at the present moment who commences to win one of these metals is faced with very great difficulties. I think the Chancellor would be the first to recognise that fact. At the present time we are faced with heavy taxation, and with a wasting asset such as one has in mining, there is no proper relief by way of taxation relief of that wasting asset; therefore, a great deal of the incentive of the adventure is taken out of mining.
2285 It is with the object of remedying that situation that my hon. and gallant Friend and I have tabled this Clause. We realise that even if the Government do accept it, it will be only a small measure of relief, but it will at least be some measure of relief. We feel that such relief would provide a certain amount of incentive to those people who may venture forth to develop our mining capacity in this country.
We heard a very grave statement this afternoon by the Chancellor of the Exchequer, and I think every hon. Member would agree that everything should be done to help solve our difficulties of the dollar gap. Even by putting forward a new Clause, which, although small, may promote a healthy inclination to get more metals from the ground in our own country, may well help to bridge the gap. My hon. and gallant Friend and I are not wedded to the words of this new Clause at all, but we are wedded to the principle which lies behind them. If the Chancellor should say that he agrees with that principle and will find a more suitable form of words, we should be the first to agree.
§ 10.0 p.m.
§ Commander Agnew (Camborne)
I beg to second the Motion.
Section 27 of the Income Tax Act, 1945, provides for a system of annual allowances. The annual allowance is based on the working of a rather complicated formula under which a fraction is computed; it is made up, in its numerator, of the output of the mine for the basic period, and, in the denominator, the figure representing that same output which has to be added to the total future potential output of the mine.
We have been very largely prompted to put down this Clause by the fact that in many kinds of extracting industries, and noticeably so in the case of tin, tungsten and lead, it is extremely difficult, if not impossible, to forecast with any accuracy at all what the total future potential output of the mine can be. It is felt, in view of that, that the existing system of annual allowances will tend to be quite inadequate in the amount of tax relief it will grant.
The Clause substitutes, at the option of the mining company, in the case only of tin, tungsten and lead mines, a new 2286 system under which a direct depletion allowance is given. This is based on an allowance at the rate of 25 per cent. of the actual output of the mine during any basic period. As tax relief, this amount, though more substantial than that given by Section 27 of the Act, is estimated to furnish only a very modest amount of relief—and one that is not likely to cost the Chancellor very much if this Clause is inserted in the Bill.
It is no coincidence that this Clause has been seconded by an hon. Member in whose Division there is metalliferous mining—one of the Cornish Divisions. We feel that at a time such as the present, when never was there a greater need to exploit to the full the resources which lie in our soil and beneath it, the Chancellor, in giving a stimulus to the exploiting of every source of our home wealth, will be assisting not only his Budget in future years by the increased yield of taxation which will be brought in, but will also be assisting in the solution of the economic crisis which was explained to us today.
§ The Solicitor-General
When we were discussing the question of depreciation allowances in respect of mineral rights during the Committee stage of this Bill we discussed the question as to whether, in principle, any such allowances should be given in respect of mineral deposits in this country. I submitted an argument to the Committee that, upon general principle, such an allowance could not be accorded. The reasons that I gave are, I hope, fresh in the minds of hon. Members, and I feel sure they will be fresh in the mind of the hon. Member for Chippenham (Mr. Eccles) who, I know, feels strongly on this point.
This Clause would cover mineral deposits in this country and, even if it were acceptable for other reasons, in my submission to the House it would be open to the general objection which I urged against granting any form of depreciation or other similar allowance in respect of mineral deposits in this country. Quite apart from these general considerations, however, I would urge upon the House that there are other and really quite fatal objections to the Clause. The Income Tax Act of 1945 is the code in our tax legislative system which outlines depreciation allowances. There are some Sections, I know, in the previous Act of 2287 1944, but, broadly speaking, the Income Tax Act, 1945, contains the framework of our depreciation allowance system. The basis of the principle of grants for depreciation is that they are allowances against expenditure incurred. Whether we are talking about plant or machinery, industrial buildings or a type of expenditure which is envisaged under Part III of the Act, the allowance is only granted against expenditure actually incurred.
Depletion allowances, which are deducted in some other countries like the United States, are based upon a wholly different principle. They are not related at all to expenditure incurred, but to the quantum extracted from the mineral deposit. If this Clause were adopted, it would simply mean tax relief to the extent of 25 per cent. of the gross income accruing from the gross extracts. These are two contrasting and different systems. We have adopted the former system under which depletion allowances are given in respect of expenditure.
What the Clause seeks to secure is that, in respect of these particular deposits, the system adopted in other countries shall operate. In this country we are acting on the advice of our experts, who feel that the system which we have adopted is preferable. It is designed to assist industrialists in meeting expenditure which they have to shoulder for the purposes of their enterprise. Our system links relief to actual expenditure. Of course, one can at the outset adopt the alternative system if one thinks it preferable, but in 1945 the then Chancellor of the Exchequer worked out that this system should be the one to apply in this country.
I would urge upon the House that the system that we apply is preferable to the American one; but there is no reason whatever for combining both. The depletion allowance completely departs from the principle which we have adopted for the purposes of our legislative system. If our system is inadequate, then the appropriate method is to increase the amount of the allowance given. Our system works very effectively and efficiently. But what is desired in the new Clause is to depart from it. As I said, if it is inadequate, one should increase the amount of the allowances given, and attempts to do so are made from time to time. We have hitherto resisted them to a certain extent, but recently we made a very substantial 2288 increase by doubling the 20 per cent. allowance for plant and machinery to 40 per cent. That is the way to tackle the problem if there is still a problem at all.
I submit to the House that it is illogical and undesirable, when there is a system which works well, to depart from it and seek to introduce something which runs entirely counter to the principle on which it is founded. For that reason, I say that no case has been made out for this departure from the principle of depreciation allowances which we are operating in this country.
§ Commander Agnew
I do not think the Solicitor-General has answered the point with regard to the unsatisfactory nature of the existing system, in that it is not possible to estimate what the total potential future output of a tin mine is going to be.
§ The Solicitor-General
I am sorry if I did not deal with that point. The hon. and gallant Gentleman certainly made it. What the Act requires is that an estimate has to be made of the total potential future output as at the end of the period which is being considered. Throughout the Income Tax legislation, estimates of unknown quantities have to be made, and they are as difficult to ascertain as in this particular case. Not only in Income Tax legislation, but throughout legislation, generally, one has constantly to make estimates as to output and so on. After all, it is for the Crown to tax the subject and to establish what the real estimate is. If it is doubtful what the estimate is, the Crown only gets tax upon what can be said to be the real estimate of what is still to be extracted from the source in question.
§ Sir Ian Fraser (Lonsdale)
I venture to speak for a few moments as a director of a tin smelting firm. I am very much aware of the extraordinary value to this country of even a few tons of tin, if it can be mined here. We get our tin from Malaya and Nigeria, which is sterling tin. In so far as we take that tin we are reducing the amount that can be sold for dollars in the United States. Alternatively, we get tin ore from Bolivia, and that has to be paid for in dollars. Our works are situated at Bristol. When they were founded 150 years ago, they were based upon the presence of tin in Cornwall and of coal in South Wales. 2289 That is why it was situated in Bristol. The output of Cornish tin has been very much reduced, and we have had to go very much further afield. The dollar situation has restricted our operations, and it must become worse.
I must declare, therefore, my special interest in this matter, but it is the country's interest, too. Every ton of tin we can find and treat in England is not only capable of giving employment, but helps to keep alive the fine skill and knowledge which contributes towards all that is best in the industry so that it can make a direct and an immediate contribution towards the saving of dollars. The Solicitor-General has said that the English system is different from what is used in other countries, where there are many mines, particularly metal mines. He says that it would not suit our system to graft that system upon it, but mining is a very different operation from almost every other. It is most speculative, and that is the reason why, in other countries where mining interests are substantial, other methods of taxation have been adopted making allowances for the hazards and unknown factors.
There is still tin in Cornwall, but it is hard and expensive to get. It may be that the statement made by the Chancellor of the Exchequer foreshadows that we are to return to the austere conditions of the war, during which it was worthwhile to contribute specially to the production of Cornish tin. If this modest proposal gives any encouragement to any entrepreneur to risk his money in getting Cornish tin, it will be doing a good service to the country. I hope the House will look with favour upon the proposal.
§ 10.15 p.m.
§ Mr. Eccles
I am sorry to differ from my hon. Friends in principle. I am with them in their objective, which is to give the mining industry of this country fair taxation allowances. On the other hand, I agree with the Solicitor-General that the principle of the depletion allowances is not as satisfactory as that which permits a mine to write off all forms of capital expenditure that have gone to the winning of the minerals. It is true that in the United States they have an allowance of 15 per cent. on the gross income. If the mine is successful, that might be very much more than any sums laid out in capital expenditure. Canada has an allowance of 33⅓ 2290 per cent. of the net profits not subject to tax, and there is also a very sensible provision called the "Three-year run-in provision" whereby for the first three years of the productive life of the mine it is not subject to tax. Similar provisions exist in South Africa and Malaya.
It is very untidy to give allowances through this system of depletion, with percentages based on the output of a mine, whatever that output may be. The Solicitor-General was a little unfortunate when he said that he preferred our method, because our method is not satisfactory. What we have argued time and time again is that if we are not to have the depletion allowance as in this Clause, we must have an allowance in respect of all capital expenditure incurred on winning the mineral. That is not so today. In that respect the mines winning these three metals in Cornwall and elsewhere certainly have a case in justice. The present law does not allow them to recover the expenditure on certain land which they must buy and on certain buildings which they must erect, all of which are intimately associated with the mine and, when the ore is worked out, become more or less valueless. If they have any value, and are sold, there is the balancing charge which takes care of the final sale price.
Therefore, while I cannot support the Clause because I believe the principle to be wrong, I also think that the Government are wrong in not giving allowances in respect of the capital expenditure over the whole field. I hope very much that next year we may have a comprehensive code of taxation upon mines which brings into the purview of the allowances all those expenses incurred in opening and developing a mine. I say this because if we do not do that we shall certainly handicap the Cornish mines and any other mines overseas which do not have this advantage.
In agriculture, which is an extractive industry, the taxpayer puts his hand in his pocket and gives the farmer very large sums of money so that production may be at a high level, which is in the national interest. Here is another extractive industry, which is asking not for a subsidy but for the right to get back over the life of the mine the capital expenditure put into the mine, if it earns profits sufficient to become subject to the 2291 allowances necessary to get the capital expenditure back. That is not unreasonable if we desire, as I am sure we all do, to raise the production in this country of things which we would otherwise have to import. I do not believe that my hon. Friends want anything in the nature of a subsidy. They are asking for fair taxation, and we have not got that in the mining industry today. I hope that when the next Budget is introduced we shall find in the subsequent Finance Bill a Clause to tidy up this unsatisfactory position.
§ Mr. C. Williams
I congratulate my hon. Friend the Member for Chippenham (Mr. Eccles) on having put so clearly the grossly unfair position in which those who wish to develop mines in this country are placed in comparison with those who wish to develop mines in Canada. That, added to the way in which my hon. and gallant Friend proposed the Clause, and the immense ingenuity and great amount of work put into this Clause in order to get something on the Order Paper so that we could discuss the matter here, has brought out one point extremely clearly, namely, that we have in this country a certain amount of tin, copper, lead and other metals which have been much worked in the past and, in consequence, are now extremely deep and difficult to work. That is one side of the picture; on the other side, we are extremely short of money with which to buy raw materials of any kind.
It would seem to be a commonsense proceeding at present to do everything we can to endeavour to induce people to put their money into this comparatively small industry and to develop tin mining—indeed, I would add copper, lead and tungsten to this Clause—for the simple reason that we would then be getting the raw materials needed for our industries and would also save dollars. The hon. Member for Chippenham referred to the immense subsidies granted to agriculture. In that case it is food, in this case it is raw materials and metals for our industries. Whether it is possible to develop them, no one knows, but anyone reading the speech of the right hon. and learned Gentleman who replied on behalf of the Government—who advocated that just because the system we apply is not applied to every 2292 industry—will realise that the Government are doing everything possible to prevent mining development.
It is no argument to say that one can deal with mining in the same way as other industries. They are quite different. Here one is dependent on the life of the mine and on the amount of metal in it, on innumerable circumstances which cannot be judged in the same way as a factory, a coal mine or a quarry. Some of these mines run right out to the sea—[Interruption.] At any rate they have done so, and are quite likely to do so in the past—[Interruption.] I quite agree; I should have said "in the future"; but when I sit listening to hon. and right hon. Gentlemen opposite, and then read speeches by the Leader of the House, about keeping your mind in the past, I am apt to be deflected from looking at the future, as Tories always do.
I think this is a good Clause and I think that the Government have done an ill-service to the country tonight in refusing it. They have shown no determination to help the country in getting alternatives to dollars, and in every possible way the right hon. and learned Gentleman has done all he can, with all the skill which he possesses—whether it is much or not so much—to make it difficult to start an industry in the West country, of which there are possibilities in the future; and the people of Cornwall will know that their worst enemy is once again the Socialist Government.
§ Mr. R. A. Butler
After the extreme lucidity of the speech of my hon. Friend the Member for Torquay (Mr. C. Williams), it is unnecessary for me to add very much. I would safely say that I hope my hon. and gallant Friend who moved this legitimate new Clause may not feel inclined to press it to a Division tonight, because I do not think that this is necessarily the only method we can adopt to deal with this serious problem. We are, however, indebted to my hon. Friends for putting forward the position in which the mining industry, and particularly mining in Cornwall, finds itself. I should only like to draw the attention of the Government to the need for dealing with this matter in the future in a sympahetic way. If the Debate has that effect, and if the right hon. and learned Gentleman pays attention to the speech of my hon. Friend the Member for 2293 Chippenham (Mr. Eccles), who has put forward so clearly his arguments, we may have achieved some result by moving the Clause and discussing this matter.
I did not think that the arguments of the Solicitor-General were quite conclusive. In the middle of his argument, there was a chink in the armour. By his expression, "That is the way to tackle the problem"—those were his words—he made clear that there is a problem to tackle. It has not yet been tackled by the Government. Neither do I think that the argument of the right hon. and learned Gentleman, that just because we have a certain system for certain of our industries it is impossible to use another system for other industries, can hold water.
I appeal to the Government, therefore, to pay attention to the arguments which have been put forward and to the needs of the mining industry in Cornwall which, perhaps, is the most historic and most important of our counties. I say that with the full realisation that my forbears sat for Cornish rotten boroughs for many centuries. In the interests of the tradition which I have the honour still to represent in the House. I should like to feel that Cornwall was properly looked after by the Government.
§ Question put, and negatived.