HC Deb 19 May 1952 vol 501 cc159-72
Mr. Hugh Fraser (Stafford and Stone)

I beg to move, in page 19, line 4, at the end, to insert: Provided that the references to expenditure in this subsection shall be deemed to include, in relation to a person carrying on such a trade in an overseas territory, any loss sustained by that person on the winding up of a body corporate formed for the sole purpose of searching for, or discovering and testing, mineral deposits. I feel that hon. Members on all sides of the Committee should congratulate the Chancellor on introducing this Clause, which will ensure a proper return on expenditure which proves to be abortive by companies going out into the world to produce more oil or minerals. It is in line with the Millard Tucker Report of famous memory. I see the right hon. and learned Gentleman the previous Solicitor-General on the Front Bench opposite. He fought this Clause to the death last year, but no doubt he will welcome it in his secret heart tonight. Hon. Members on this side of the Committee, such as the hon. Members for Handsworth (Sir E. Boyle) and Oswestry (Mr. Ormsby-Gore), who moved a similar Clause last year, while welcoming it, may feel that it does not go quite far enough.

Hon. Members are fully informed of the vital importance of maintaining ourselves throughout the world as the main drawers of oil and hewers of minerals, and this Clause will do a great deal to that end. Every day we see countries, such as America and France, giving more concessions in taxation to those persons who go out for the exploitation of raw materials. Every day we see an increasing shortage of raw materials and an increase in what is termed "abortive" expenditure.

From the series of speeches we made last year, and from their own personal knowledge, hon. Members will know that the average oil company, if it has an income of £1 million a year, has to spend up to half of that amount on searching for new oil wells. Every day the search for raw materials becomes more intense. Today, in Venezuela, they are drilling for oil down to 10,000 feet, whereas 10 years ago oil was being drilled at a depth of 1,500 feet or less

We know to what lengths people have to go in the Orange Free State to get gold. We know that oil wells have to be floated out at sea in the Gulf of Mexico and off the Island of Trinidad. Everywhere one sees that the dangers of abortive expenditure—that is, money being spent without return—are growing. Therefore, I feel sure that Members on all sides of the Committee must welcome the Clause.

9.45 p.m.

But while the Chancellor has I believe, dealt fully with the economics of the problem, there is still a political problem, with which the Amendment seeks to deal. That political problem is simply that as the Clause stands, companies which have to set up offshoots or total subsidiaries in foreign lands are not protected. Members on all sides of the Committee, and especially on the other side, with the memory of Abadan burning hot, I hope, in their memories, must realise that today there is a natural growth of nationalism. to which certain concessions must be made. [HON. MEMBERS: "Oh"] But if those concessions are made in due time, instead of at the last minute, a great many things can be saved.

Mr. Fernyhough

Twenty years ago.

Mr. Fraser

Doubtless hon. Members will recall the case of the Argentine tram—and, of course, the Argentinians have a case. Doubtless, if an Argentine company were to own the London Passenger Transport Board, the right hon. Member for Lewisham, South (Mr. H. Morrison) would be in an extreme state of indignation about it, and so would many other people. But if the Argentine people were wise, they would have appointed the right hon. Member for Lewisham, South as one of the directors of the subsidiary holding company.

Mr. Mitchison

Would the hon. Member be good enough to tell us whether a tram is a mineral deposit?

Mr. Fraser

For the purpose of my argument, as the legal eagle who represents Kettering must know, my argument is more like a bus than a tram—it must be wandering slightly.

The point is that precisely the same argument which applied to the oil company in Persia or which applied to an imaginary-owned London Passenger Transport Board in this country, applies, unfortunately, today to the question of exploration companies. It is not merely a question of owning assets in a country. It is a question of seeing that that exploration is controlled to some extent by the country in which the exploration is carried out. We have seen recently demands from foreign countries that they should control, through registration of those companies, the exploration which was carried out by a British company.

All over South America we are seeing this. When a company like, say, one of the largest petroleum companies in this country, wishes to carry out research over one of the South American countries, that research can only be carried out if the South American country has controlled its exploration in so far as the exploration company is registered not in London, but in the capital of the South American country.

All that the Amendment seeks to do is to ensure that the spirit of the Clause is made more actual by bringing in wholly-owned subsidiary companies operating in foreign lands. Unless this is done, the economic advantage which has been offered, and rightly offered, by the Clause to British operators overseas, will be nullified by the political disadvantages which must accrue unless they are able to carry out foreign registrations of subsidiary exploration companies.

I hope, therefore, that the Chancellor will see fit to accept this Amendment. The step forward which has been taken by this Clause is of supreme interest to this country. It means that all exploration companies, which bring so much into the Exchequer, will be given a real advantage by bringing them into line with many competitors seeking mineral wealth. I believe that my right hon. Friend might go even further and round off the work he has so well begun.

The Solicitor-General

My hon. Friend the Member for Stafford and Stone (Mr. H. Fraser), in moving his Amendment in such eloquent fashion, began with a tribute to my right hon. Friend for this Clause which does so much to alleviate the position of mining companies. He drew attention to the fact that the Clause implements the recommendations of the Millard Tucker Report and expounded his argument in favour of this proposal. I must remind him that this Amendment goes far beyond anything recommended in that Report.

Clause 16 deals with the expenditure of a company engaged in exploration, whereas the Amendment is designed to secure that the investing company, if it sustains a loss, shall be able to count that loss as a trading expense. Of course this Clause is not designed, and it is not within the scope of the Clause, to give relief for a capital loss due to one company financing another.

Secondly, the Millard Tucker Report did make certain recommendations with regard to the position in which one company contributed to or provided all the finance for another. That Report laid down certain conditions, namely, that the two companies should be resident in the United Kingdom and members of the same group. In that connection also this Amendment goes beyond the Millard Tucker Report, because the Amendment is limited to overseas.

This question of finance as between one company and another does raise problems of very considerable complexity and of difficulty and, while I can assure my hon. Friend that his speech in support of the Amendment will be most carefully considered, I am afraid that I must disappoint him. It would be quite wrong to accept this Amendment on a Clause which is dealing entirely with expenditure of a particular kind of company for a particular purpose specified in the Clause.

Mr. Roy Jenkins

The Solicitor-General based his inability to accept the Amendment largely on the fact that it would go a good deal beyond the recommendations of the Millard Tucker Report. I wonder if he could tell us whether the Clause as it stands goes somewhat beyond those recommendations. The Report only suggested that such deduction should be allowed where the company did abortive exploration for the mineral which it was already working, whereas it appears that the Clause as it stands would extend the provision to any mineral or deposit within the meaning of the Clause.

Sir Edward Boyle (Birmingham, Handsworth)

I listened with care to the explanation given by the Solicitor-General. I must confess I am a little disappointed that he cannot give us rather more encouragement, since the whole point of this Amendment is that it should act as a stimulus to the discovery of further mining deposits.

I refreshed my memory this evening of paragraph 240 of the Millard Tucker Report, and I think the hon. Member for Stechford (Mr. Roy Jenkins) is quite right in saying that the Clause does go rather further than the Report. Even so, I feel that the real object of the Clause will not be achieved until some allowance is given for losses incurred by mining concerns on advances to wholly-owned subsidiary prospecting companies, set up for specific explorations in overseas territories.

My hon. Friend the Member for Stafford and Stone (Mr. H. Fraser) pointed out that this is not only an economic issue; there is also an important political issue, because it is very often impossible for British overseas mining companies to secure authority to prospect in overseas territories unless they are willing for the job to be carried out by means of a locally-registered subsidiary.

While I understand the point of the Solicitor-General that this is a difficult question, and that the Clause as drafted does not cover the case of a capital loss due to one company financing another, I hope that on some future occasion it may be possible to go beyond the present wording of this Clause in the direction we have indicated. As this is the second year in which I have supported my hon. Friend the Member for Stafford and Stone on this subject, I should like to give notice that I am sure it will not be the last time we shall be discussing this matter in the House.

The Solicitor-General

To reply to the point raised by the hon. Member for Stechford (Mr. Roy Jenkins), I would say that I was indicating that Clause 16 was in line with the Millard Tucker Report recommendations. He is quite right in that it goes one step in advance of those recommendations and in that respect is more favourable to the taxpayer. The recommendations were confined to expenditure by a company in relation to a mineral which that company was already working, whereas that condition is now dispensed with, which should be an advantage to all companies engaged in the discovery of minerals.

Mr. Roy Jenkins

Could we have a reason for that, as the Solicitor-General considers himself so closely bound elsewhere by the Millard Tucker Report?

Mr. Crosland

I should have thought there was a strong argument for going beyond the Millard Tucker Report, but I should like to know what the words in line 4 "in connection with that trade" mean. If that does not mean in respect of a mineral which the company is already working, what does it mean? How does Clause 16 then go beyond the Millard Tucker Report?

The Solicitor-General

I am unable to follow the hon. Member's question as referring to the line which he mentions.

Mr. Jenkins

I beg the hon. and learned Member's pardon. I was referring to page 18, line 37.

The Solicitor-General

I will try to deal with that point on the Motion, "That the Clause stand part of the Bill," when I have had an opportunity of looking at the line to which the hon. Member refers.

Mr. H. Fraser

In view of the careful reply which has been given by the Solicitor-General, although he has been confused by some of the talk from the other side of the Committee—I understand line 37 quite clearly—and in the hope that what has been said will be carefully considered between now and the Report stage, and line 37 fully understood, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Sir Harold Roper (Cornwall, North)

I beg to move, in page 19, line 11, after "thereto," to insert: but not the working of such deposits. I move the Amendment in the belief that the addition of these words is necessary to give effect to the Government's intention in the Clause. I need detain the Committee for a few moments only in explaining why I believe the Amendment to be necessary. As we have heard in the discussion on the previous Amendment, Clause 16 deals with abortive expenditure on prospecting for oils and minerals, and is in accordance with the recommendations of the Millard Tucker Report.

10.0 p.m.

The position is that the discovery of a new deposit has the effect of creating a new capital asset, and therefore it becomes, for Income Tax purposes, a capital expense. Similarly, in the normal way the search for a new deposit is normally accounted as a capital expense. But the Millard Tucker Report took the line that it is part of the business of the normal mining company or producing oil company constantly to search for and discover new deposits in order that it may keep its business going; that if there is to be any continuity in its business it must be searching constantly for these new deposits.

For such reasons, it was provided in the Income Tax Act, 1945, that abortive expenditure, expenditure on prospecting which proved to be unsuccessful in discovering new deposits, should be counted as a revenue expense, if it was expenditure in prospecting in the same mineral field. Clause 16 in the present Bill extends that to the discovery and the search for new deposits from any source. Where such abortive expenditure is incurred, the Clause lays down that it will be deductable for Income Tax purposes in one block, at the time when the search is abandoned.

The subsection to which my Amendment relates excludes from the operation of the Clause: expenditure incurred in the course of a trade which consists of or includes the searching for, discovering and testing of mineral deposits and winning access thereto. But practically all mining companies and producing oil companies include in their trade the searching for oil. Therefore, it appears to me that this subsection, as drafted, excludes from the operation of this Clause practically all those companies to whom, as I interpret it, the Clause is intended to apply.

My Amendment is drafted on the assumption that the intention of the Government is to exclude, not the ordinary working mining or oil companies, but perhaps companies which may be purely exploring companies, which, having discovered deposits, pass them on to be worked by another company. My Amendment is drafted to apply what I believe to be the intention of the Government.

The Solicitor-General

I think that in answering the Amendment of my hon. Friend the Member for Cornwall, North (Sir H. Roper), I can deal with the point raised by the hon. Member for Gloucestershire, South (Mr. Crosland). I think I shall have to deal with that point to clarify the position under this Clause and make clear the distinction which exists between subsection (1) and subsection (2, b). The Committee will see under subsection (1) that the person has to be carrying on a trade which consists of or includes the working of any mine, oil well or other source of mineral deposits.… That is the first condition which has to be satisfied under that subsection, which goes on to deal with expense in exploratory work by a company of that character.

Subsection (2, b) applies to a company or person carrying on the trade of exploration, and the purpose of the subsection is to ensure that in the case of such a company there is not a double deduction of the expense incurred. Without Clause 16 at all, a company whose trade is that of exploring would be able to deduct as a trade expense the expenses connected with that work. Subsection (2, b) is really only necessary to make it clear that there cannot be two deductions of the same expenses incurred. I hope that I have made that position clear, and in the light of that explanation, which I trust will satisfy the hon. Member for Gloucestershire, South, I hope that this Amendment will be withdrawn.

Mr. Mitchison

I am not quite clear about this matter. In both cases, in the definition on page 18, line 35, and also in the definition on page 19, line 8 onwards, we get the words, "or includes." I should like to ask the Solicitor-General what happens in the case of a trade which includes both these two subject matters. Obviously, it is not merely a question of trades which consist, on the one hand, of working and, on the other hand, of exploring. It is a question of trades which may include something else. Suppose there is a trade which includes both the exploration and the working. In that case, is the Solicitor-General fully satisfied that the Clause will prevent the double claim to which he rightly and reasonably objected?

Mr. Crosland

I must apologise to the Solicitor-General first for unwittingly misleading him earlier with a slight confusion about the correct line, and secondly, for not entirely following his explanation just now. I follow his explanation about subsection (2, b)—that is to say, about companies whose work consists in searching for, discovering and testing. I am not entirely clear about the position of companies which carry on the trade which consists of working as opposed to searching for and testing.

It is clear that this Clause is derived from paragraph 240 of the Millard Tucker Report. That Report recommends that abortive exploration should be exempt where it is incurred in searching for a mineral which the company is already working; that is to say, that if a copper company finds its exploration for new copper deposits abortive, then to that extent it is allowed relief. The Solicitor-General said that this Clause now goes beyond the Millard Tucker Report. If that is so, I still do not understand the meaning of the words in line 37. I should have thought that those words, read in their context, came to almost exactly the same as the phrase in the Millard Tucker Report: …minerals which the company is already working. I do not see, in view of this phrase. how this Clause can be described as going a great deal further than the report. If it does, I should be grateful for an explanation of how it goes further.

Sir H. Roper

I must confess that I have difficulty in accepting or understanding the explanation of the Solicitor-General. It appears to me that this Clause excludes every mining company at present operating in Cornwall. Perhaps my hon. and learned Friend will be good enough to explain to me later why I am wrong. Perhaps he will think it over and mention the matter again on the Report stage. In the meantime, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Motion made, and Question proposed, "That the Clause stand part of the Bill."

Mr. Roy Jenkins

I think we ought to have a further explanation of the other aspect of this Clause in relation to the Millard Tucker Report. The hon. and learned Gentleman did not explain the matter to the satisfaction of my hon. Friend the Member for Gloucestershire, South (Mr. Crosland), and did not say where the Clause had exceeded the recommendations of that Report. If we cannot be told where the Solicitor-General' thinks this Clause does exceed the Report, may we be told why the Government decided to do this? There must be some reason for making the change, and I think we ought to have it.

The Solicitor-General

I can answer that quite shortly. Most of the other questions which were put to me were on matters which, in my view, bore no relation to the specific questions put.

In answer to both hon. Gentlemen, this Clause is intended to, and I think does, go a stage further than the Millard Tucker Report, as the hon. Member for Stechford (Mr. Jenkins) indicated. The company will be entitled to treat as trading expenses expenditure on seeking some mineral other than that which it was, at the moment, engaged in working. The Millard Tucker Report recommended that expenditure should be allowed for searching for minerals which the company was already working. I can assure the hon. Gentlemen that this Clause is not limited to satisfy that condition. In respect of that expenditure, this Clause is more favourable to the taxpayer.

The hon. Member for Gloucestershire, South, asked what was the precise meaning of the phrase "in connection with that trade" in the complicated subsection (1). As I understand it, it does not mean that a company has to be working the same kind of minerals, but that the trade in that case is a trade— which consists of or includes the working of any mine, oil well or other source of mineral deposits of a wasting nature. That is the governing description, and, in my view, it is sufficiently wide to cover the case in which the company goes off and seeks for other minerals. I hope that, with that further explanation, the hon. Gentleman is at last satisfied.

Sir F. Soskice

Is that really a quite satisfactory answer? I hope the Solicitor-General will think further about these words. What do they really say? They deal with the case of a trader who is carrying on the trade of working a particular mine, a particular mine or particular mineral deposit of a wasting nature and in a particular place. Does the phrase envisage that trading in connection with that particular service includes incurring expenditure in exploring entirely different deposits? I find it difficult myself to conceive exactly what the words mean in relation to a situation of that sort?

In what circumstances can we envisage the case of a trader working one particular mine going to a completely different part of the world and beginning to explore a completely different type of mineral deposits in connection with the mine which he is already working? It seems to me to be difficult to conceive of a situation of that sort, and I suggest to the hon. and learned Gentleman that he reconsider these words. It seems to me that they will be extraordinarily difficult to construe in relation to any given circumstances.

It is no good saying that there will be a question of fact whether the expenditure on exploration for a different mineral and in a different part of the world is or is not within the scope of a particular trade. It almost certainly will not be, and in the vast majority of instances one can imagine that it will not be possible to say that a trader has incurred expenditure in a different part of the world and on a different type of mineral in connection with the source which he is already working and which is of a particular kind and in a particular place. I hope that before we part with this Clause the hon. and learned Gentleman will say that he will think further about those words which, in view of the argument to which we have listened in the course of the discussion on this Clause, I must confess do not seem to be satisfactory, and which are, I am sure, very far from clear.

The Solicitor-General

I would say straight away that the point raised about the meaning of this Clause is purely a drafting point, but, without giving any assurance at all about altering the drafting, I will certainly look at the words again.

10.15 p.m.

Mr. Mitchison

I am certain there are very many occasions on which the Solicitor-General does not wish to be discourteous, but I did ask him a serious question which he has entirely failed to answer. Therefore, I propose to repeat it and to ask him once more if he will be good enough to enlighten me on the point. He has told us that but for the provision of Clause 16 (2, b) we would, in the case of an exploring company, I think he said, get a double claim.

The point I wish to put to him is this. Let us imagine a company which is carrying on a trade properly described as partly exploration and partly mineral working and, therefore, a trade which includes both the matters mentioned in subsection (1) and in subsection (2, b).Is the hon. and learned Gentleman satisfied that the Clause as drafted prevents in that case the double claim which he wished to avoid when replying to one of his hon. Friend's Amendments?

It seems to me that the matter is by no means clear, particularly when one looks at the language used in the Millard Tucker Report, which quite rightly mentions exploration expenditure incurred in searching for a mineral which the company is already working. There can be a case of this kind, but even if I am mistaken in my doubts about the case, I suppose it is at any rate possible that some of the other people who have to read and apply the Clause may also be mistaken. I should have thought it was within the ordinary practice of courtesy in this Committee, as it is certainly within the competence of the hon. and learned Gentleman, to answer a question which he has been asked.

The Solicitor-General

I am sorry if the hon. and learned Gentleman thinks I have been discourteous in any way. I must say that his point did escape my memory when I came to reply, but I certainly had no intention of being discourteous to the hon. and learned Gentleman. I have explained to the best of my ability the object of subsection (2, b). It is to avoid the double claim. But there is a danger that the relationship of subsection (2, b) and subsection (1) may create difficulties.

I have already said that we shall look at the actual drafting of subsection (1), and, of course, we will look at the drafting again in the light of the hon. and learned Gentleman's observations. But I think the object of subsection (2, b) is satisfactorily achieved at the moment, although I will certainly look at the matter again.

Mr. Mitchison

I am much obliged to the hon. and learned Gentleman for his courteous reply.

Sir E. Boyle

I would not trouble the Committee with a further speech, but for the fact that having re-read the Clause and the relevant section of the Millard Tucker Report, I think I can possibly answer the question which has been puzzling hon. Gentlemen opposite on the question of how far and why this Clause goes beyond paragraph 240 of the Millard Tucker Report.

One of the stock objections to this Clause in the past has always been, as the Millard Tucker Report says: that abortive expenditure on exploration is in substance a loss sustained in an attempt to create a new capital asset. It was in order to meet this objection that the Millard Tucker Report ended with the recommendation that exploration expenditure should be allowed only provided that it is incurred in searching for a mineral which the company has already worked. As I see it, Clause 16 goes beyond the Millard Tucker Report in that it takes no notice of that objection to which I have referred, and is thus a greater stimulus to the creation of a new asset.

Sir H. Roper

In regard to the Solicitor-General's reply to my Amendment, which has failed to receive approval, may I ask him to give a specific assurance that this Clause is designed to cover abortive expenditure incurred by companies mining for minerals in Cornwall?

The Solicitor-General

The marginal note reads: Expenditure by mining concerns on abortive exploration. I think that satisfies my hon. Friend's question.

Clause ordered to stand part of the Bill.