HC Deb 17 June 1953 vol 516 cc1013-20

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

Mr. Thomas Williams (Don Valley)

I should like to put a question to the right hon. Gentleman. I understand that the basis on which this Clause was settled was an approved one but there appears to be one snag. The interpretation that is being placed upon the Clause is that the definition of the herd basis applies only to cows. Of course, that would exclude heifers or followers-on which in many cases constitute quite a proportion of the whole herd.

If that is the case—and that is the interpretation—I am afraid those unfortunate farmers who have to lose by slaughter their dairy herds will be substantial losers. I am sure that the right hon. Gentleman will correct me if I am wrong. Compensation for the total of the animals slaughtered will be somewhere in the region of perhaps £2 million. If the heifers and followers-on were included they could not be more than approximately 25 per cent. of the original figure.

I should have thought that it would have been well worth while for the Chancellor to have gone all the way and to have taken the whole of the heifers and followers-on within the interpretation of this Clause. The Clause is fully approved with the exception of this point. I hope, therefore, that we shall be told that my interpretation is wrong or that, if I am right, the Government will look at the matter again and see whether or not it would be as well to include heifers and followers-on as well as the cows so long as heifers and followers-on have to be slaughtered because of foot-and-mouth disease.

Mr. N. Macpherson

Although it has not been possible to call my Amendments to this Clause, I should not like to part with the provision without making some comment about it. First, I should like to express my thanks to the Chancellor for the sympathetic attention that he has given to the whole question of those who have suffered losses through foot-and-mouth disease. Only a year or so ago there was a severe outbreak of foot-and-mouth disease which affected my constituency seriously. The right hon. Gentleman has listened with great sympathy to the representations that have been made and, what is more, he has taken action at the earliest possible moment. We are all most grateful to him for that.

As I understand the position, what the Clause does is to give farmers who have not already made an election for the herd basis another chance to make an election for it. Under the 1947 Finance Act owners of production herds were given a right to go on the herd basis within one year from the end of the first year after the Act came into force in which the farmer was chargeable for tax. It follows from that that the only people who benefit from this concession are those who did not take that step at that time In other words, it is those who are not now on the herd basis who are given the option to go on it.

In passing, I would say that that option once exercised cannot be retracted. Therefore, under this Clause a farmer who loses his production herd through foot-and-mouth disease has then to choose whether or not to go permanently on to the herd basis or whether to accept the fact that he will be taxed in one year on the whole of his compensation as if he had sold off his herd as an ordinary trading transaction in one year. That, I think, is the position.

While thanking my right hon. Friend it is only fair to point out the limitations of the concession. As I understand the matter, the production herd is limited to mature animals. Immature animals— those which have not calved—and flocks must be included. I shall be surprised if they are not, because under the original Tenth Schedule it is specifically stated that a herd includes a flock. Indeed, the right hon. Gentleman, when that Schedule was discussed, had a lot to say about acclimatised flocks. I do not think that there can be much doubt about that. Except in the case of acclimatised flocks, immature animals are excluded from the benefit of the Clause.

From the taxation point of view it is true to say that the immature animals form part of the trading stock. The farmer is free to buy and sell them within the course of the year and the profit or the loss that he makes goes into his annual trading profit and loss; whereas on the herd basis the production herd is not brought into account each year. Therefore, the capital value can appreciate without its being subject to annual taxation. That, I think, is the rough difference.

However, in the eyes of the farmer a certain proportion of that immature stock must always be part of the herd, because it is that immature stock on which he relies in order to maintain his herd. He cannot at any given moment identify certain animals and say that those will be part of the production herd but he knows that within the next two years a varying proportion—but very often something between one-third and one-half—of the immature animals will be taken into the production herd. That is the position and he regards it as part of the production herd for that purpose.

What happens in the case of slaughter? The immature animals are slaughtered as well. Suppose that slaughter takes place towards the end of an accounting year. It is plain that the farmer will not, even if he wants to, be able to replace those immature animals within that accounting year. Therefore, the whole of the compensation for the immature stock, whether it is destined to go into the herd or whether it is destined to be sold, falls subject to tax within the one year. It may well be that the farmer will find himself with a very much reduced quantity of compensation in order to replace that immature stock.

5.30 p.m.

This is the difficulty with which one is faced, and it really cannot be said, in those circumstances, that the whole of the immature stock forms part of the trading stock in circumstances like those. It simply means that for the next two or three years there will be a heavy reduction in the amount of profit that the farmer will make, but what is worse from the point of view of the national figures is that it almost certainly means that the herd will be substantially reduced in numbers and its production output will be substantially reduced for a number of years to come.

We all know that to build up a pedigree herd takes many years and to reestablish the destroyed herd and to establish the reputation which was enjoyed by it will take many years. Over that period the farmer may decide not to buy immature stock in replacement, for many farmers prefer to breed their own. If the whole herd is slaughtered, they buy heifers in calf and build up their own pedigree herd all over again. That simply means that in the intervening two years hardly any of the immature stock will be trading stock because they will have to be taken into the herd to maintain the amount of the herd.

When the whole of the herd is slaughtered under a foot-and-mouth order, it is an indication of how inapplicable in those circumstances is the conception of immature stock as trading stock. I doubt very much whether the right hon. Gentleman the Member for Don Valley, when he was Minister of Agriculture and was associated with the Tenth Schedule of the 1947 (No. 1) Finance Act, had in mind the incidence of foot-and-mouth disease. It is something which is now being adapted. It is desirable to adapt it a little further to ensure that the herd and the production of the herd are maintained in the intervening period.

It is customary for farmers to insure against consequential loss as a result of the slaughtering of their herds. No one could argue that that consequential loss ought not to be assessable for taxation. After all, it is a loss of profit. But the purpose of the insurance is to cover farmers for loss of profit for several years and not just for the one year in which the payment falls due. This is another aspect that I ask my right hon. Friend to consider.

A number of farmers have been waiting for some time for the Bill to become law before taking any action. Farmers are canny people and will not treat something as law until it actually becomes law. I am a little doubtful whether the period within which an election has to be made will be adequate in all circumstances this year, although in future years it will. The Clause specifies that the election has to be made not later than 12 months after the end of the first year of assessment for which the tax is chargeable. Once the Bill is on the Statute Book, in future years that will be clear, but I am doubtful whether it is adequate in the first year. I thank my right hon. Friend for the concession and I hope that at the next stage of the Bill it will be possible to go a little further.

Mr. John Mackie (Galloway)

I support the argument which has been placed before the Committee by my hon. Friend the Member for Dumfries (Mr. N. Macpherson). My constituency, which adjoins his, suffered not so heavily as his did but still very considerably in the unfortunate cattle plague which struck southern Scotland in the summer months last year. I well know from personal experience what it meant to many dairy producers in that area which is so largely devoted to dairy production. My constituency is even more suitable for dairy production than is that of my hon. Friend, which is saying something pretty daring. With his very technical arguments, my hon. Friend has gone deeply into the matter and I do not propose to follow him. He must have devoted a considerable amount of time to the preparation of the speech and must have had a considerable amount of skilled assistance in preparing it.

I know the very great difficulty which has been experienced and is still being experienced by dairy producers who have been compelled to slaughter the whole of their herds. I have in mind in particular the case of a famous herd in my hon. Friend's constituency, with the building up of which considerable difficulty has been experienced. Some of these farmers are holding their hands until they know what the position will be under the Clause and under future legislation.

I also wish to support the very direct and simple point made by the right hon. Gentleman the Member for Don Valley (Mr. T. Williams). Is the assistance to be forthcoming under the Clause as it now stands to be confined simply to the cows, or is it to be applied also to the heifers—or, as we call them in Southern Scotland, queys—and the followers-on? If, to use the words of the right hon. Gentleman, the Financial Secretary to the Treasury can assure the right hon. Gentleman that he is wrong and me that I am wrong, he will have gone a long way to clear away the doubts and fears felt by dairy producers.

The Financial Secretary to the Treasury (Mr. John Boyd-Carpenter)

The startling contingency of both the right hon. Gentleman the Member for Don Valley (Mr. T. Williams) and my hon. Friend the Member for Galloway (Mr. Mackie) being simultaneously wrong is so improbable that I need not spend any time upon it. The right hon. Gentleman is correct. The owner of the heifer does not, for reasons that I shall explain, come within the advantages of the Clause. All the Clause does is to take the existing herd basis rules and give to those who did not by the date previously fixed, 5th April, 1948, elect to go on to the herd basis an opportunity to do so either now or in the future. The Clause does not purport to alter— this may sound a re-duplication, but I am sure the right hon. Gentleman will understand me—the basis of the herd basis; it simply provides a new and continuing entry to it.

Thus, the rule remains as it has been since the Act of 1947. It is very clearly set out where those provisions are re-enacted in the Twentieth Schedule to the Income Tax Act, 1952, where these clear words are used: Female animals shall be treated for the purposes of this Schedule as becoming mature when they produce their first young. My hon. Friend the Member for Dumfries (Mr. N. Macpherson) raised substantially the same point, the exclusion from the advantages of the herd basis of young stock. That is a matter on which I know there are considerable feelings, and opinions have been expressed, notably by the Scottish N.F.U., but there are very real difficulties in the way of accepting my hon. Friend's point of view. It is only his point of view that arises here because, as I understand it, these suggestions for the extension of the herd basis have been indicated to be out of order and therefore, Mr. Hopkin Morris, I must be careful not to incur your displeasure by dealing with them even by way of illustration.

The Committee will appreciate that if that is so, the most which it is possible for my right hon. Friend and myself to do is to listen, as we always do with interest, to the arguments which are put forward. One always listens with particular interest to the right hon. Member for Don Valley when he speaks on topics agricultural. I certainly would not dream of joining issue with him on any such topic.

Returning to my hon. Friend's point, this issue has been very much discussed and there are really two considerations which arise. In the first place, almost by definition, young stock is not part of a production herd. It is not part of the capital of a business. It may in course of time become so, but it is not so while it remains young stock. That view has been upheld by the Tucker Committee. The Scottish N.F.U. were good enough to put this point of view to the Tucker Committee. I do not want to weary the Committee by reading the opinion of the Tucker Committee, but paragraph 288 is very clear on the matter and expresses in far more authoritative terms than I could what I myself tried to express a moment ago on this point.

The other point that my hon. Friend raised I can deal with very rapidly. He referred to the topic of his own last Amendment, the possibility of spreading compensation payments. I think I need only invite his attention to what my right hon. Friend said on the previous Amendment. I think my hon. Friend will recall that my right hon. Friend indicated that that is essentially part and parcel of the wider problems which the Royal Commission is at present discussing, and for those reasons it is not perhaps particularly fruitful to pursue them too far now.

On his other point of the length of notice and the margin of time for making the necessary election under this Clause, my hon. Friend may recall that on the Second Reading I said: Under subsection (2) of the Clause this"— that is, the election— can be done at any time up to 12 months after the end of the financial year in which the compensation payment in question is made."—[OFFICIAL REPORT, 7th May, 1953; Vol. 515, c. 585.] I think that allows a reasonable time for any farmer who has had the misfortune to suffer the loss of his stock in this way to consider whether or not the herd basis would be of advantage to him. Naturally the last thing my right hon. Friend would wish to do would be to deprive anybody of the benefits of this Clause through inadequacy of time in which to make up his mind, but I feel that the period to which I have referred is adequate for that purpose and is a great deal longer than is often provided for the making of similar decisions.

I was glad to note that the Clause as such has been welcomed on both sides of the Committee. As I said on Second Reading, it will be of substantial advantage to those considerable sections of the farming community who suffer from outbreaks of foot and mouth disease. As hon. Gentlemen will have noticed, provision is made so that election can be exercised in the interests of those who suffered in the severe epidemic of 1951–52, and it is always gratifying to find that a Clause is not only supported in this way but is subject only to the criticism that hon. Members would like it to go even further. That is certainly an encouragement to my right hon. Friend.

Question put, and agreed to.

Clause ordered to stand part of the Bill.