HC Deb 15 June 1959 vol 607 cc103-17

Subsection (3) of section one hundred of the Income Tax Act, 1952, shall be amended as follows—

  1. (a) by the substitution of one-half for one-fourth in paragraph (a);
  2. (b) by the substitution of two-fifths for one fifth in paragraph (b);
  3. (c) by the substitution of forty for twenty and one-third for one-sixth in paragraph (c).—[Mr. Stevens.]

Brought up, and read the First time.

Mr. Stevens

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

We had a debate earlier today on various aspects of Schedule A tax, whether it should or should not be abolished altogether, or whether it should be abolished for owner-occupiers. I remember that the Royal Commission on the Taxation of Profits and Income did report that land was, in its opinion, a proper subject for taxation, and I did hear the Chancellor this afternoon say, what is undoubtedly true, that there is room for two views on this subject. It is my experience of life, and drawn from a large number of cases, that where there is room for two views compromise can very often be achieved and is possibly the best solution, and this new Clause, I would think, is an amiable compromise, a safe passage between the Scylla of abolition of Schedule A altogether and the Charybdis of retaining it in its present form altogether.

I do not myself think that the case for the abolition of Schedule A, even on the owner-occupier, is the strong case, is the proper one, but I do agree that Schedule A tax does require some modification. There has been a very considerable change in money values since the fractions which we now use for arriving at the statutory repairs allowance were calculated. The cost of repairs has varied a great deal in the last twenty or thirty years.

It is perfectly true, as was said in the earlier debate, that it is competent for a householder to make a Schedule A maintenance claim, but whilst it is perfectly true that the owner of a large property knows, or frequently knows, all about these things, a very large number of small house-owners do not. I know that ignorance of the law is no excuse. It is the fact, however, that the wealthier house-owner can afford to employ an expert to assist him in these matters, while the elderly, living in retirement in a small house, cannot do so. Therefore, I am quite certain that a very large number of Schedule A maintenance claims go in default of the making.

I am well aware that the Royal Commission, in dealing with the question of the statutory deduction for repairs, said that in its view any variation should await revaluation. In our earlier debate some reference was made to revaluation. We have been awaiting revaluation for twenty years, and we really cannot go on interminably postponing some rectification of these anomalies, bringing some form of justice, particularly to small house-owners, by awaiting a revaluation that never seems to come.

This new Clause seeks to double the present statutory repairs allowance, and that, obviously, will bring proportionately and practically more benefit to the small owner than to the large. I believe that, because of his constant postponement of revaluation, this constant postponement of bringing justice to these people, the time has come to do something now, and I commend to the Committee this new Clause which, I suggest, is a compromise between two views.

Mr. Page

I want to support my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens) in moving this new Clause, not merely because it gives me a chance to come back to the attack on Schedule A, but because I sincerely believe that this Clause provides a possible compromise which will put right a number of existing anomalies and dispose of some of the unfairness and injustice which falls upon the Schedule A taxpayers.

If one takes a figure of gross value such as £40, the statutory allowance is £10, as the law stands at present. These figures were fixed as long ago as the mid-'thirties, and that £10, I think hon. and right hon. Members will agree, is represented by about £30 today. I make that estimate upon the following facts. In 1939 a craftsman in the building trade received 1s. 9d. an hour; he now recieves 4s. 10½d. an hour. Therefore, the cost to anyone engaging him on repairs is 279 per cent. of the 1939 figure. The labourer's hourly rate in 1939 was 1s. 3¾d.; it is now 4s. 4d.; that is, 336 per cent. of the 1939 figure. For materials, approximately it is 306 per cent. of the 1939 costs. So about 300 per cent. is the average increase in the cost of these items, the increase in the cost to the householder of repairs.

On that basis our new Clause ought to have asked for the statutory allowance to go up to three-quarters instead of one-half in the ranges between £40 and £100 gross value. For example, we ought to have asked for a deduction of £30 from £40 instead of £20. I think the new Clause as it stands is, therefore, amply justified by the increases in the cost to the householder of repairs, but it may be said that one ought not to modernise the statutory allowance without modernising gross values. That argument is fallacious, because gross values, at any rate of property let, have indeed been modernised by the tax on excess rents. If the property is let the landlord pays, not only Schedule A tax, but tax on the excess rent as well. So to that extent gross value has been modernised, and yet the statutory allowance remains the same. Gross value, indeed, is meaningless except in relation to the owner-occupier.

Again, it may be said that this new Clause benefits the owner-occupier more than the landlord. It does if one looks at it proportionately. For example, taking the figure of £40 gross value again, under the new Clause a landlord will be paying on £80 rent less £20 statutory allowance. I take from the Rent Act, 1957, the rent limit of twice the gross value. He will be paying on £60 instead of £70 whereas, under the new Clause, the owner-occupier will be paying on £40 less £20; that is to say, he will be paying on £20 instead of his present liability of £30. Although proportionately there is a difference between the owner-occupier and the landlord, if the Clause were accepted there would be in both cases a reduction of tax liability of £10.

7.0 p.m.

The Rent Act, 1957, however, embodied an up-to-date assessment of the relationship between rent and repairs and, therefore, between gross value and repairs. Rents were fixed by the Rent Act, 1957, for those properties which remain in control, at twice the gross value, if the landlord carries out the repairs. But if the tenant carries out the repairs, the rent limit is four-thirds of the gross value. Therefore, we recognised by that Act that repairs were one-third of the permissible rent, which means two-thirds of the gross value, and not merely one-quarter as recognised by statutory allowance under the law at present.

Therefore, if the landlord does all the repairs and receives twice the gross value by way of rent, he gets a statutory allowance of only one-quarter of the gross value. On figures between £40 and £100 gross value, he gets only one-fifth by way of statutory allowance. These figures, based on the Rent Act, themselves recognised that the landlord must, almost invariably, put in a maintenance claim. On a gross value of £40, the Rent Act recognises that repairs are £28 13s. 4d. a year, but the owner gets a statutory allowance of only £10 a year. These sort of figures get wider apart as one goes up the scale in gross values. At a gross value of £100, the Rent Act recognises repairs of two-thirds of £100, or £66 13s. 4d., and yet the statutory allowance at only one-fifth is a mere £20. At figures of £200 gross value the gap is even wider. At two-thirds of £200 the Rent Act recognises the repairs to be £133 6s. 8d., but the statutory allowance comes out at £36 13s. 4d.

This wide discrepancy between what we have statutorily recognised as the proper amount for repairs is nothing but an incitement to maintenance claims, with all the administrative expense and difficulties which those represent and the unjust collection from those who cannot cope with these complicated claims. With the probable increases in the claims, I doubt whether the Chancellor will lose very much by accepting the Clause. He may well gain in preventing administrative expense by keeping down the necessity for maintenance claims. Even if he is a bit out-of-pocket on it, it is right and proper that he should be.

The stupid rules about maintenance claims exclude many proper maintenance items. Nothing can be claimed under maintenance for work that a person does himself. Neither can he claim anything for repairing a movable electric or gas fire, although he may prefer that type to the fixed type. He can claim nothing for adhesive lino for the floor, but he can claim for adhesive paper for the walls. A person can claim for papering the walls but not for covering the floor, and so on, with all the complications about the distinction between improvements and repairs. I do not think that the doubling up of the statutory allowance, as suggested in the new Clause, does very much to cover this, but even if it goes only a little way it is something. In supporting the Clause, I hope that it is a paving amendment for a future Finance Bill which will abolish Schedule A tax on the owner-occupier altogether.

Mr. Gerald Nabarro (Kidderminster)

Before we part with back bench speeches in support of the Clause, I should like to add a few words on the latter part of what my hon. Friend the Member for Crosby (Mr. Page) has just said.

Questioned about the administrative cost per £100 of the revenue collected, three separate and senior inspectors of taxes have told me that the most expensive form of direct taxation to collect in terms of administration is Schedule A. I do not think that there can be any reasonable argument about that, because of the extraordinary complexities arising today in the matter of maintenance claims and so many marginal issues which the ordinary householder does not trouble to take to the local commissioners for adjudication.

Because of changed designs in appliances for heating purposes, for example, and in many other fixtures and fittings in houses, as a result largely of scientific advance, it is often nearly impossible for inspectors of taxes to adjudicate on what element of improvement or otherwise is represented by a replacement of the article. There have been endless, and very legitimate, arguments by taxpayers with local inspectors to try to decide what element of the replacement price is rightly attributable to obsolescence and what element, if any, may be attributed to improvement of the asset. If the latter, it is wholly excluded, more often than not, from the maintenance claim.

Over the years, I have had many arguments with tax inspectors, and I am only one individual quoting from individual experience among hundreds of thousands in the country. I readily confess— though it would be out of order to pursue it further now—that I am an outright abolitionist in the matter of Schedule A, which in net revenue collects only £34 million in a full year.

Mr. Wade

How, then, did the hon. Member vote in a Division earlier this afternoon?

Mr. Nabarro

I do not think that I was here. I am not sure. I had to miss a number of Divisions on the Finance Bill in Committee through earlier outside engagements, but I am not sure about that one.

I am an outright abolitionist of Schedule A because it is so excessively expensive administratively to collect. I would far prefer that the Chancellor had devoted £34 million to cancelling Schedule A altogether rather than to the relief of taxation on beer, for example. He would have benefited far more people and our national economy generally. I support the Clause. I want the words on record because I propose, in concert with my hon. Friend the Member for Crosby, to pursue the matter more energetically on a future Finance Bill. I regard the Clause as only the tiniest advance towards the desirable objective of the cancellation of Schedule A tax.

The Clause, however, would have one important effect. A large number of piffling maintenance claims would be eliminated if the statutory allowance were doubled, and this would relieve local offices of the Inland Revenue of much minor administrative work which in my opinion—I go further than the hon. Gentleman the Member for Crosby—would not result in any loss to the Revenue, having regard to the high cost of collecting multitudinous small sums of Schedule A tax throughout the country.

I hope, therefore, that my right hon. Friend will receive sympathetically the pleas under the various headings made by my two hon. Friends and myself.

Mr. Houghton

There is no doubt that Schedule A is in a mess, but I question whether it is possible to tinker with it and do any good. Undoubtedly there will have to be a review of the whole position of this tax in our fiscal structure. There will have to be a Schedule A revaluation before long if the tax is to make any sense. At the moment, it seems to us on this side of the Committee that it would be undesirable and unjustifiable to double the statutory repairs allowance over the whole range of Schedule A, though we should certainly be more favourably disposed towards the new Clause if it were confined to owner-occupiers.

There are two Schedule A taxes at present: the assessments made on landlords on rents received and the assessments made on owner-occupiers on the hypothetical annual value of the house which the taxpayer owns and lives in. As regards the latter, I do not think any hon. Gentleman opposite will dispute the assertion that the assessments on owner-occupiers are distinctly below the current letting values. They are pre-war values. The last revaluation was over twenty years ago, and there are literally thousands and thousands of owner-occupied houses of which the assessments today are the same as the last Schedule A revaluation in 1936–37.

Mr. Page

From that, does it not follow that there is a certain unfairness when a new house is valued at present?

Mr. Houghton

I do not want to go too far away from the proposed Clause, but since the hon. Gentleman has intervened with that point, it is a fact that most new houses built for owner-occupation are assessed on a value comparable with other owner-occupied houses and not with tenanted houses nearby. I know that the practice of local commissioners varies in this matter, but, in general, owner-occupiers enjoy the lower level of valuation, even where the house has been built since the last Schedule A revaluation.

It could, of course, be said as regards owner-occupiers that to double the statutory relief for repairs would be to concede the current level of expense for repairs and set it off against the prewar level of annual value. To that extent it could be suggested that it would be unjustifiable to give relief in terms of current cost on repairs against pre-war level of annual value. However, there are many respects in which the owner-occupier spends time and money on the maintenance of his property which he finds difficulty in including in a maintenance claim, and some allowance could be made for much time and trouble that he spends on his property and which a landlord would probably incur as actual expense and thereby be enabled to make a maintenance claim. So we would see some justification for differentiating between the owner-occupier and giving him more relief than in the case of the landlord of tenanted property.

7.15 p.m.

As regards the landlord of tenanted property, as the hon. Member for Crosby (Mr. Page) has pointed out, we must recognise that he is paying on current rentals in most cases. Where the Schedule A assessment itself is below the current rent then the excess rent provisions are there to take care of the excess, and many landlords who are increasing rents under the Rent Act will be liable to additional assessments under Schedule D for the excess rent received over and above the gross value for Schedule A purposes.

So there is this difference between the owner-occupier and the landlord of tenanted property, that the owner-occupier enjoys, by and large, the benefit of pre-war valuation whereas the landlord of tenanted property does not. But the landlord of tenanted property is conducting his affairs, generally speaking, more on a business footing. In many cases it would not make much difference to him if his tax liability were transferred from Schedule A to Schedule D; he would be taking gross rent less outgoings, expenses and the rest, and some reformers of Schedule A suggest that tenanted property should be transferred to Schedule D in the same way as years ago the assessments of agricultural land, which were at one time a specified proportion of gross annual value—the multiple of gross annual value—were transferred from Schedule D to Schedule B. For the present, however, they are assessable under Schedule A and they are entitled to the statutory reduction for repairs not only on Schedule A itself, but on the additional value assessed for the excess rents.

In both cases, of course, maintenance claims may be made. I do not agree with the hon. Member for Kidderminster (Mr. Nabarro), however many senior inspectors he has been talking to, that Schedule A tax is by far the most uneconomical to collect. It is little known how streamlined much of this work can be under Pay-as-you-earn. Thousands of owner-occupiers are taxpayers under P.A.Y.E. The net annual value of their property is set off against their personal reliefs, and their coding is altered accordingly. I have pointed out continually to P.A.Y.E. taxpayers that they should look on their coding notices to see that there has been included in the coding notice relief of Schedule A assessment because it has been set off against the personal allowance. So, in fact, there are thousands of properties on which Schedule A tax is not collected because it is all swept up in P.A.Y.E. deductions which reduces the amount of work on Schedule A considerably.

Hon. Gentlemen opposite have made heavy weather of maintenance claims, speaking as if a chartered accountant is needed to make them. The hon. Member for Huddersfield, West (Mr. Wade), who I believe is a solicitor, made the astonishing confession that he had to employ an accountant to do his Schedule A maintenance claim. I was very surprised to hear that. What has the legal profession come to that it has to go to accountants in order to draw up a few comparatively simple figures of expenditure incurred on property?

Mr. Nabarro

Will the hon. Gentleman permit me to interrupt, because he is being less than fair to the hon. Member for Huddersfield, West (Mr. Wade)? I am not an amateur in drawing up tax returns, but I would not attempt to draw up my own tax returns, particularly in Schedule A matters. I employ a chartered accountant to do it because he knows many of the undesirable habits of the Inland Revenue in these matters. Only a chartered accountant can put his finger upon all the allowable items under these complex maintenance claims in respect of Schedule A.

Mr. Houghton

I will not pursue that point except to say that it is about time that more taxpayers went to their local tax office and obtained free advice on these matters, because that is where they can obtain it. I do not go either to solicitors or to accountants to do my maintenance claims, and I have had no difficulties at all, because I think that I am able to differentiate between maintenance and repairs on the one hand and improvements on the other hand.

I know that in some cases there are fine points, but the general argument I make is that these claims are not as difficult as has been suggested. The form has been simplified. I agree that it is tiresome to have to go back five years and to keep bills and records over the years, but it would be a mistake to suggest that the maintenance claim procedure is so difficult that taxpayers cannot avail themselves of it or that professional fees should be incurred in order to make the claim. I know that a good deal of my speech perhaps sounds like the Financial Secretary to the Treasury, but I am speaking from my own experience and from the facts. In very large measure, those who are entitled to claim under the maintenance repairs procedure are aware of it, even though many of them, for one reason or another, may not trouble to claim.

Mr. Diamond

It would be wrong of me to refer in any way to any of the remarks which have been made about the accountancy profession, but may I tell my hon. Friend that if he goes to a stationer he can buy a very simple form, at a very small cost, on which he can make out his will; and that if he does so he will join the large number of those who are the solicitor's best friend.

Mr. Page

Has not the hon. Member for Sowerby (Mr. Houghton) also disclosed a case in which the taxpayer does not realise that he is paying Schedule A? When it is hidden in their P.A.Y.E. arrangements many taxpayers do not realise that they are paying Schedule A and, therefore, do not realise that they can make a maintenance claim.

Mr. Houghton

My hon. Friend the Member for Gloucester (Mr. Diamond) is not being fair to the Committee when he suggests that the problems of the home-made will can be compared with making a fairly simple claim for maintenance relief based on the actual expenditure incurred, which is verifiable by receipted vouchers. There is not much difficulty about that. The hon. Member for Kidderminster is wearing a most pained look and going through the "simple chap" act again. He is not as simple as he makes out, and I do not believe that he will find any difficulty in completing his maintenance claim if only he will apply his mind to it. There are not many fine points which any taxpayer has to understand about it when dealing with the general run of maintenance claims on the owner-occupied dwelling-house.

Mr. Nabarro

When I was making a short contribution to the debate a few moments ago the hon. Member sat in his place vigorously nodding assent to the comments which I made about the difficulties in separating what is a genuine replacement in respect of an obsolescent or worn-out asset in the home from an improvement, particularly where the replacement involves a part element of improvement. That is the cause of endless squabbles with the Inland Revenue. The hon. Member has given us a very interesting speech in the last few moments. Why will he not comment on that point, which is one of the nubs of this difficulty?

Mr. Houghton

I nodded my head when the hon. Member was saying that because it is about the only point of difficulty which can arise. It is a matter of judgment, not of mathematical certainty, as to how much of a given expenditure is on improvements and what proportion can be regarded as making good part of the house which would clearly require renewal every now and again. These matters are usually settled quite amicably and satisfactorily by agreement. I probably receive as much correspondence on Income Tax as any other hon. Member of the Committee, and I am bound to say that the amount of correspondence which I receive on this subject is very small indeed.

I draw attention to the Royal Commission's observations on this point, to which the hon. Member for Crosby referred. If we double the statutory relief for repairs all round, that may give to many people a relief for repairs they may not do without in any way assisting those whose maintenance claims would exceed even the increased amount given for repairs. In most cases, where an owner-occupier is spending money on the property and keeping it in good order, he has a maintenance claim and would still have a maintenance claim if the reliefs were increased. Our general feeling about the new Clause is that we cannot support it.

Mr. Maudling

My hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens) was very persuasive, but for reasons which I shall try to explain we cannot regard the new Clause as an acceptable compromise. There was considerable discussion earlier today on the principle of Schedule A, and it would be wrong to go over that again. I must confine myself to the relatively narrow points contained in the new Clause.

The new Clause would not affect in any way the expenditure which people are entitled to claim as a deduction from Schedule A assessments. People are entitled, and in future would be entitled, to claim as a deduction from their assessment all that they properly spend upon the maintenance of their property. The only difference would be how much they were assumed to have spent without having to produce proof of it. That would affect two cases. It would affect people who could make a maintenance claim above the existing limits but do not do so for one reason or another, and it would help people who spend less than the new limit and who would therefore receive a benefit to which they were not entitled.

I think that the arguments put forward in favour of the Clause are, first, that the cost of repairs has risen greatly—and it certainly has—and therefore that the statutory deductions should be increased; and, secondly, that maintenance claims present difficult problems for people and that many people who are entitled to put them in do not in fact do so. That is clearly true.

The first point was answered by the Royal Commission. The fact is that the statutory allowance is a proportion of the assessment, and if the allowance has not gone up it is because the assessment has not gone up. It is the assessment on which the owner-occupier pays, and obviously it would be wrong to deal with one in the absence of dealing with the other. I will not go into the question of the probable date of any revaluation, because some of my hon. Friends seem to have slightly differing views on whether it is desirable that this should be early or late, but there is a considerable case for the Royal Commission's comment that any change in this matter should be postponed until revaluation.

It could be argued that the cost of repairs has risen proportionately more than the level of rents. The Royal Commission considered that matter and said that it had received comparatively little evidence on the subject. Here again, I think it felt that a clearer picture would emerge after revaluation and a gradual readjustment of rents. I therefore think that there is much in what the Royal Commission says, that one must regard the statutory deduction as a proportion of the assessment and that the two would naturally move together, because to triple a man's deductions without increasing his assessment would be illogical.

7.30 p.m.

The second argument, which in many ways is very persuasive, is that the business of making maintenance claims is difficult and not properly understood and that many people, particularly small property owners, the owners of small houses and elderly people, find these forms very difficult indeed. We have had two extreme points of view on this question of how difficult it is to fill in a maintenance claim, and I cannot accept either extreme. It is all very well for the hon. Member for Sowerby (Mr. Houghton) to say that he finds no difficulty, but, if I remember correctly, he spends a lot of time advising other people on how to fill in their Income Tax forms, and if he cannot do his own, heaven help us. I therefore think that his evidence in the matter is not particularly good.

Mr. Jay

Is it sufficiently clearly stated on the form which the taxpayer has to fill in that it is possible for him to make these claims?

Mr. Maudling

I was coming to that. The right to claim is pointed out in various forms issued by the Inland Revenue, including demands for and receipts for Schedule A, notes accompanying the Income Tax return forms and P.A.Y.E. coding notices. The Revenue distributes pamphlets and instructions to people, but the fact is that many people find these pamphlets very difficult to understand.

It is difficult to come down on one side or the other of the argument. It should be easy for all of us to put in maintenance claims, but in fact we know that for many people it is difficult. Another part of the argument mentioned by my hon. Friend the Member for Kidderminster (Mr. Nabarro) was that, having put in the maintenance claim, the question arises of determining on some points whether they are maintenance or an improvement. I cannot accept his solution of declaring the taxpayer to be right in every case, which could not possibly be accepted by the Revenue, but there is much in what the hon. Member for Sowerby said about the desirability of people obtaining the assistance of the Inland Revenue offices and the local inspectors. The Inland Revenue authorities are always ready to be very helpful on these matters, and if people used their services more they would be considerably helped. Nevertheless, there is a problem which we must recognise.

Of course, the new Clause also refers to landlords, and I doubt whether the case is anything like as strong in respect of landlords as in respect of owner-occupiers. Most landlords should be able in the course of their business of property owning to make a maintenance claim, and they will be able to claim their full deductions, whereas if the statutory allowance were raised, as has been suggested, in a number of cases the landlord might receive greater deductions in respect of repairs than the money he is spending on repairs. I am saying this to point out that there are considerable difficulties in the proposal.

I have deliberately said that a serious problem arises here and that it would be wrong to minimise it. I would, however point out that there are two cogent reasons why it is impossible to accept this proposal this year. The first is that the sheer volume of work involved in re-coding up to 5 million P.A.Y.E. taxpayers would be impossible for the Revenue to undertake on top of the enormous volume of work it is doing on the repayment of post-war credits. That is a practical point worth bearing in mind.

Mr. Nabarro

I cannot challenge that statement because a private Member has not access to the statistics of that kind or to the reasons. There are 5½ million owner-occupiers in the country. Does my right hon. Friend suggest that 5 million of them pay their Schedule A taxes through P.A.Y.E.? It seems inconceivable to me that 90 per cent. of them are dealt with through P.A.Y.E. I should have thought that the minority were dealt with through P.A.Y.E. and that the majority paid the tax directly.

Mr. Maudling

I will check the figure, but that is the one I have been given. Certainly it would be a very large undertaking.

The second and stronger argument—which will once again cause my hon. Friend to protest—is the cost of the proposal. It would be £18 million this year and £24 million in a full year. That alone would be enough to rule it out for this year.

To implement this proposal would be an enormous administrative task and result in much loss of revenue, which my right hon. Friend could not face this year. As for the merits of argument, I suggest that they are divided. There is the social fact, of the difficulty experienced by many people in making maintenance claims. On the other hand, there are the arguments that I have put forward as to the effect of the Clause, and also the cogent arguments put forward by the hon. Member for Sowerby, which reinforce my argument about the administrative difficulties and the cost of the proposal.

Mr. Stevens

If the debate has brought to the attention of some owner-occupiers who did not know it before the fact that they can make maintenance claims it will have served a useful purpose. I have been convinced by what my right hon. Friend has said that further consideration of the matter should await revaluation. For that reason, I beg to ask leave to withdraw the Motion.

Motion and Clause, by leave, withdrawn.