New Clause.—(EXEMPTION FROM INCOME TAX OF CERTAIN TRADING PROFITS OF ALLOTMENT AND GARDEN ASSOCIATIONS.) (Hansard, 16 July 1957)

§ Mr. Thomas Williams (Don Valley)
I beg to move, That the Clause be read a Second time.
This Clause deals with a rather small point compared with the subjects with which we have we have been dealing. I know that the National Allotments and Gardens Association has been in touch with the Treasury. It has felt, ever since 1933, when this tax was originally imposed upon Co-operative societies generally, that it was unable to discriminate between an ordinary Co-operative 1032 society with a turnover of millions of pounds, and a tiny garden or allotment society whose turnover might be a few shillings or pounds.
The size of the revenue obtained by the Treasury is so small that the Financial Secretary does not know what it is, according to a reply that he gave to a Parliamentary Question which I asked. It was the old formula, of course, that the figures were not available to him. I do not know whether he has got the figures today, but if he has I hope that he will tell the House exactly how much revenue is collected from allotment and garden societies which are registered under the Industrial and Provident Societies Acts, 1893–1954. I should imagine that the sum is so infinitesimal as to be not worth collecting.
The Financial Secretary and all Chancellors since 1933 have excused themselves by saying that they cannot discriminate between an allotment and garden society and a huge Co-operative society with a turnover of many millions of pounds. Why they should think that this would be forming an unpleasant precedent I really cannot understand. After all, it is curious that if a garden or allotment society carrying on similar activities on behalf of its members, and only its members, and distributing no profits among its members at all, is not registered it is not taxed. It is only if the allotment society is registered under the Industrial and Provident Societies Acts that the Treasury demands—it must be its ounce of flesh, since it is not big enough to be called a pound of flesh.
Why do these allotment societies feel that this is an unnecessary imposition? First, the Ministry of Agriculture desires to encourage allotment holders to cultivate their plots. Local authorities like their tenants in council houses to cultivate their gardens. These people come together in a society which purchases seed potatoes, fertilisers, seeds, and other things wholesale, and retails to its members at a determined price, which leaves a very tiny margin in hand.
The societies have a use for that tiny margin. An allotment society may lease an area of land for twenty-five or fifty years. The allotment holder is charged his normal rent and the society has to maintain, perhaps, hedges and ditches and be responsible for work on and 1033 around the land which has been leased for a period of years or, perhaps, bought outright. Therefore, a small margin is required, and this comes from the small profit which is made in buying wholesale and retailing to the societies' members as cheaply as possible.
I do not think that I am called upon to make a lengthy oration. It is not sufficient for the Financial Secretary to repeat what was said in a letter sent by one of his Departmental officials, namely, that this was debated in the House in 1933 and that there has not been a sufficient change between then and now for the Chancellor to change his mind. I would not expect Conservative Chancellors of the Exchequer to change their minds every quarter of a century, but, at least, I think that the Financial Secretary will have to find a far better excuse for rejecting this proposed new Clause than the one that has been made from time to time over the years.
I hope that the hon. Gentleman will have looked at this question and will have noted the trifle in terms of cash produced for the Treasury, will have noted how unnecessarily it disturbs allotment and garden societies, and will feel that it is not the sort of precedent of which he or the Chancellor may be afraid. I hope that he will release these societies who are registered and let them get on with the job which is well worth doing, without the embarrassment of bookkeeping and the problems created by the tax collector who collects a tax which is not really worth collecting.

§ Mr. A. J. Champion (Derbyshire, South-East)
We are, as my right hon. Friend the Member for Don Valley (Mr. T. William) has said, concerned with small groups of people who meet together for the purpose of furthering their work on gardens and allotments. They come together in order that they may purchase co-operatively seeds, fertilisers, garden requisites and the like. Their task is, indeed, very limited, but they carry out the very important function of fostering the domestic production of food.
The usefulness of these associations is, of course, recognised by the Minister of Agriculture. In his fertiliser schemes, which he presents to the House from time to time under the Act of 1952, he makes specific mention of these associations and tells us that subsidy can be claimed by 1034 them on behalf of their members in certain circumstances, always provided that the associations are registered under the Industrial and Provident Societies Acts, 1893–1928, or have written rules governing their constitution and management.
It might be suggested that it would be advisable for these societies which get together for this purpose not to register under these Acts and thus avoid payment of Income Tax on their mutual trading activities. But the fact is that most of these associations have control of some land. They either lease or buy land in order to carry on their activities. They usually have their land under a lease agreement, and in order to have that, they are urged to register under the Acts which I have mentioned.
It is quite clear, as my hon. Friend has said, that these are not societies which distribute dividends in any way. Any slight profit which they make is devoted to the administrative costs of running their little associations or financing the replacement of stocks and the maintenance of the sheds and so on which are necessary to enable them to keep their small stocks of fertilisers and other materials. In addition, they have to look after the boundary hedges and ditches of the land which they lease.
This tax is only a deterrent and a nuisance to these associations. It does not bring anything worth while to the Treasury. Indeed, I very much doubt if the amounts which accrue to the Treasury as a result of this small tax will pay for the cost of collecting it. My right hon. Friend has already mentioned some of the figures. And they seem to me to support what I am saying about the value of this tax to the Treasury.
We know that this tax is levied under Section 444 of the Income Tax Act, 1952, which re-enacted a Section of the Act of 1933. That Section of the 1933 Act was, of course, aimed against any profits made by the Co-operative societies. I am not entering into any old controversy about whether it is right or wrong for the Cooperative societies to have been mulcted in Income Tax, but it seems that we are using a very big stick to lambast a very small group of people who are doing a task entirely different from that of the normal Co-operative society.
1035 I appeal to the hon. Gentleman to accept this new Clause. It will not mean much to the Treasury, and it is, as I say, a source of annoyance and a deterrent to those people who come together to do a job in which they should be encouraged. Anyone who has seen the declining allotments on the edge of great towns will realise that we should do everything in our power to increase a useful activity which is being carried out by many decent citizens of this country.

§ Mr. Powell
This new Clause seeks to exempt from Income Tax profits arising from mutual trading by the associations of which the right hon. Gentleman the Member for Don Valley (Mr. T. Williams) and the hon. Gentleman the Member for Derbyshire, South-East (Mr. Champion) have spoken. It is probable that under the law as it stands at the moment profits arising from mutual trading are not liable to Income Tax. The point is that the net surpluses accumulated by the registered associations are not regarded by the Inland Revenue as profits arising from mutual trading, and so far the associations have not sought at law to controvert that interpretation.
The question is, therefore, not whether we should do what the new Clause suggests but whether we should provide that the surpluses of these associations should, whether they are profits arising from mutual trading or not, not be liable to Income Tax. The wider problem of the surpluses of registered societies, of which this Clause deals with a very small part, was considered at great length and with great care by the Royal Commission on the Taxation of Profits and Income which came to the definite conclusion that surpluses should be taxable.
Paragraph 593 of the final Report says: Our proposal"— the Commission was assuming at the moment that these surpluses are not taxable— is that no surplus derived by a corporation from trading operations should be exempt from taxation as profits under Case I of Schedule D on the ground of mutuality. I will not trouble the House with the long argument which brought the Royal Commission to the unanimous conclusion that these surpluses, of which the small 1036 surpluses made by these association are a tiny example, should not be exempt from Income Tax. But that is one of the new factors which have arisen since 1933 and which the right hon. Gentleman the Member for Don Valley invited me to put before the House, and I think that there we should not depart in this respect either from the law as it is in practice established at the moment or from the recommendations of the Royal Commission.