HC Deb 16 July 1957 vol 573 cc1023-31

Subsection (1) of section three hundred and five of the Income Tax Art, 1952, shall be amended by the insertion at the end of paragraph (b) of the fallowing words— or (c) on the acquisition of, or rights in or over, the deposits; and by the deletion of proviso (ii) to the said subsection:

Provided that no company or person shall by virtue of this section be liable to pay any more tax than that company or person would have been liable to pay if this section had not been passed.—[Mr. Stevens.]

Brought up, and read the First time.

Mr. Geoffrey Stevens (Portsmouth, Langstone)

I beg to move, That the Clause be read a Second time.

My intention is to give to our extractive industries operating in this country a tax allowance in respect of wastage through consumption of the raw materials of their trade.

The present position ignores the very important fact that every prudent undertaking of this kind has in the past acquired deposit lands containing gravel, ore, chalk, or whatever it may be, sufficient for its needs for many years ahead. This is done for two very good reasons: the incidence of various Town Planning Acts and because certain of these extractive industries make use of extremely expensive capital equipment. Only if the undertaking can be guaranteed a number of years' continuous use of that capital equipment can the equipment be economically used.

It now seems that prudent companies which have protected themselves against the future are to be penalised while undertakings which have led and are leading a hand-to-mouth existence are benefiting and, unless something on the lines of the proposed new Clause is enacted, will continue to benefit in the future.

The matter has twice been the subject of investigation. The first investigation was by the Tucker Committee on the Taxation of Trading Profits. In paragraph 234 of its Report the Committee said: It will be sufficient for us to record our view that the business profits of a concern of the kind in question"— that is, an extractive industry— cannot be properly computed without a proper allowance for depletion of minerals. Again, in paragraph 238, the Report said: We cannot do more than record our view that the operating company's profits are not properly computed unless it receives an allowance based on the full amount which it has expended on the acquisition of the minerals. It is true that the Committee qualified that view by referring to the position of the vendor of those lands, who perhaps has received a good price for them. In the same paragraph the Committee raised the question of the position of the seller where some part or the whole of the proceeds of the sale might perhaps be subject to tax.

It was for that reason that the Committee said that a final decision on this point was outside its terms of reference, and that it was a proper subject for consideration by the Royal Commission on the Taxation of Profits and Income. That Royal Commission gave very close consideration to this problem, and paragraph 427 of its Report says: We have reviewed the existing method of computing the profits of mining ventures for the purposes of taxation. Leaving the rest of the paragraph, and turning to paragraph 428, we find this: We came to the conclusion that these complaints against the existing method were justified and that we ought to recommend a change. A little later, in paragraph 445, the Commission did recommend a change, and said this: We have decided therefore that we ought to recommend that in future a depletion allowance should be given in respect of the cost of acquisition of mineral rights or areas. The Commission limited that recommendation when it said: It should be granted only in respect of sums paid after the date of the new system coming into force. In other words, the prudent undertakings are once more cut out. For me, at least, a very large part of the force of that recommendation is extinguished by what the Royal Commission chose to say in the preceding paragraph. The argument against giving the depletion allowance to reserve land at present acquired is that the vendor may have received some element of tax-free sums in the amount which he received, and the Royal Commission have this to say about that point: No doubt the disallowance "— that is, of any charge for depletion in the purchaser's account— is an element which has to be taken into account by any purchaser who is trying to fix a competitive price for an area; but to sup-pose that it s necessarily a determining element on each occasion or that it is even probable that conditions will exist under which the tax difference will be reflected recognisably in the purchase price appears to us to sacrifice too much to dogma. In other words, the Royal Commission said quite clearly that the tax element is normally entirely ignored at the time when the bargain was struck between the vendor and the purchaser.

I see two possible difficulties in the way of the acceptance of this Clause. First of all, there is the question of the administrative machinery which might be needed in order to give effect to this Clause and the basis upon which a depletion allowance could be arrived at. Machinery adequate for the purpose is already provided in the shape of the existing depletion allowance for subsequently acquired land in Part III of the Income Tax Act, 1952, where allowances are made on the basis of the ratio of the annual output to remaining reserves. A similar basis will be used in connection with reserve lands in hand.

The other objection may deal with the question of cost. I tabled a Question to my right hon. Friend the Chancellor in April this year asking what might be the cost of giving this depletion allowance, and the answer was that it was exceedingly difficult to determine what the cost of the concession might be. Quite clearly, it might be fairly substantial, but the extractive industry in this country is a very large one, and since the cost might be considerable, it is possible that my hon. Friend who will reply will say that on this ground alone the concession cannot be considered in this year's Budget.

At the same time, and even if he says that, this matter is one of very considerable importance to a very large industry in this country, and I hope that when my hon. Friend comes to reply, he will at least give a very clear indication of the attitude of the Chancellor in this matter. A year ago, we had from his predecessor some kind of intimation that the Government would again examine the problem. I hope that, if that is the kind of reply which he is to give on this occasion, which I can quite understand, he will at any rate be more definite and more forthcoming than on the last occasion.

7.15 p.m.

Mr. John Arbuthnot (Dover)

I beg to second the Motion.

There is not very much I can add to the very adequate way in which my hon. Friend the Member for Langstone (Mr. Stevens) has explained the purpose behind the Clause and the problem involved in it. Here we have an extremely important industry to the country, and it was rather disturbing to hear the answer of my right hon. Friend the Chancellor of the Exchequer that he did not know what the cost of a concession of this kind would be. That really is rather unsettling for the industry. If the Chancellor himself does not know what the cost of such a Clause may be, it is rather difficult for the industry to decide what probability there is of such a Clause being accepted, either now or at some future date. I hope it will be possible to have a clarification of the position in reply to this debate.

It seems unreasonable that there should be one part of the industry—the larger part—which has its reserves in hand, so to speak, which receives no allowance, and yet the smaller part of the industry, which has not been so wise in obtaining reserves in hand, receives an allowance. It is taxation of a profit that is in fact an unreal one. I hope it will be possible to do something to meet the problems of this industry, which is so important to the nation.

Sir T. Moore

I wish to support the Clause so admirably and lucidly sponsored and explained by my hon. Friend the Member for Langstone (Mr. Stevens). In doing so, I shall follow the time-honoured formula and declare my interest. I am closely associated with a company which has, for 140 years, been supplying bricks for the homes, factories, schools and hospitals and even the prisons of this country, and very good bricks they were and are, in spite of the destruction caused by Hitler's bombs to houses erected with them.

In order to do all this, as my hon. Friend has explained, the undertakings that are concerned in this industry had to acquire quarry land all over the country and erect very expensive and intricate machinery and buildings in order to turn the raw materials into bricks. These quarries get worked out in time, and the very expensive and intricate machinery is of no further use in the locality in which it is erected.

Mr. Emrys Hughes (South Ayrshire)

Are there quarries in Scotland?

Sir T. Moore

Yes, one of them is, but if the hon. Gentleman wants any further information, perhaps he will see me outside, because I do not want to detain the House by answering somewhat irrelevant questions.

These quarries get worked out in time, but the machinery is of no further use in the locality of the quarry. Under the existing legislation, there is no depletion allowance for the working-out process of a quarry. I know that my right hon. Friend the Economic Secretary to the Treasury will probably argue that those who acquired this quarry land were fully aware of the fact that there was no depletion allowance, and yet they took the risk, and that is quite true. They did, but it was in the national interest that they should do so, and the nation has benefited as a result. They not only had to acquire land but to acquire such land as would supply reserves to justify the erection of expensive and intricate machinery.

The anomaly of which we complain has already been considered by the Tucker Committee. Although that Committee agreed that a depletion allowance should be granted so as to allow a proper appreciation of profits to be made, it did not feel able to go further than to refer the matter to the Royal Commission. The Royal Commission was a great disappointment in its recommendations on this matter. Although it in turn recommended that a depletion allowance should be granted, it limited it to new entrants to the industry.

To my mind, that was a great injustice, because the old members of the extractive industries had taken a risk, devoted time and money to research—chemical research—and every kind of development, and are to have no depletion allowance, but the new entrants profiting by the skill, enthusiasm and determination given to the industry by the older members are to be able to step in and get the depletion allowance, if the recommendation of the Royal Commission is adopted.

I do not know what any other hon. Member may say, but I think that between us we have proved the case, which is incontrovertible. I agree that possibly the Treasury might find it difficult to grant this request on this occasion as a certain amount of legislation would be inevitable, but the Treasury could give us hope that next year, when, no doubt, we shall be in a much more favourable financial position than we are in today— [HON. MEMBERS: "Oh."]—we shall have the good will of the Treasury in this matter.

When this question was discussed last year a very convincing speech was made by my hon. Friend the Member for Essex, South-East (Mr. Braine). To such an extent was that speech convincing that the then Economic Secretary practically gave an undertaking—I shall not say that he went quite so far as to give an undertaking—that the whole matter was being very carefully and fully considered and that something would possibly be done. In view of that partial guarantee that something would be done, we ask that something shall be done now, or if not now, next year.

Mr. Birch

My hon. Friend the Member for Langstone (Mr. Stevens) moved the Motion for his new Clause with great lucidity. In support, he quoted a great many of the things which were said about depletion allowances in the Report of the Royal Commission. My hon. Friend the Member for Ayr (Sir T. Moore) pointed out in his reference to the Royal Commission that its recommendation extended only to new works. This Clause, as my hon. Friend is aware, goes considerably further than the recommendations of the Royal Commission, in that it would mean that expenditure incurred since 6th April, 1946, would qualify in full for allowances to be given in future.

My hon. Friend who is now the Parliamentary Secretary to the Ministry of Education spoke for the Government on this subject last time and gave a promise that the matter would be carefully considered. I do not think he went very much further than that. It has been extremely carefully considered. To say that our minds are not closed on this matter yet is as far as I can go to satisfy my hon. Friends. My hon. Friend the Member for Langstone was certainly right in saying that adoption of the Clause would call for extremely complicated legislation. There are a number of different types of minerals involved. There would have to be all sorts of provisions as to sales between associates and so on, and it would work out as a very complicated piece of legislation. Further, as I think was recognised, the circumstances of different extractive industries in this country are not the same and a tax relief which benefits one does not benefit another. For example, the Cornish tin industry—like the "foolish virgins" to which my hon. Friend the Member for Dover (Mr. Arbuthnot) referred—which has many good friends in the House, would not be benefited, because, in general, it works on the royalty principle. The principal industries which would be benefited at present are sand and gravel, ironstone, chalk and brick clay. I do not think it would be quite true to say that any of those industries was really subjected to the full blast of foreign competition; they are reasonably prosperous.

My hon. Friend the Member for Dover raised the question of cost. The reason it is so difficult to estimate what the cost would be is that at the moment I understand, as a result of the way the industry is set up, this provision would mostly benefit the sand and gravel industries; but if there were depletion allowances, there is no doubt that there would be changes in the structure and a lot more companies would qualify for this relief. It is not easy to say how many. Therefore, there would be a considerable contingent liability which we cannot altogether estimate. Certainly the points made by the Royal Commission on this matter are weighty, but they are also extremely complicated. We have not yet reached a firm conclusion on them and, as I said, all I can offer my hon. Friends is an open mind.

Mr. Douglas Jay (Battersea, North)

The Economic Secretary said that his mind is not yet closed, but can he answer this question? Is the position now that the Government have accepted the logic and principle of this argument, as did the Royal Commission, but that they feel the legislation would be too complicated and the administrative problems too difficult? Is that the position, or is the hon. Gentleman telling us that the Government have not yet accepted the principle of the argument?

Mr. Emrys Hughes

I find myself in some doubt as to whether or not I can support the hon. Member for Ayr (Sir T. Moore).

Sir T. Moore

It is the first time.

Mr. Hughes

It may be the first time, but I feel somewhat compassionate because he made a very interesting speech in which he put a case for consideration of a company operating, I understood, in Scotland. If it is likely to benefit any of my constituents, I should be only too pleased to support it, because he knows that when it comes to helping industry in Scotland we sometimes agree.

I was puzzled when the Minister referred to the "foolish virgins". What are they doing in this quarry? There has been such a degree of ambiguity in this debate that I am extremely doubtful as to whether when the hon. Member for Ayr goes into the Division Lobby I should accept him as my leader. All I wish to know—perhaps the hon. Member can tell me—is where this quarry is located, whether it is in South Ayrshire, Ayr Burghs or whatever other location, and what exactly would be the advantage which would accrue to my constituents. [An HON. MEMBER: "Ask the virgins."]

Mr. Stevens

In view of the undertaking I have extracted from my hon. Friend, that he will keep an open mind on the subject and not regard it as a closed book, I beg to ask leave to withdraw the Motion.

Motion and Clause, by leave, withdrawn.