Sixth Schedule.—(ALLOWANCES IN RESPECT OF MACHINERY OR PLANT.) (Hansard, 28 June 1949)

§ The Chairman
Mr. Selwyn Lloyd.

§ Mr. Selwyn Lloyd
In view of the length of time we have been sitting and of the complexity of the Amendment standing in my name, in page 47, line 6, to leave out paragraphs 1 and 2 and to insert other paragraphs, and other Amendments associated with it, I do not propose to move it. I hope that at a later stage and at a more appropriate hour I might have the opportunity of so doing.

§ Mr. Eccles
I beg to move, in page 48, line 46, to leave out "use," and insert: efficient use for the purpose for which it was provided. It might encourage the Committee to know this is the last Amendment we propose to move to the Bill this morning. This is a very complicated Schedule, dealing with depreciation allowances on plant and machinery, which deserves much more careful attention than we can possibly give it at this time of the morning. Sub-paragraph (6) of paragraph 1 of the Schedule lays down certain directions for the Commissioners of Inland Revenue on how to assess depreciation allowances. Normally speaking, they fix allowances at such a percentage as will write down the cost of an asset to the percentage of that cost over the anticipated normal working life of the machinery in question.
The anticipated normal life is, by subparagraph (6), deemed to be the period ending when the machinery is unfit for further use. That is really much too narrow, because, strictly interpreted, it means the period can go on until the piece of plant is utterly worn out. We think that is a bad principle, because 1246 it would pay the works manager to go on spending far too much money in keeping a very old piece of machinery just ticking over because he could go on getting an allowance. Therefore, we think it would be better, in the interest of the modernisation of British industry, to substitute the words: efficient use for the purpose for which it was provided. Take the case of a ship. Broadly speaking, after 25 years or so a ship ought to be scrapped and a new one built, but, of course, old ships have been bought up by some foreign Power—we all know of one—and used for some purpose other than the original one for which they were built. That is not a good thing. There are many other examples of where in the past British firms have been inclined to keep machinery too long. Something that would encourage them to do so still more in the future is a bad thing. Therefore, for the sake of giving them an extra push towards scrapping, I think the Government would be well advised to accept our Amendment.

§ The Solicitor-General
I feel that there would be very considerable difficulties about accepting the Amendment. I would say at the outset that the Sixth Schedule does no more than give statutory form to what is existing practice. It has differed slightly but, broadly speaking, under the practice which has subsisted since 1918, the Commissioners have apportioned the wear and tear allowance under Rule 6 of the Income Tax Act, 1918, subject to a right to apply to the Board of Referees by way of appeal against their apportionment. I believe that there has been no appeal; in other words, the system has worked extremely satisfactorily. The practice which is now being enshrined in the provisions of the Sixth Schedule is the practice whereby, in substance, agreement is 1247 arrived at between the Commissioners of Inland Revenue and classes of traders with regard to what should be the appropriate wear and tear allowance. What is now provided is that they have to fix an appropriate fraction to apply to what is called written down expenditure.
In answer to the Amendment, I would say that it is not as if the Commissioners of Inland Revenue under the provisions of the Sixth Schedule have to fix upon the fraction by an exact calculation of the anticipated normal life of the plant or machinery. All they have to do—this appears from paragraph 1 (3) of Part I—is to take into account the anticipated normal life. Therefore, it is not necessary to have a fraction of complete exactitude. What is indicated to them is what they must take into account in fixing the apropriate fraction which is provided by the Schedule. Therefore, they would take—and they do under the present practice—a commonsense view of the likely life of the machine in the future.
If the Amendment were adopted, it would put a very considerable burden upon the Commissioners of Inland Revenue. It would make it obligatory upon them to consider this kind of thing. A machine might be used for a particular purpose and then there might be a subsequent invention or improved machine—a perfection of the old model—and they would then have to start considering whether it could be said that the old machine could still function efficiently in the light of the fact that there were some newly approved models which might be substituted for it and work more efficiently. That would be placing a considerable burden on their shoulders. It is an unnecessary one because they have not had to do it hitherto and the system has worked adequately.
There would be other difficulties. The Amendment proposes to incorporate the words: For the purpose for which it was provided. Take a machine which is switched from one purpose to another. They would have to go into all that sort of thing, and that would involve very considerable complications which would not make for the smooth working of these agreements between classes of traders or users of particular machines and the Commissioners. On the contrary, it would ham- 1248 per their negotiations and prevent their arriving at a figure which is regarded as a reasonable figure for the purposes of the fraction to be applied in fixing what is the wear and tear allowance to be adopted for the purpose of the annual allowance to be applied to the machine.
For those reasons, I hope the Committee will agree that not only does the Amendment not improve the present wording of the Bill, but that it would impose considerable hindrances in the way of the smooth working which, as I said, is the present system in practice simply translated into statutory form in the provisions of the Sixth Schedule. I hope that the Committee will agree that the Amendment should not be adopted.

§ Mr. Eccles
I ought to tell the Committee that this is an Amendment which comes from industry, and they consider it desirable that some change should be made.
However, I think the Solicitor-General may have convinced the Committee that it could be done administratively. If he would take note of the fact that there is a large body of opinion in the industry which feels that these rules might well be administered in such a way as to make scrapping more attractive earlier I think we ought to let them have a try. The opportunity will arise next year of bringing this matter forward again, and I beg to ask leave to withdraw the Amendment.

§ The Solicitor-General
I beg to move, in page 57, line 13, at the end, to insert: (3) Notwithstanding anything in sub-paragraph 1 of this paragraph, the years for which an annual allowance is to be deemed thereunder to have been made shall not include years during which machinery or plant was used only for the purposes of activities carried on by the person in question before the commencement by him of the working of a mine, oil well, or other source of mineral deposits of a wasting nature, being activities consisting of—

(a) searching for or discovering and testing deposits, or winning access thereto; or

(b) the construction of any works which, are likely to be of little or no value when the source is no longer worked, or, where the source is worked under a foreign concession, which are likely to become valueless when the concession comes to an end to the person working the source immediately before the concession comes to an end.

1249 This Amendment makes a change in the provisions of the Schedule for ascertaining what may be described as the notional appointed day expenditure. This Amendment deals with the case where one is concerned with capital expenditure in connection with mines or oilfields incurred before the trade begins. In the ordinary case notional allowances are assumed to have been made when the plant or machinery was used before the trade was started, on the general principle that one cannot write off against the trading profits pre-trade expenses. In connection with the expenditure on mines and oilfields that requirement should not be applied for the reason that such expenditure is, of necessity, of a wasting character. Virtually what the Amendment does is that it excepts such cases from the operation of the deduction of notional pre-appointed day expenditure which applies in the case of other types of expenditure.

§ Mr. Stanley
I do not know whether the Solicitor-General can throw any light on the last few lines of the Amendment which read: or, where the source is worked under a foreign concession, which are likely to be-become valueless when the concession comes to an end to the person working the source immediately before the concession comes to an end. It may only be the morning in my case—I see an hon. Gentleman opposite understands perfectly at once—but perhaps the Solicitor-General can explain.

§ The Solicitor-General
If the right hon. Gentleman will look a little higher up the Amendment he will see the phrase "being activities." These are the activities becoming valueless.