HC Deb 05 July 1960 vol 626 cc273-8
Mr. Amory

I beg to move, in page 14, line 3, at the end to insert: The foregoing provisions of this subsection shall apply to allowances under Part X (except Chapter IV thereof) or Part XI of the Act of 1952 in respect of expenditure incurred after the fifth day of April, nineteen hundred and sixty, as they apply to losses. When the Clause was considered in Committee, I was asked questions on the proposals as they affected capital allowances. The object of the Amendment is to make it clear beyond question that in relation to subsection (2) capital allowances will be dealt with in the same way as losses. Section 20 of the Finance Act. 1953, provided that where one company in a group made a loss and another company in the group made a profit the loss of the other company could be set off against a subvention payment made by the company making a profit. Subsection (2) of the Clause provides that hobby losses incurred by a company shall be disregarded in such a computation.

Section 20 of the 1953 Act deals with losses and capital allowances separately. For greater clarity, it has been thought well to introduce the Amendment to make it clear that the provisions of subsection (2) follow those of subsection (1) of the Clause and that capital allowances will there be dealt with in the same way as losses are provided for.

Mr. Diamond

Two points immediately come to mind. One understands what the Chancellor of the Exchequer has said. First, he has said that he wants subsection (2) to permit the same waste of revenue as subsection (1) permits inasmuch as those who are adjudged hobby traders, mainly hobby farmers, although they are accepted and regarded and declared to be hobby traders, should be allowed to recoup from the Revenue in the future tax in respect of equipment purchased prior to the commencement of the operation of the Bill in so far as that equipment has not been wholly allowed by way of capital allowances against taxable profits and for tax purposes.

Therefore, we are back on the same regrettable principle—quite logically, as far as the Chancellor is concerned—of having machinery whereby we establish that certain individuals are not really trading and should not, therefore, be thought to be trading and to get advantages from that for tax purposes; yet nevertheless, having reached that conclusion, we adjudge that they shall be entitled to a certain element of benefit notwithstanding that it is in respect of something which occurred prior to the operation of the Bill.

I can only repeat what was said on the Clause by many of my hon. Friends in Committee—I dare say I even said it myself: that this is a most regrettable principle to follow. It would not be retrospective in any sense to say that as from the date of the operation of the Bill, unallowed capital expenditure of hobby farmers shall be treated for tax purposes according to the wishes of the House of Commons: namely, that a person who is a hobby farmer should get no benefit.

Mr. Leslie Hale (Oldham, West)

Does this mean that if I start growing cucumbers I can now get a tax allowance on my lawn mower?

Mr. Diamond

It means that if my hon. Friend starts selling his cucumbers to the extent of two small cucumbers a year—sufficient to establish that he is carrying on a business—and he is clearly not carrying it on seriously with a view to making a profit but with a view to growing the odd cucumber for his own enjoyment and as a hobby and to satisfy all sorts of curious psychological urges—I make no connection between the cucumber and the psychological urges —he will be perfectly entitled in future to claim for the expensive lawn mower which he bought in the past and which has not been entirely written down to nothing for tax purposes and shall continue to have capital allowances set against the rest of his income as a Member of Parliament, as a solicitor and as a holder of investments of some kind or another, notwithstanding that he is carrying on purely a hobby.

Mr. Hale

I am much obliged.

Mr. Diamond

In case my hon. Friend was not present throughout the whole of our Committee proceedings from the beginning to the bitter end, I should explain —I am sure that my hon. Friend would not so recognise it if I did not explain—that this is part of a Bill which seeks to stop tax avoidance. It is not part of a Bill which seeks to encourage and endorse tax avoidance. It is, theoretically, a Bill which is devoted entirely to the opposite purpose. Therefore, although one recognises immediately the logic of the Chancellor's argument in introducing the same kind of provision for subvention payments under subsection (2) as there was for ordinary trading under subsection (1), one regrets the principle behind both those subsections.

My second point relates to the discussions that we have had. My recollection may be at fault, but I do not recollect that during Committee we discussed subvention payments at all.

Mr. Amory

I thought I remembered mentioning them myself. I will, however, check on that.

Mr. Diamond

The Chancellor certainly may have mentioned them himself, although I do not recollect it. It may have been a short reference. Certainly, my impression was that we did not discuss them in the sense that any Amendment was put down to deal with subvention payments and as far as I am aware, subsection (2) escaped discussion completely. 5.30 p.m.

The reason why I mention all this is that we are invited to believe that this Amendment, and not necessarily this Amendment but the majority of Amend ments that we are to discuss, arises out of consideration in Committee. My very sincere and fairly firm recollection is that not one hon. Member on either side of the Committee raised a point at all on this subsection. This would not mean that they did not raise points on other Amendments and other Clauses. I am dealing with this particular one as it is the first to be considered by us immediately after Recommittal of the Bill.

Mr. Amory

I think several of my hon. Friends asked me the question as to exactly the treatment to be given to capital allowances under this Clause.

Mr. Diamond

I accept what the Chancellor says. That may very well have taken place. That is proving the point that I am leading up to.

This is an Amendment introduced on second thoughts to improve the Bill. Had there been adequate time to give the matter the fullest consideration, this Amendment would have been introduced into the Bill originally. Quite obviously, this is the kind of Amendment we see when we have looked at the Bill and seen that we have made a certain provision under subsection (1) and that there should be the same provision in subsection (2). It is certainly wise to have second thoughts and that the second thoughts should be incorporated in the Bill, but it is even wiser that they should be incorporated in the Bill in the first place.

I am making this point only because it is typical of what I think we shall see as we go through the Amendments. This is one of the enormous number of Amendments which arise in one of these two ways. Either it is second thoughts or, as we shall see, it is a further attempt to stop up loopholes which are capable of being stopped up in the unsatisfactory way which the Government are proposing to stop them up, because, as they may recollect, there was reference once or twice during the Committee stage to the position where there is an inadequate structure of taxation under which too limited a form of income is accepted as the basis of our tax system.

It is for these two reasons that we now have this further Amendment which, as the Chancellor says, follows the logic of his earlier subsection, and it has to that extent made the Clause clearer and the intention of the Government more readily understood. It makes it perfectly obvious that they are prepared to deal with the hobby farmer, or any other tax avoider, with kid gloves, but only with kid gloves.

Mr. Mitchison

May I ask the Chancellor two questions? I have been looking at the record and I find it difficult to see to what precise observation this Amendment is directed. No doubt there is something somewhere.

Mr. Amory

Not precise observation.

Mr. Mitchison

I am not clear whether this Amendment does or does not fall within the class of Amendments that arise out of discussion in Committee. So far it seems that it does not fall in that class., and the matter, raised by my hon. Friend the Member for Gloucester (Mr. Diamond) is, therefore, of some slight importance.

The two questions are these. First, does this Amendment make any difference? I am not clear from what the Chancellor said whether this Amendment added substantially to the provisions of the Bill or whether it was intended to clarify a doubtful position. If it is the latter, I take it that what is really happening in connection with this Amendment is that the Government drafted this part of the Bill in a hurry and want to make it clearer. Perhaps we could be told whether it is adding anything or whether it is merely a clarifying Amendment.

Secondly, I note that it includes the part of the 1952 Act which relates to scientific research but it does not include allowances on agricultural buildings which are specifically excepted. The position then is this: that while expenditure on, say, a tractor or other agricultural machinery is to be treated in one way, expenditure on agricultural buildings is to be treated in another way and is, in fact so far as this Amendment goes to continue to be allowed to the hobby farmer. All I can say about that—and we have put no Amendment down to this Clause—is that it seems to me, as indeed it did in Committee, quite illogical that expenditure on farm machinery and expenditure on agricultural buildings, on the assumption that the taxpayer is not a real farmer, if I may put it that way, should be treated differently for this purpose.

Mr. Amory

In reply to the hon. and learned Member for Kettering (Mr. Mitchison), the answer to the first question is that the introduction of this Amendment does not alter the provisions in any way. It is for greater clarity. Our attention was called to the need for that by some of the questions asked by my hon. Friends, who urged me to make it clear beyond doubt how we would deal with capital allowances.

The answer to the second question which the hon. and learned Gentleman asked is that this makes no difference at all to the treatment which we explained and recommended and which the Committee adopted as regards capital expenditure on agricultural buildings as against equipment. For the reasons which we gave in Committee, we felt it reasonable that agricultural buildings should be exempted from the measures which we were proposing to apply to equipment, because we felt that, in general, expenditure on new agricultural buildings was likely to be of value in the long term.

Amendment agreed to.

Clause, as amended, ordered to stand part of the Bill.