§ Brought up, and read the First time.
§ Sir E Boyle
I beg to move, "That the Clause be read a Second time."
This new Clause is based on that section of the Millard Tucker Report on the Taxation of Trading Profits which deals with the effects of our present tax structure on mining concerns. Hon. Gentlemen who have read the Report may recall that paragraph 238 says that the profits of a mining company are not properly computed for purposes of taxation unless the company receives an allowance based on the full amount expended on the acquisition of the mineral rights.
1744 The purpose of this Clause is to bring the law into harmony with that recommendation. Until the Finance Act, 1949, no allowance of this kind was given to any United Kingdom mining concern. The concession made in the 1949 Act came as the result of the Report of a Departmental Committee which had been set up in 1948 by the then Chancellor of the Exchequer, Sir Stafford Cripps. It was not a Committee with broad terms of reference over the whole field; it considered only the purely practical point of whether United Kingdom concerns were not handicapped by the absence from our tax system of any allowance for capital expenditure on the acquisition of overseas mineral resources.
It was the purpose of Section 22 of that Finance Act to relieve United Kingdom concerns from the disability of 1745 having to compete with concerns in foreign countries whose tax system did permit such an allowance. While that section was certainly a very valuable concession, it had one weakness, namely, the provisions of subsections (3), (4) and (5). It is these provisions that we are now seeking to annul.
I am not a lawyer, and hon. and learned Gentlemen must forgive me if I speak in the only language I know. The upshot of these three long and learned sub-sections was simply that the allowances which could be claimed under Section 22 might never exceed what was paid by the first United Kingdom purchaser of the rights in question. Thus under that Section as it now stands, the company now working the minerals may only be able to secure allowances on part of its total expenditure.
This is, of course, inconsistent with the recommendation of the Millard Tucker Report, which says that a mining company should receive an allowance based on the full amount that it has expended in the course of acquiring the minerals. When the Millard Tucker Committee were taking evidence, there was considerable feeling that the present system gives inadequate relief and would continue to do so until these three subsections were done away with. As I said earlier in the debates on the Finance Bill, the present tax system only makes contact with existing mines; but it is the funds from existing mines that has to finance not only new mines which are successful but also the empty prospects.
The burden on the mining industry at present is very heavy. I do not know how much this concession would cost the Treasury, but I cannot believe it would amount to a great deal; nor can I see how this concession would run counter to the general financial policy of the Chancellor of the Exchequer. Therefore, I ask hon. and learned Gentlemen opposite to give very serious consideration to this new Clause.
§ Mr. Hugh Fraser (Stafford and Stone)
I beg to second the Motion.
The last time I spoke on this question I talked for some 25 minutes, and I should be prepared to do so again, because to see that our mines throughout the British Commonwealth and Empire are given the maximum possible support 1746 and that they can compete with foreign mining companies is of vital importance.
The principle enunciated by my hon. Friend is of great importance. There is a famous law known as Boyle's Law regarding the expansion of gases. If this Clause were adopted it might well have a similar effect on the expansion of our mineral resources. The points made by my hon. Friends are extremely cogent. If you, Mr. Deputy Speaker, and I, and the Leader of the House, were prospecting in Africa and fell upon a mine, and you proceeded to sell the rights of that mine to the Leader of the House, and he then proceeded to sell the rights to me, I should not be able in my claim for allowances to charge the full cost I had paid to the Leader of the House, but would only be able to recoup from the Treasury the amount for which you originally sold the mine to the Leader of the House. I think the Attorney-General will agree that that is a simple explanation of the matter.
The point at issue is this. If mines which in the past have been ill-run, perhaps, or for some reason or other have failed, come into the possession of new companies which may undertake the running of those mines, these companies will not gain what they should according to the Millard Tucker Report, which is relief for all the capital sums expended by them. Supposing that you and the Leader of the House and a Frenchman were exploring in Africa and fell upon this mine, and you sold your rights to the Leader of the House and he sold them in turn to the Frenchman, and I bought them from the Frenchman, I should be able to reclaim the whole cost, because owing to a ridiculous anomaly of the law one is not able to reclaim from a person subject to Income Tax.
Following from that there arises the argument that a mining company may become involved in double taxation. Supposing a company deals in the sale and purchase of mining leases as its business, then it will pay Income Tax on those transactions in the normal way, and when the third party comes along who buys a lease on second issue from a mining house, it will not be permitted to regain its full expenditure from the Treasury.
1747 I have tried to use homely analogies to explain to the House what is at issue. Unless concessions of this sort are made, there is a great danger that throughout the world our mining companies will not be able to make the progress they should. American and other companies will obtain the raw materials, and we shall sink again into the position of not having our own materials but of having to go cap in hand to America to ask for more.
§ The Attorney-General(Sir Frank Soskice)
It is true, as both hon. Members have said, that the Millard Tucker Committee did make a recommendation with regard to the allowance of expenses on the acquisition of mineral rights, but the Committee coupled with their recommendation the question whether a charge should not be made on the seller from whom the company in question acquired its rights, and the two problems cannot be considered in isolation.
The difficulty is one of long standing. Prior to 1949 there was no allowance available in respect of the acquisition of foreign mineral rights. There never has been, and is not now, any right to depreciation allowance in respect of the acquisition of mineral rights here. That situation was altered by Section 22 of the Finance Act, 1949, which gave the right to a depreciation, or depletion, allowance in respect of expenditure on the acquisition of foreign rights, but the total amount of depletion allowance was limited to the amount which the first United Kingdom purchaser expended.
The new Clause would seek to extend to the second and third United Kingdom purchasers the right to depletion allowance on the whole expenditure which they incurred in the acquisition of the right from the first United Kingdom purchaser. If that course were accepted without imposing a charge on the first United Kingdom purchaser, there would be a serious loss of revenue to the Treasury.
I can illustrate by an example how that loss might arise. Suppose a company buys foreign rights for £100,000 and spends £200,000 in getting the mineral properties from the concession they acquire, the cost of the total source of income which that mineral property represents would be £300,000. Suppose it produces in its life minerals to the 1748 value of £1 million. The Treasury would obtain tax upon £700,000, that is to say, the £1 million written down by £300,000 of depletion allowance.
But let us assume that the first United Kingdom purchaser does not exploit the minerals and sells the rights to a second United Kingdom purchaser for £200,000, and the second purchaser spends £200,000 in getting the minerals out of the earth. If the second purchaser were allowed depletion allowance to the full extent of his expenditure, the result would be that the Treasury would obtain tax on £600,000, that is to say, £1 million less two lots of £200,000, although it only cost £300,000 to bring into being that source of income.—[HON. MEMBERS: "Hear, hear."] That would be the result. I hope that hon. Members do not mean by "Hear, hear" that they applaud the Treasury losing £100,000.
These figures, which were perhaps more confusing than I intended them to be, indicate that unless we impose a charge on seller's rights, the Treasury stand to lose considerably. The same problem arises in connection with depreciation allowances on premiums of leases and on all payments which are made for acquiring sources of income. It is a problem of old standing, which was first considered by the Royal Commission of 1920. That was the problem which the Millard Tucker Committee had in mind when they said an allowance could not be made without imposing a charge on the seller.
§ Sir E. Boyle
I followed the right hon. and learned Gentleman's calculations, but I think he was looking at the matter from rather a short-term point of view. It may be that there is a short-term loss to the Treasury, but if this £100,000 is used to finance new successful ventures, surely in the long run the Treasury will receive new revenue from these ventures, which will recoup them.
§ The Attorney-General
That is rather an extravagant view of the situation because the loss would be continuous and repeated, and would never be recouped at all. That is what has always prevented the Legislature from granting, for example, depletion allowances in respect of the acquisition of mineral rights in this country. That is why the 1945 Act did not grant any right to depletion allow- 1749 antes in respect of mineral resources in this country.
I simply said that the Millard Tucker Committee did not make the recommendation, as the hon. Gentleman rather implied mistakenly, without coupling it with the reference to the problem of making a corresponding charge. What they said was that it was not within their terms of reference to try and work out a system whereby a charge could be imposed on the seller, and they said they thought it would be appropriate for the Royal Commission to deal with that particular matter amongst the others that they would take into account.
Our feeling is the same. We feel that we could not possibly accept the proposal as it stands for the reason which I have given, that it would involve an enormous loss to the Treasury annually, increasingly and repeatedly. Therefore, it could not possibly be accepted unless we had some kind of machinery for imposing a charge on the seller so as to prevent the loss from accruing. We would prefer to leave the matter over because we have no doubt that, as the Millard Tucker Committee thought, this is the kind of problem with which the Royal Commission on Income Tax will deal. I hope the House will agree that the Clause as it stands, for the reason which I have given, could not possibly be accepted, and will agree that the appropriate course is to see what solution the Royal Commission propose to this problem.
§ Mr. Eccles
I think that argument does not hold water because it assumes that the only buyer of these mineral rights is another United Kingdom company. Therefore, the Treasury are right in saying that if the parent company cannot find anyone who will exploit the mine except a United Kingdom company, of course it will lose some tax if a charge is not made on it for the profit on the sale. But what will happen is that a United Kingdom company says that it is too expensive to pay this tax and, therefore, the mine is sold to a non-resident company. That is the danger of the present position—not that the Treasury is going to lose tax; because it is not going to get any at all.
Let the right hon. and learned Gentleman consider a case of an old company with a charter, such as the British South 1750 Africa Company; after 50 years they part with some concession or other at a large price. Who is going to take that on in this country if somebody resident in Rhodesia can be found who will take it on instead? That is the problem. It is not a tax problem. It is a problem of where we are going to develop the Empire from.
§ Captain Crookshank
I do not think that having raised the point my hon. Friend would want to pursue it any further now in the light of the reply—a very lucid reply, if I may respectfully say so—given by the right hon. and learned Gentleman. I followed his mathematics, and if I could I am sure everybody else managed to do so. But it does show that by moving this Clause my hon. Friends have raised a matter of real importance, as the Government have agreed. Therefore, to that extent I think they should feel some satisfaction at having put down this Clause.
The only other comment I would make is this. The right hon. and learned Gentleman said this was a matter raised in the Millard Tucker Report and that therefore the only thing to do now is to await the Report of the Royal Commission. There is no likelihood of the Royal Commission reporting on the Millard Tucker Report in the very near future, unless it is going to report by sections. That would not be in the nature of a Royal Commission on Income Tax, owing to the complexity of the problems with which they have to deal with.
On the other hand, as my hon. Friend the Member for Chippenham (Mr. Eccles) has pointed out, it is a matter of great urgency and national importance that it should be made as easy as possible for British undertakings to exploit—using that word in the best sense of the term—the production of minerals and especially scarce minerals all over the world. Therefore, it may not be possible for the matter to be held over long enough for the Royal Commission to have reported. Consequently, there is no particular point in pressing the matter this year in this form, and I hope that the Government, and their successor, within the next 12 months, will keep the matter well in mind so that something may possibly be done before next year, not necessarily on the lines of this Clause, to deal with 1751 the substance of what my hon. Friends have drawn to the attention of the House.
As the Government have accepted the fact that there is a problem and, in addition to that, the further fact that it is an urgent problem, and that it ought to be considered within the next 12 months, in the hope of finding some provisional settlement ahead of the Royal Commission, I hope that my hon. Friends will not press the matter.
§ Sir E. Boyle
In view of what the Attorney-General has said, I beg to ask leave to withdraw the Motion.
§ Motion and Clause, by leave, withdrawn.
§ Further consideration of the Bill, as amended, adjourned.—[Mr. Royle.]
§ Bill, as amended, to be further considered Tomorrow.