Clause 18.—(RESTRICTION OF RELIEF FOR LOSSES.)

HC Deb 24 May 1960 vol 624 cc220-322

3.42 p.m.

Mr. John Diamond (Gloucester)

I beg to move, in page 12, line 30, to leave out from "losses" to "in" in line 32.

This Clause deals with restriction of losses and is the first of the anti-tax avoidance Clauses which we reach in the Bill. It would, perhaps, be helpful if, before dealing precisely with the details of the Amendment, I were to attempt to fit it into its background.

This Clause, which is known as the "Hobby Farmers' Clause" deals with losses other than those relating to hobby farmers. It deals with all losses of a hobby kind where the activity is carried on not necessarily for the purpose of making profits. The first question which arises is: why should anyone carry on an activity and deliberately make a loss? Perhaps it would be convenient if, in discussing this Amendment, I concentrated on hobby farmers on the assumption—which, I believe, to be correct—that hobby farmers are by far the most numerous category of hobby losers and that what applies to hobby farmers applies satisfactorily to others.

We are told on the authority of the Royal Commission on the Taxation of Profits and Income, in paragraph 490 of its Report, why hobby farmers are satisfied to make losses. The paragraph says: It is possible to imagine heavy expenditure on income account ripening into an appreciable gain on capital account. This is the first Clause to stop tax avoidance which arises through the lack of a capital gains tax and from the inducement to individuals to switch their income account to a capital account to avoid taxation. That is the main reason why the Royal Commission thought that a hobby farmer would be willing to carry on activities and lose money by so doing. In the previous paragraph, the Commission mentioned two other reasons. The first was the supply of agricultural produce for his home consumption … and the second was the value of which he has improved by liberal expenditure, the amusement that he derives from indulgence in his hobby, the attraction of a 'hedge' against inflation. There are a large number of hobby farmers who carry on the activity of farming for those reasons without any desire of making profit out of those activities.

The Amendment deals with a very limited point in respect of depreciation of plant and machinery bought by farmers. It is technically known as capital allowance, but more familiarly known: to most of us as depreciation allowance. If I understand it aright, the Clause as drafted is to prevent that depreciation being allowed on new plant bought after the relevant date, but not to prevent depreciation allowed on plant bought prior to that date, to the extent that the depreciation has not been fully allowed for tax purposes.

3.45 p.m.

As the Chancellor explained very clearly on Second Reading of the Finance Bill: , I have also thought it reasonable that the new provisions … that is, in this Clause— should not apply to allowances on plant and machinery bought before this year…"— [OFFICIAL REPORT, 3rd May, 1960; Vol. 622. c. 893.] The purpose of the Amendment is to alter that so as to stop the Revenue contributing by way of tax relief in respect of the balance of the depreciation allowance which had not so far been allowed. Where the plant or machinery—the estate car, for instance—was bought prior to the relevant date of 5th April this year, and there was an established case of hobby farming, I fail to see why the general body of taxpayers should be required, through the Chancellor of the Exchequer, to contribute to the hobby activities of a particular hobby farmer. I fail to see why that should carry on and why the Chancellor thought it reasonable that that should be the case.

There are other reasons why I should like to press the Amendment which, I hope, the Government will accept. The first is the evidence produced by the Royal Commission about hobby farmers, going back to 1954. This is not a new point. I have no doubt that there are good reasons, of which we shall be told later, why it has taken about six years to go into the matter. Paragraph 491 of the Royal Commission's Report said that the number of farming loss claims received in respect of individuals and firms amounted to £10 million in respect of 10,000 claimants, an average loss of £1,000. If one looks at the rest of the field, one finds that the comparable loss claims of individuals and firms engaged in profit-making activities other than farming, leaving out companies in both cases, amounted to million. The number of claimants was 6,000 and the average was approximately £500.

So, over the whole field other than that of hobby farming, the average loss was about £500 by firms and partners and in hobby farming alone surely a small part of the total there was three times the rate, and the average loss was twice as great. That strikes one as indicative of a frame of mind not wholly attuned to making profits on a commercial scale and not wholly attuned to playing the game. That, therefore, is the first reason why I put forward this Amendment.

If one brings the information up to date one finds that the position is very much the same. According to the recent Report of the Comptroller and Auditor General—,I am reading from a report in The Times of 2nd December, 1959, but I am sure that it is an accurate report— Test examination by my officers of repayments of tax by the Inland Revenue suggested that a substantial proportion of the repayments made under Section 341"— That is, the section that we are dis-cussing— (particularly to Surtax payers)"— This is the Comptroller and Auditor-General reporting— related to farming losses. In a number of cases the losses were of such magnitude in comparison with turnover, and had continued for so long a period, as to raise doubts whether the use of the estate concerned could be properly regarded as farming.

Sir Hugh Lucas-Tooth (Hendon, South)

Why is the hon. Member for Gloucester (Mr. Diamond) reading from a report in The Times and not from the original Report?

Mr. Diamond

Because it is the only document that I have to hand. I apologise. I ought to be reading from the original Report. Sometimes one has—

Mr. Gerald Nabarro (Kidderminster)

The point is, is it in the original Report? We cannot find it in the original Report, and, therefore, we must test the veracity of what the hon. Member is saying. He should not come here unprepared.

Mr. Diamond

If that is the best case that the hon. Member for Kidderminster (Mr. Nabarro) has against my Amendment, he had better think of a better argument.

Mr. Nabarro

There will be more in a moment.

Mr. Diamond

I am quoting from the exact wording of the Report as repeated in The Times, and I dare say that is accurate. If the hon. Member wishes to show me in what respect it is inaccurate I will read it all.

The general effect of this is to show that on the figures quoted later in the report the losses on hobby farming to which I referred earlier, the losses of partners and individuals, were running at £10 million in 1952 and went up to £131 million in 1958, and there is a reference particularly to Surtax payers. We have a situation, therefore, where once again we have to doubt very much whether this is a proper field for extending sympathy.

I now turn to the question of subsidy, on which the Chancellor is on very firm ground and I am not, for this is not my field. As I understand the position, let us suppose that the average £1,000 loss made in 1954, a loss which we saw repeated last year, is the difference between £10,000 of running expenses claimed and allowed and £9,000 of sales. Thus, it is a loss of £1,000 after selling produce to the value of £9,000. Let us suppose, to make it simple, that the £9,000 was wholly in respect of lambs. This last year, as we know, the average deficiency payment on lambs was 50 per cent.

Therefore, the case which I am instancing would show that not only is a contribution being made by way of tax-free payments but, in addition, about £3,000 of deficiency payments also came out of the Exchequer to the same hobby farmer. I should have thought that all genuine farmers would find the hobby farmer a thorough embarrassment. I should have thought that all genuine farmers would be very embarrassed when, in their negotiations on price fixing, they were asked to look at the man next door who was, apparently, managing to run his farm quite satisfactorily and to make a profit in spite of the way the farm was being run.

Mr. J. M. L. Prior (Lowestoft)

I am finding the hon. Member's argument on the subject of subsidies and deficiency payments extremely hard to follow. Could he elucidate it a little more? Although I am a practising farmer, I could not follow his argument about the deficiency payments at all.

Mr. Nabarro

Nor that about Surtax payers.

Mr. Diamond

It is simple. I am assuming sales of £9,000; that is, the combination of the subsidy plus the actual sales in the market. If the deficiency payment was, as we know it was, running at an average of 50 per cent. on lambs for the whole of last year, that means that there would be £6,000 on sales in the market, and 50 per cent. of that would be £3,000, and that is how one arrives at the total of £9,000. Therefore, the hobby farmer of whom I am talking, who is an example only, would have received £3,000 by way of subsidy from the Exchequer in addition to getting a claim for £1,000 allowed by way of repayment against his other income.

Mr. Prior

In other words, the hon. Gentleman is saying that the hobby farmer in question had nothing but lambs on his place and that all those lambs had a deficiency payment of 50 per cent. paid on them. Is that what he is saying? Hobby farmers would find that most improbable.

Mr. Diamond

This is the Committee stage of the Bill, and the hon. Gentleman will have as much opportunity as he likes to express his remarks fully.

I thought it perfectly simple to suggest that we should assume that it was all lambs. I have taken the case of lambs because, according to the official figures, there was a deficiency payment of 50 per cent. on average throughout the year, and the arithmetic is, therefore, very simple to work out with £9,000 and a loss of £1,000.

The figures may be up or down, but the fact remains—it is very relevant—that, in addition to the hobby farmer claiming direct from the inspector of taxes by way of a repayment on his average loss of £1,000, he has also been in receipt of money from the Exchequer, from the other body of taxpayers, to a very substantial extent out of the £260 million or so per year which we devote to farming subsidies. I repeat that I cannot see why this category of taxpayers should be the subject of special sympathy.

There is a further point, a minor one, and that is in slight correction of what the Chancellor said in his short statement, which was, admittedly, a short statement to describe the situation and not to explain the law. The Chancellor referred to machinery bought, and the section refers to expenditure incurred. The point that I want to make—I am sure that the Chancellor will accept it—is that plant and machinery might have been ordered before 5th April this year, a farm contract having been entered into and expenditure incurred, but the payment might be made after this year. There we have a case where the plant and machinery need not have been delivered until after the Bill had come into everybody's knowledge, and under the Clause as it is drawn the whole of that cost of the admitted hobby farmer will be allowed by way of tax-free payment.

In this respect we are dealing with people who are more concerned to avoid tax than they are to make a profit out of their farming, and it would be very difficult—it is difficult to say when a certain item of expenditure was incurred—to disprove an allegation that an item of expenditure was incurred shortly before the beginning of this fiscal year even though the payment was made after the beginning of the fiscal year. That is not a major point, but it also affects the Clause.

Therefore, I repeat that I have no sympathy, and I invite the Committee to have no sympathy, with an established hobby farmer who has bought plant and machinery prior to the commencement of the Act and who will, unless we alter the Clause in the way the Amendment proposes, continue to be helped by the Exchequer and the general body of taxpayers to carry on his hobby farming.

4.0 p.m.

I am particularly encouraged in saying that by virtue of what the Attorney-General said in his Second Reading speech on the Finance Bill when, with deference, in my opinion he quite incorrectly, and without justification, said: … this Clause … will operate satisfactorily to stop hobby farming and the promotion of private amenity at the expense of the general body of taxpayers."—[OFFICIAL REPORT, 3rd May, 1960; Vol. 622, c. 1033.] That, no doubt, is what the Clause is intended to do, and no doubt the Government accept that hobby farmers who promote private amenity at the expense of the general body of taxpayers should be stopped from so doing, but the Clause affects only a tiny margin of the problem. It deals only with those hobby farmers who make a loss, not with the hobby farmer I have instanced who, out of his £9,000 sales, improperly incurs a loss of £8,000 and makes a profit of £1,000.

The whole of the improper expenditure is allowed against income that should be taxed—and which, in any other form of undertaking, would be taxed—but just because "husbandry is a difficult word to interpret, and does not cover the thing properly, the whole of this improper expenditure, which the Attorney-General quite properly called providing … private amenity at the expense of the general body of taxpayers is allowed to the hobby farmer almost entirely.

We are dealing only with the stupid hobby farmer who carries his ingenuity and bravado to the extent of showing and claiming a loss. We are dealing with it only to that limited extent, so why should we have for the hobby farmer the sympathy that the Chancellor had when introducing the Bill, by wishing to continue to put the burden of part of his previously-acquired plant and machinery on the shoulders of the general body of taxpayers? I do not believe that this Committee wants to help in that way, or wants to make an ex gratia payment to the tax dodgers, which the hobby farmers mostly are. I therefore hope that the Committee will accept this Amendment.

The Solicitor-General (Sir Jocelyn Simon)

The hon. Member for Gloucester (Mr. Diamond) started by saying that this Amendment dealt with a short point. I entirely agree, although I do not think that one would have gathered that from the rest of his speech, which went far beyond the Amendment to review the whole issue of hobby farming. The point is a short one, and I propose to deal with it shortly.

In general, this Clause denies relief under Section 341 of the Income Tax Act for losses in hobby businesses—mostly hobby farming—incurred in 1960–61 and latter years. Capital allowances are included in the denial of this relief, but the capital allowances that are denied relief are confined to those in respect of capital expenditure incurred after 5th April, 1960. The Amendment proposes to withhold from relief capital expenditure in respect of plant and machinery whenever the expenditure was incurred.

The very short answer to that proposal is that it would be grossly unfair so to do. It would, in effect, be to deny to a taxpayer relief to which he was entitled to look forward at the time he incurred the expenditure. As to future expenditure, whether of a revenue or a capital nature, he can pick his way. He can do what he wants in the light of the new law; but he can do nothing at all in the light of the new law in respect of expenditure that he has already incurred. Therefore, I repeat, it would be most unfair to adopt the Amendment.

There is a subsidiary point. It has been a general rule in the many amendments in relation to capital allowances that, whether they are in favour of the taxpayer or against him, they should apply only to capital expenditure incurred after the proposed changes were announced. This matter seems to me to fall within the same general principle. But, in the end, it comes back to the fact that it would be grossly unfair to deny a taxpayer the relief to which he was entitled to look forward at the time when he incurred the expenditure.

With all respect to the hon. Gentleman, it is not, to use his words, a question of extending sympathy to the taxpayer, but a question of extending justice to him. I therefore advise the Committee to reject the Amendment.

Mr. Nabarro

The hon. Member for Gloucester (Mr. Diamond) made a number of imputations concerning Surtax payers, and as they were considered to be in order, and as he quoted from The Times—

Mr. G. R. Mitchison (Kettering)

On a point of order, Sir Gordon. Has the hon. Member for Kidderminster (Mr. Nabarro) been called by you?

The Chairman

No. I thought that the hon. Gentleman wished to make an intervention. I did not realise that he wished to make a speech.

Mr. Nabarro

May I make a speech, Sir Gordon?

The Chairman

No. An hon. Member on the Opposition side wants to make a speech. I call Mr. Millan.

Mr. Bruce Millan (Glasgow, Graigton)

The basis of the Solicitor-General's argument for rejecting the Amendment is that when the taxpayer incurred the capital expenditure in the first place he was entitled to look forward to getting capital allowances on the expenditure. That may well be so, but the real basis on which he is getting the capital allowances is that he is engaging in some sort of trade, profession or vocation, and the whole purpose of Clause 18 is to cut out from the normal provisions of the taxation laws people not indulging, on a proper commercial basis, in the particular form of trade of hobby farming or, indeed, any form of trade, profession or vocation—

Major W. Hicks Beach (Cheltenham)

I have listened with great attention to the speech of the hon. Member for Gloucester (Mr. Diamond), who is very knowledgeable on these matters. As I understand his argument, in certain circumstances the provisions of the Amendment could be used retrospectively for up to six years.

Mr. Millan

I do not think that that is either the intention or the effect of the Amendment. All we say is that a capital allowance should not be continued beyond the point at which it is definitely established that the trade is not being carried on on a commercial basis. If any taxpayer feels particularly aggrieved about this, he has, presumably, a remedy available; he can take such steps as are necessary to put the trade on a proper commercial basis.

That was the implicit assumption on which capital allowances were given in the first place. All that the Solicitor-General is saying is that an injustice to the Revenue and, thereby, to the general body of taxpayers, once perpetrated, must be continued until the capital allowances are exhausted, which is an indefinite process. I therefore hope we shall have the support of the Committee for this Amendment.

Mr. Nabarro

Sir Gordon, I am grateful to you for calling me, and I apologise for my premature intervention. I seek only to controvert what was said by the hon. Member for Gloucester (Mr. Diamond) by means of a quotation from The Times. He pleaded that he had come to the Committee inadequately equipped, but the master document in this matter is readily available on application to the Vote Office. In fact, one of my hon. Friends received three copies, on demand, within seconds.

So that the hon. Member for Gloucester may not be allowed to mislead the Committee by the imputations he made about Surtax payers—the overwhelming majority of whom are honourable people—perhaps we might have the master quotation from the official document, the Revenue Departments Appropriation Accounts, 1958–59. It is headed: Ordered by The House of Commons to be Printed 16th November, 1959. Paragraph 23, on page vii, uses these words: The total amount of the farming losses of individuals and partnerships allowed in the year to September 1958 was about £13.5m., but without a detailed examination, case by case, it is impossible to say how much of this was attributable to surtax payers, or at what rates surtax payable but for farming losses would have been chargeable. In paragraph 24, in even more significant words—

Mr. Mitchison rose—

Mr. Nabarro

No, I shall not give way. Last week the hon. and learned Member twice refused to give way to me. Now he can keep his seat until I return to mine.

In paragraph 24, in very significant terms, pointing to Section 341 to which my hon. and learned Friend referred, it is said: The term 'husbandry' has been held by the Courts to be of very wide signification"— I think that that ought to be "significance"; that must be a Treasury word— and, as the law stands, claims to loss relief in respect of losses which are sustained wholly or mainly in husbandry are admissible notwithstanding that the nature of the activities carried on may be such that losses are virtually inevitable". In view of that official document, I hold that the imputations made by the hon. Member for Gloucester against Surtax payers, of whom there are several hundred thousand in this country, generally representing the brains of the community, are wholly unwarranted. The hon. Gentleman should withdraw. At all events, my right hon. Friend the Chancellor may be assured that unanimously the Conservative Party will support him in resisting the Amendment.

Mr. Mitchison

I shall not deal with the hon. Member for Kidderminster (Mr. Nabarro) who, with his usual discourtesy, misled the Committee by reading only part of what he purported to be reading. It seemed to me that what he had to say had not much connection, though some, no doubt, with the Amendment that we are now considering.

My hon. Friend the Member for Gloucester (Mr. Diamond) rightly indicated the intention and the effect of the Amendment. I agree with the hon. and learned Gentleman the Solicitor-General when he says that it is really quite a small point. What we are dealing with here are cases in which losses have begun to occur before 5th April. I say "losses" deliberately because, although these allowances are in their nature capital allowances by the provision of the Finance Act, 1954, referred to in the Clause, they are allowed and, indeed, bound to be treated in certain circumstances as revenue losses. I entirely disagree when the hon. and learned Gentleman says that it is grossly unfair to disallow every kind of loss except one and that one kind of loss is the loss of the continuing depreciation allowance in respect of expenditure previously incurred.

In this case, what happens is that the farmer or, for that matter, any other trader—it is not confined to farmers— who is caught by the provisions of the Clause will have his business interrupted to the extent that he can no longer claim to set off losses in it against the rest of his income. There is no doubt whatever that in the past among those losses year by year have been some of what we call depreciation allowances and these depreciation allowances in some cases—this is the point we are considering—would, if the Clause were left unamended, continue to be treated as losses in the business to be set off against the rest of income.

On this side of the Committee, we fail to understand why there should be this differentiation between one kind of loss and another kind of loss. I agree that there is a certain apparent confusion, though no more than that, between these payments when they are treated as capital allowances and when they are treated as they are by virtue of the 1954 Act as revenue losses year by year.

4.15 p.m.

I will put the matter in the form in which it will actually arise. Let us assume that a farmer or other trader has been buying plant over past years, possibly on a rather liberal scale. He now finds that, although his other losses cannot be set off against the rest of his income, those particular items in a trade where every other loss is not allowed to be set off continue to be set off against the rest of his income. It seams profoundly illogical to treat one item in that way, and I see no reason for it.

It is then said that he was entitled, when he bought the things, to expect that the depreciation would be allowed to run off year by year and be set off against his income from other sources. Of course, that applies to the whole of his business. If that argument is sound, when he started his farming he was entitled to expect that year by year the losses which he may have expected to make in it would be set off against the rest of his income. Yet, for some reason, he is interrupted in respect of other expectations but this particular expectation he must be allowed to continue to the end.

What we suggest is not in the least unfair. It would be extremely unfair to do anything else. Once the business has ceased to rank for the purpose of setting off losses against the rest of his income, the only logical thing to do is to treat all the losses in the business as something which cannot be set off against other income. Once the decision has been made, there is no other logical course. I say again that what we are dealing with here is losses including these capital allowances which for this purpose are treated as revenue losses. I hope that my right hon. and hon. Friends will support this commonsense view in the Division Lobby.

Mr. Diamond

Since I was challenged by the hon. Member for Kidderminster (Mr. Nabarro), I hope that the Committee will not think it discourteous if I take up the challenge and read paragraph 22 of the Revenue Department Appropriation Accounts, 1958–59. The hon. Member for Kidderminster, somehow or other, could see what was in paragraph 23, but he could not see what was in paragraph 22. I find it difficult to understand why he did not take the extra trouble to refer to paragraph 22 while misleading the Committee in alleging that I had myself inaccurately drawn upon the document. The hon. Gentleman is smiling at me now. I am not smiling at him. I regard a matter of honour as coming before a matter of tax or before the making of a debating point.

Paragraph 22 begins: Test examination by my officers of repayments of tax by the Inland Revenue suggested that a substantial proportion of the repayments made under Section 341 (particularly to Surtax payers) related to farming losses". The Solicitor-General dealt very shortly with the Amendment, for a very good reason. It was the only way he could deal with it, by asserting an opinion and avoiding the arguments. I am perfectly content that all the Government side of the Committee should go into the Division Lobby in support of tax dodgers. On this side, we propose to do what we know to be our duty.

Question put, That the words proposed to be left out stand part of the Clause:—

The Committee divided: Ayes 262, Noes 168.

Division No. 89.]	AYES	[4.19 p.m.
Agnew, Sir Peter	Glyn, Dr. Alan (Clapham)	Morgan, William
Allan, Robert (Paddington, S.)	Glyn, Sir Richard (Dorset, N.)	Morrison, John
Allason, James	Goodhart, Philip	Mott-Radclyffe, Sir Charles
Alport, C. J. M.	Goodhew, Victor	Nabarro, Gerald
Amory, Rt. Hn. D. Heathcoat (Tiv'tn)	Gower, Raymond	Nicholls, Harmar
Ashton, Sir Hubert	Grant-Ferris, Wg Cdr. R. (Nantwich)	Nicholson, Sir Godfrey
Balniel, Lord	Green, Alan	Noble, Michael
Barber, Anthony	Gresham Cooke, R.	Nugent, Sir Richard
Barlow, Sir John	Grimond, J.	Ormsby Gore, Rt. Hon. D.
Barter, John	Grimston, Sir Robert	Orr, Capt. L. P. S.
Batsford, Brian	Grosvenor, Lt.-Col. R. G.	Osborn, John (Hallam)
Baxter, Sir Beverley (Southgate)	Hall, John (Wycombe)	Osborne, Cyril (Louth)
Bell, Ronald (S. Bucks)	Hamilton, Michael (Wellingborough)	Page, A. J. (Harrow, West)
Bennett, Dr. Reginald (Gos & Fhm)	Hare, Rt. Hon. John	Page, Graham
Bevins, Rt. Hon. Reginald (Toxteth)	Harris, Frederic (Croydon, N. W.)	Pannell, Norman (Kirkdale)
Bidgood, John C.	Harris, Reader (Heston)	Pearson, Frank (Clitheroe)
Biggs-Davison, John	Harrison, Brian (Maldon)	Peel, John
Bingham, R. M.	Harrison, Col. J. H. (Eye)	Percival, Ian
Birch, Rt. Hon. Nigel	Harvie Anderson, Miss	Peyton, John
Bishop, F. P.	Hay, John	Pickthorn, Sir Kenneth
Black, Sir Cyril	Heath, Rt. Hon. Edward	Pike, Miss Mervyn
Bossom, Clive	Henderson, John (Cathcart)	Pilkington, Capt. Richard
Bourne-Arton, A.	Hendry, Forbes	Pitman, I. J.
Bowen, Roderio (Cardigan)	Hicks Beach, Maj. W.	Pitt, Miss Edith
Box, Donald	Hiley, Joseph	Pott, Percivall
Boyd-Carpenter, Rt. Hon. John	Hill, Mrs. Eveline (Wythenshawe)	Powell, J. Enoch
Boyle, Sir Edward	Hill, J. E. B. (S. Norfolk)	Prior, J. M. L.
Braine, Bernard	Hirst, Geoffrey	Prior-Palmer, Brig. Sir Otho
Bromley- Davenport, Lt.-Col. W. H.	Holland, Philip	Profumo, Rt. Hon. John
Brooke, Rt. Hon. Henry	Hollingworth, John	Proudfoot, Wilfred
Brooman-White, R	Holt, Arthur	Rawlinson, Peter
Browne, Percy (Torrington)	Hope, Rt. Hon. Lord John	Redmayne, Rt. Hon. Martin
Bullard, Denys	Hopkins, Alan	Rees, Hugh
Bullus, Wing Commander Eric	Hornby, R. P.	Rees-Davies, W. R.
Butcher, Sir Herbert	Hornsby-Smith, Rt. Hon. Patricia	Renton, David
Campbell, Sir David (Belfast, S.)	Howard, Hon. C. R. (St. Ives)	Ridley, Hon. Nicholas
Campbell, Gordon (Moray & Nairn)	Howard, John (Southampton, Test)	Robertson, Sir David
Carr, Robert (Mitcham)	Hughes Hallett, Vice-Admiral John	Robinson, Sir Roland (Blackpool, S.)
Cary, Sir Robert	Hutchison, Michael Clark	Robson Brown, Sir William
Channon, H. p. G.	Iremonger, T. L.	Roots, William
Chiohester-Clark, R.	Irvine, Bryant Godman (Rye)	Ropner, Col. Sir Leonard
Clark, Henry (Antrim, N.)	Jackson, John	Royle, Anthony (Richmond, Surrey)
Clark, William (Nottingham, S.)	James, David	Russell, Ronald
Cleaver, Leonard	Jenkins, Robert (Dulwich)	Sandys, Rt. Hon. Duncan
Cole, Norman	Jennings, J. C.	Scott-Hopkins, James
Collard, Richard	Johnson, Dr. Donald (Carlisle)	Seymour, Leslie
Cooke, Robert	Johnson, Eric (Blackley)	Sharples, Richard
Cooper, A. E.	Kerans, Cdr. J. S.	Shaw, M.
Cordeaux, Lt. -Col. J. K.	Kerby, Capt. Henry	Shepherd, William
Corfield, F. V.	Kerr, Sir Hamilton	Simon, Sir Jocelyn
Costain, A. P.	Kershaw, Anthony	Skeet, T. H. H.
Coulson, J. M.	Kitson, Timothy	Smithers, Peter
Courtney, Cdr. Anthony	Langford-Holt, J.	Smyth, Brig. Sir John (Norwood)
Craddock, Beresford (Spelthorne)	Leburn, Gilmour	Spearman, Sir Alexander
Critchley, Julian	Legge-Bourke, Maj. H.	Speir, Rupert
Crosthwaite-Eyre, Col. O. E.	Legh, Hon. Peter (Petersfield)	Stanley, Hon. Richard
Cunningham, Knox	Lilley, F. J. P.	Stevens, Geoffrey
Curran, Charles	Linstend, Sir Hugh	Stodart, J. A.
Currie, G. B. H.	Longden, Gilbert	Stoddart-Scott, Col. Sir Malcolm
Dalkeith, Earl of	Loveys, Walter H.	Storey, Sir Samuel
Dance, James	Lucas-Tooth, Sir Hugh	Studholme, Sir Henry
d'Avigdor-Goldsmid, Sir Henry	McAdden, Stephen	Summers, Sir Spencer (Aylesbury)
Digby, Simon Wingfield	MacArthur, Ian	Sumner, Donald (Orpington)
du Cann, Edward	McLaren, Martin	Talbot, John E.
Duncan, Sir James	Maclean, Sir Fitzroy (Bute & N. Ayrs.)	Tapsell, Peter
Duthie, Sir William	McLean, Neil (Inverness)	Taylor, Sir Charles (Eastbourne)
Eden, John	Macleod, Rt. Hn. Iain (Enfield, W.)	Taylor, W. J. (Bradford, N.)
Elliott, R. W.	MacLeod, John (Ross & Cromarty)	Teeling, William
Emery, Peter	McMaster, Stanley R.	Temple, John M.
Emmet, Hon. Mrs. Evelyn	Macpherson, Niall (Dumfries)	Thomas, Leslie (Canterbury)
Erroll, F. J.	Madden, Martin	Thomas, Peter (Conway)
Farey-Jones, F. W.	Maginnis, John E.	Thorneyoroft, Rt. Hon. Peter
Farr, John	Maitland, Cdr. J. W.	Thornton-Kemsley, Sir Colin
Fell, Anthony	Manningham-Buller, Rt. Hon. Sir R.	Tiley, Arthur (Bradford, W.)
Fletcher-Cooke, Charles	Markham Major Sir Frank	Turner, Colin
Forrest, George	Marshall, Douglas	Turton, Rt. Hon. R. H.
Fraser, Hn. Hugh (Stafford & Stone)	Marten, Neil	Tweedsmuir, Lady
Fraser, Ian (Plymouth, Sutton)	Mathew, Robert (Honiton)	van Straubenzee, W. R.
Freeth, Denzil	Matthews, Gordon (Meriden)	Vaughan-Morgan, Sir John
Galbraith, Hon. T. G. D.	Mawby, Ray	Vickers, Miss Joan
Cammans, Lady	Maydon, Lt.-Cmdr. S. L. C.	Vosper, Rt. Hon. Dennis
Gardner, Edward	Montgomery, Fergus	Wakefield, Edward (Derbyshire, W.)
Glover, Sir Douglas	Moore, Sir Thomas	Wall, Patrick

Ward, Dame Irene (Tynemouth)	Whitelaw, William	Woodnutt, Mark
Watkinton, Rt. Hon. Harold	Williams, Paul (Sunderland, S.)	Woollam, John
Watts, James	Wills, Sir Gerald (Bridgwater)	Worsley, Marcus
Webster, David	Wilson, Geoffrey (Truro)
Wells, John (Maidstone)	Wolrige-Gordon, Patrick	TELLERS FOR THE AYES:
		Mr. Finlay and Mr. Gibson- Watt.

NOES
Abse, Leo	Hannan, William	Pearson, Arthur (Pontypridd)
Ainsley, William	Hart, Mrs. Judith	Peart, Frederick
Allaun, Frank (Salford, E.)	Hayman, F. H.	Popplewell, Ernest
Awbery, Stan	Healey, Denis	Prentice, R. E.
Bacon, Miss Alice	Henderson, Rt. Hn. Arthur (Rwly Regis)	Price, J. T. (Westhoughton)
Baxter, William (Stirlingshire, W.)	Herbison, Miss Margaret	Probert, Arthur
Bence, Cyril (Dunbartonshire, E.)	Hill, J. (Midlothian)	Randall, Harry
Benn, Hn. A. Wedgwood (Brist'l, S. E.)	Hilton, A. V.	Rankin, John
Benson, Sir George	Houghton, Douglas	Redhead, E. C.
Blyton, William	Hughes, Cledwyn (Anglesey)	Reid, William
Boardman, H.	Hughes, Emrys (S. Ayrshire)	Robens, Rt. Hon. Alfred
Bowden, Herbert W. (Leics, S. W.)	Hughes, Hector (Aberdeen, N.)	Roberts, Albert (Normanton)
Bowles, Frank	Hunter, A. E.	Robinson, Kenneth (St. Pancras, N.)
Boyden, James	Irvine, A. J. (Edge Hill)	Ross, William
Braddook, Mrs. E. M.	Irving, Sydney (Dartford)	Royle, Charles (Salford, West)
Brockway, A. Fenner	Janner, Barnett	Shinwell, Rt. Hon. E.
Broughton, Dr. A. D. D.	Jay, Rt. Hon. Douglas	Short, Edward
Brown, Thomas (Ince)	Jeger, George	Silverman, Julius (Aston)
Butler, Herbert (Hackney, C.)	Jenkins, Roy (Stechford)	Skeffington, Arthur
Butler, Mrs. Joyce (Wood Green)	Johnson, Carol (Lewlsham, S.)	Slater, Mrs. Harriet (Stoke, N.)
Callaghan, James	Jones, Dan (Burnley)	Slater, Joseph (Sedgefield)
Castle, Mrs. Barbara	Kelley, Richard	Small, William
Chapman, Donald	Kenyon, Clifford	Smith, Ellis, (Stoke, S.)
Chetwynd, George	Key, Rt. Hon. C. W.	Sorensen, R. W.
Cliffe, Michael	King, Dr. Horace	Spriggs, Leslie
Craddook, George (Bradford, S.)	Lawson, George	Stewart, Michael (Fulham)
Cronin, John	Lee, Frederick (Newton)	Stonehouse, John
Crosland, Anthony	Lewis, Arthur (West Ham, N.)	Stones, William
Cullen, Mrs. Alice	Logan, David	Strachey, Rt. Hon. John
Darling, George	Mabon, Dr. J. Dickson	Strauss, Rt. Hn. G. R. (Vauxhall)
Davies, G. Elfed (Rhondda, E.)	MacColl, James	Stress, Dr. Barnett (Stoke-on-Trent, C.)
Davies, Ifor (Gower)	McInnes, James	Summerskill, Dr. Rt. Hon. Edith
Deer, George	McKay, John (Wallsend)	Swingler, Stephen
de Freitas, Geoffrey	Mackie, John	Thomas, Iorwerth (Rhondda, W.)
Dempsey, James	McLeavy, Frank	Thomson, G. M. (Dundee, E.)
Diamond, John	MacMillan, Malcolm (Western Isles)	Thornton, Ernest
Dodds, Norman	Mallalieu, E. L. (Brigg)	Timmons, John
Dugdale, Rt. Hon. John	Mallalieu, J. P. W. (Huddersfield, E.)	Warbey, William
Ede, Rt. Hon. Chuter	Manuel, A. C.	Weitzman, David
Edwards, Rt. Hon. Ness (Caerphilly)	Marquand, Rt. Hon. H. A.	Wells, Percy (Faversham)
Edwards, Robert (Bilston)	Mason, Roy	Wheeldon, W. E.
Edwards, Walter (Stepney)	Mendelson, J. J.	White, Mrs. Eirene
Evans, Albert	Millan, Bruce	Whitlock, William
Fitch, Alan	Mitchison, G. R.	Wilkins, W. A.
Forman, J. C.	Monslow, Walter	Willey, Frederick
Fraser, Thomas (Hamilton)	Moody, A. S.	Williams, D. J. (Neath)
Gaitskell, Rt. Hon. Hugh	Morris, John	Williams, W. R. (Openshaw)
Calpern, Sir Myer	Moyle, Arthur	Willis, E. G. (Edinburgh, E.)
Gooch, E. G.	Neal, Harold	Wilson, Rt. Hon. Harold (Huyton)
Cordon Walker, Rt. Hon. P. C.	Noel-Baker, Francis (Swindon)	Winterbottom, R. E.
Gouriay, Harry	Oliver, G. H.	Woodburn, Rt. Hon. A.
Greenwood, Anthony	Owen, Will	Woof, Robert
Grey, Charles	Padley, W. E.	Zilliacus, K.
Griffiths, David (Rother Valley)	Panned, Charles (Leeds, W.)
Griffiths, Rt. Hon. James (Lianelly)	Pargiter, C. A.	TELLERS FOR THE NOES:
Griffiths, W. (Exchange)	Parker, John (Dagenham)	Mr. Mabon and Mr. Howell.
Hamilton, William (West Fife)	Parkin, B. T. (Paddington, N.)

4.30 p.m.>

Mr. R. H. Turton (Thirsk and Malton)

I beg to move, in page 12, line 41, to leave out "unless" and to insert "if".

The Chairman

I think that it would be convenient to discuss with this Amendment the Amendment in page 12, line 42, after "was" to insert "not".

Mr. Turton

Thank you, Sir Gordon.

These Amendments deal with the point of where the burden of proof should he in a case which comes under this Clause. As the Clause is drafted, it will be for the taxpayer to show that the loss which he has suffered does not come within the Clause. We will argue that point later. The question is, should the onus of proof be on the Revenue to prove that the applicant has not made a genuine loss, or should it be on the applicant to prove that he has made a genuine loss?

Normally, under Schedule D it is clear. When a trader comes under Schedule D the Revenue looks into his business to see whether he is carrying on a genuine trade. The difficulty here is that we are dealing with husbandry, where it is put in Schedule D without being so described as a trade. That, I appreciate, is the problem which made the Chancellor draft the Bill originally with the burden of proof the opposite way to what one would normally expect in a taxing document dealing with justice under the British law.

I think that the difficulty the Chancellor has found is that in certain instances he thinks that expenditure which ought to be classed as personal expenditure is brought into business expenditure. I disagree with a good deal that the hon. Gentleman the Member for Gloucester (Mr. Diamond) said on the previous Amendment. This is not really a farming problem. It is a problem which, I believe, is a general weakness in our tax law. The pity is that under this Clause the Chancellor is not trying to clear up the problem of personal expenditure of all traders and farmers but trying to deal with a particularly small body of people who have had the misfortune not only to have their personal expenditure put wrongly, but who have also suffered a loss.

I may not have put that very clearly, but, in my view, what we ought to be dealing with is falsification of accounts but not in this way, by asking someone, after he has suffered a loss, to prove that he did not intend to suffer that loss. That seems to me to be quite wrong.

I was reinforced in my view when I read a letter in The Times which took exactly the same point. It said: This is a strange new doctrine and has no connection whatever with the falsification of accounts mentioned above, which, apparently, the Inland Revenue are too inefficient to prevent. When I looked at the end of the letter I found that it was written by my brother. There is, therefore, good reason for that unanimity of view. If we are to try to do it this way, by disqualifying personal expenditure that is not business expenditure, I suggest that we should get it the right way round and put the onus where it should he.

Under the Clause as it would be amended this would be the procedure. The taxpayer would prove the fact that he had made a loss by his accounts and in that perusal hope that the Inland Revenue would see that the expenditure column included only expenditure in connection with the trade or business. Then, once a loss was established it would be for the Inland Revenue to prove to the General Commissioners that this was, in fact, not a genuine business. I ask the Chancellor to think carefully on this matter, because I believe that that is the right way in English law and English justice. The hon. and learned Member for Gloucester—

Mr. Diamond

Not learned.

Mr. Tutton

The hon. Member for Gloucester always addresses the Committee with such sagacity, sometimes at length, that I sometimes think that he is "learned". He was right in saying that the difficulty about this Clause is that it does not deal with all hobby farmers, but only with those who make a loss. What he did not say, but ought to have said, was that it also deals with perfectly genuine farmers who make a loss. Because we have the burden of proof the wrong way round, in my opinion, we shall penalise many genuine cases of people who suffer losses.

I assure hon. Members that there is no industry in England which is so subjected to hazard as the farming industry; to the weather and disease and even, some farmers would say, to the annual Price Review that is imposed by the Government on the farmer and which can make all the difference between a profit and a loss to the farmer. For that reason, I think that it is quite wrong to throw the onus of proof the other way round.

I think that there is a great deal of exaggerated talk about this business of what is called hobby farming. I quote from the Report of the Royal Commission on this matter: In the result, we have come to the conclusion that the complaints against the losses of the hobby-farmer are probably exaggerated …. I do not say that there are not one or two hobby farmers near London. [HON. MEMBERS: "One or two?"] That is, in fact, where the picture has grown up of hobby farmers, in the London area.

Mr. Diamond

It is not one or two; it is 6,300, according to an Answer of the Financial Secretary.

Mr. Turton

That is the number of claims, some of which are perfectly genuine. I have met gentlemen who have had the misfortune that their herd has suddenly reacted to T.T. and they have had to destroy the whole of the herd. They are in this category. Does the Committee wish to penalise these men? There are men in areas of East Anglia who are often confronted by exceptionally bad rain at the time of the harvest and the whole of their crops are destroyed. They come within this category. Cannot we give these men that amount of justice?

The great argument in favour of my suggestion and against the Chancellor's is that the Chancellor's method of dealing with this problem under this Clause was not recommended by the Royal Commission on the Taxation of Profits and Income. The Royal Commission recommended that we should redefine husbandry, so that when a farmer was accepted under Schedule D he had to show, before he had made either a profit or a loss, that he came within the definition that was later agreed. If we were to do it that way we should get out of the whole of this difficulty of the burden of proof.

What I am trying to avoid by the Amendment is the fact that a man, when he has suffered a loss, is brought before the General Commissioners with the feeling that he is adjudged guilty until he is proved innocent. That is contrary to the principles of English justice and I ask the Committee to alter it.

Mr. Douglas Houghton (Sowerby)

We cannot support the Amendment of the right hon. Member for Thirsk and Malton (Mr. Turton). As he has explained, he wants to turn the onus of proof round the other way. The Clause requires the taxpayer to prove that his farming is being carried on with a view to making a profit. The Amendment would put the onus on the Inland Revenue to prove that the taxpayer was not carrying on his business with a view to realisation of profit.

The right hon. Member suggests that his Amendment is in accord with the principles of the taxing Acts. I differ from him on that. If he studies the Income Tax Acts, he will find that, in almost every case, the onus of proof is put upon the taxpayer—" where the tax- payer proves", or, "if the taxpayer proves". The onus must rest upon the taxpayer to prove his case to the Inland Revenue when it is obviously impossible for the Inland Revenue to do it the other way round. This point was raised by the hon. Member for Aylesbury (Sir S. Summers) on Second Reading and I differ from the view that he expressed on that occasion.

It is true that the Royal Commission made a slightly different recommendation from the provisions of the Clause. Surely, however, the right hon. Member far Thirsk and Malton is wrong in thinking that it made any difference. Although the Royal Commission, in paragraph 494, recommended that there should be a strengthening of the definition of "husbandry", the Royal Commission proposed to do it by defining it as husbandry carried on on a commercial basis and with a view to the realisation of profits". That seems to me to be no different from the provisions of the Clause.

I wonder why hon. and right hon. Members opposite are always against the instrument of the Inland Revenue. When we are debating old-age pensions, nobody comes—

Mr. Nabarro

Did the hon. Member not observe that at 4 o'clock last Friday afternoon, after a full day of debating old-age pensions, the principal bellyache of the party opposite produced only 92 Socialist Members in the Division Lobby and that about 150 were missing on their major platform? What a dismal failure.

Mr. Houghton

After that flamboyant intervention—

Mr. Nabarro

A jolly good one, though.

Mr. Houghton

Oh, yes. All the hon. Member's interventions are good, in his own opinion.

The Temporary Chairman (Mr. F. Blackburn)

It may have been a good intervention from the point of view of the 'hon. Member for Kidderminster (Mr. Nabarro), but we are getting away from the Amendment.

Mr. Houghton

My comment was on the number of hon. and right hon. Member on the benches opposite. However, I will not pursue that. It is obvious that the farming lobby is being fully supported this afternoon.

I stress once more the kind of problem with which we are dealing. Why is it that of the 10,000 farmers who are making losses, 70 per cent. of them are Surtax payers? Why is it that only men who are rich by reason of their other income make such a mess of their farming operations, have such bad luck or have their stocks destroyed by foot and mouth disease? Why does bad luck seem to strike them more heavily than others? Why is it that one-half of all the farming losses, both in number and in amount, are made by farmers around London? The hon. Member for Horsham (Mr. Gough) represents more people making farming losses than any other hon. Member. Why is it that these things happen that way? It is not just bad luck. It is not a scrap of good hon. and right hon. Members opposite thinking that we are dealing with a marginal problem which cannot be clearly identified as tax avoidance. Clearly, it can.

There are a few other particulars which have been given in this connection which must be taken into account when we consider the Amendment. The number of farming losses has been rising in recent years. The amount of the losses has been rising. The amount of tax relief has been rising. The pro- portion of farming losses among all trading losses has been rising. In face of that evidence, it would be difficult for hon. and right hon. Members opposite to say that these farming losses are genuine bad luck in the course of commercial operations, incurred by farmers who really want to make a profit, because nature, the weather, disease, the Ministry of Agriculture and all the other evils in life work so much against them.

4.45 p.m.

This matter having been highlighted by the Comptroller and Auditor General in the Report which has been quoted, it was clearly the duty of the Chancellor of the Exchequer to do something about it. It is, equally clearly, the duty of the House of Commons to do something about it. It can best discharge the obligations of the moment if the onus of proof rests upon the taxpayer, where it rightly rests and where it can only conveniently rest.

With the safeguards that are provided, I have not the slightest doubt that the Clause, in this respect, will operate fairly and will be a suitable safeguard for the Revenue, which is being literally milked by hobby farmers, who are using their occupation for amenities—[Interruption.] The hon. Member for Kidderminster (Mr. Nabarro) is in a high state of excitement and readiness to come in with another intervention. I have a rise of tension, too, when I see him in that condition. I must calm myself down, and so must the hon. Member, because I have a few more words to say.

These hobby farmers are literally milking the Revenue. They know that they are doing it. They enjoy doing it. The Amendment of the right hon. Member for Thirsk and Malton now seeks to place on the shoulders of the Inland Revenue the duty of proving what it already knows. In those circumstances, we must oppose the Amendment.

Mr. Nabarro

I at once declare my lack of interest in these matters. I am not a farmer and I have no hobbies. I can, therefore, speak from a dispassionate point of view. I rise only to put one question to my hon. and learned Friend the Solicitor-General. Whether the Committee decides on this occasion that the operative word should be "unless" or "if", undoubtedly a larger number of cases will be heard before the Commissioners.

I am concerned with the fact that if a taxpayer has to take his case to the Commissioners, or if the Inland Revenue takes him there, and if the taxpayer wins, generally at heavy cost to himself, there is no possible means of his recovering his costs from the Inland Revenue. The Inland Revenue fights these cases out of the taxpayers' purse. The taxpayer has no redress whatever.

In that context alone, whether the word is "unless", or whether it is "if", I want my hon. and learned Friend to tell us, if a taxpayer wins his case, how he can get his costs back from the Inland Revenue.

Mr. J. Grimond (Orkney and Shetland)

I hesitate to come between the hon. Member for Kidderminster (Mr. Nabarro) and the hon. Member for Sowerby (Mr. Houghton), who, when they get a hobby farmer, are like two terriers at a bone. The trouble, surely, is that these provisions are not applied only to hobby farmers. They apply to all people who make a loss, but who may be liable to be considered as not being genuinely in business.

I have great sympathy with the Amendment. Here again, we are extending what, I admit, already is part of the Income Tax law that the Commissioners will look at the motive behind certain transactions. Most people will feel that this is something which Parliament needs to watch with care.

I should like to address the following question to whoever replies to the debate. While I have absolutely no sympathy with hobby farmers, and, indeed, no one in my constituency is likely to practise hobby farming, what will be the effect of this on other types of business? Are the Government satisfied that, in its present form, the Clause will not result in many people being asked to prove that they have incurred losses on a commercial basis, when they have done so, and that they will not be put to the expense which the hon. Member for Kidderminster has mentioned?

On the face of it, there appears to be a strong case for putting the onus on the Commissioners to prove their case. I agree that it means that they will have to prove a negative. I know that that is always difficult, but is it impossible? I hope that the Solicitor-General will deal not only with hobby farming, but with the general situation, because at the moment the onus is on him to show that it is impossible for the Revenue to prove a negative.

Mr. Geoffrey Hirst (Shipley)

I have a great deal of sympathy with the Leader of the Liberal Party. It is not often that I agree with the hon. Gentleman, but he argued his case extremely well.

I support the Amendment of my right hon. Friend the Member for Thirsk and Malton (Mr. Turton), who stated the case very clearly. Like others, I am not in favour of hobby farmers, but I think that the position has been grossly exaggerated by the hon. Member for Sowerby (Mr. Houghton), who gets so excited about these matters. He is a very good friend of mine in the ordinary course of life and he speaks with great authority on these matters, but it is not good enough for him to say that we all come here "to have a go" at the Inland Revenue. That is not good enough and it is not the truth.

I come here—and I can claim to have been utterly consistent in these matters —to stand up for certain principles and I will stand up for those principles irrespective of who challenges them, whether from my own side, or from the other side of the Committee. It is such a principle which is now being challenged by this Clause.

There may be precedents for the Clause, but I have heard that too often. I am frightened lest these nebulous precedents gradually become firmer as they are repeated. In the restrictive trade practices legislation we gave away a good deal in this matter of the onus of proof and here is another of those precedents which my hon. and learned Friend the Solicitor-General, and, no doubt, my right hon. and learned Friend the Attorney-General, adore to quote. That is the danger of establishing precedents of this kind in these matters.

The mere fact that it is difficult to deal with these things in the normal way does not give the Government any excuse to say that the onus of proof should be on the other side. They must find some other way out of the difficulty. It is not for me to make suggestions. They have all the people to find out these things, and I have no doubt that there is another way. It is not good enough for the Government to say that, once again, they want to shift the onus of proof. It is that shifting of the onus of proof to which I object.

This is not just a matter of hobby farmers. I admit that it is difficult to define whether a business is carried on on commercial principles, and no doubt the Solicitor-General will make that point. A business may sometimes be carried on with inevitable losses for a certain purpose over a period of years, and it is not good enough that the taxpayer should bear the onus of proof—and that is the subtle point—of showing that the business is being carried on as a commercial enterprise. That may be difficult to show, although he may have perfectly respectable reasons for acting in that way. Nevertheless, he may be put to a great deal of trouble and expense. There is a danger in treating this matter too lightly. This is not just a matter of being humorous, whatever "milking the Revenue" means—and a peculiar sort of cow the Labour Party makes in that context.

I hope that the hon. Member for Sowerby will forgive me for being blunt. He and I both represent Yorkshire constituencies and understand plain language. We are here concerned with the danger of spreading yet further an attack on a principle, an attack which I strongly abhor. Nothing in any part of the Bill will make up for that attack.

Mr. Anthony Crosland (Grimsby)

I recognise the attachment to principle of hon. Members opposite, but, in view of the statement of the right hon. Member for Thirsk and Malton (Mr. Turton) that probably only one or two people were concerned in hobby farming and making such losses, it is difficult to explain the attendance and the vehemence of hon. Members opposite in attacking something which affects only one or two people. Does the hon. Member for Shipley (Mr. Hirst) also take the view that we are discussing only one or two people?

Mr. Hirst

That is nothing to do with me. I have made my speech and I stand by it.

Mr. Prior

While I agree with my right hon. Friend the Member for Thirsk and Malton (Mr. Turton) about the principles behind the Amendment, can the Solicitor-General make it clear that the Clause applies only to Section 341 claims? In other words, if the ordinary farmer makes a loss—and I immediately declare my interest in that I am an ordinary farmer—and if he has no other income against which to set his loss, would the Clause not apply in his case?

It would be very difficult to have the Inland Revenue spying round farms to enforce this provision and I wonder whether we want the Inland Revenue to do that. That is a matter which deserves some consideration.

The Solicitor-General

As one would expect, my right hon. Friend the Member for Thirsk and Malton (Mr. Turton) explained the effect of the Amendment perfectly clearly. Much of the debate has turned on the desirability of treating hobby farmers and hobby traders generally in this way. The hon. Member for Sowerby (Mr. Houghton) who, as my hon. Friend the Member for Shipley (Mr. Hirst) said, we all hold in great regard, expressed himself quite warmly on the subject of milking the Revenue. That does not arise on this Amendment.

Whether we take the view that there is a milking of the Revenue or not, or whether we take the view that this is the right way to deal with it or not, does not arise on this Amendment. We are all agreed that if there is a case for treating the losses of hobby farmers in the general way that we propose, then it is essential that there should not be any window-dressing and that we should not write in an Amendment which would stultify the effect of the Clause, and that the Clause must be effective. We can then discuss on the Motion, "That the Clause stand part of the Bill". whether it is generally desirable.

Having said that, I will deal with one or two preliminary points, some of which may fall outside the scope of the debate on the Amendment. My hon. Friend the Member for Lowestoft (Mr. Prior) asked whether the Clause applied only to Section 341 claims and the answer is that it does. The hon. Member for Orkney and Shetland (Mr. Grimond) asked about other trades. I am informed by the Commissioners of Inland Revenue that they do not know of many cases of hobby trades other than farming, but there are one or two cases where hobby shop-keeping—to put it that way—has been brought to their notice; but it is by no means prevalent.

5.0 p.m.

My hon. Friend the Member for Kidderminster (Mr. Nabarro) asked about the question of the recovery of costs before the General or Special Commissioners. The answer is that costs are not claimed by or awarded to either party before the General or Special Commissioners. If the taxpayer wins, he does not recover his costs. If the Inland Revenue wins, it does not recover its costs. That applies over the whole of the tax law, and is not specially relevant to this Amendment. I would add that the costs before the Commissioners are not generally very high.

Mr. Nabarro

I am well aware that the point I raised about costs is not only relevant to this Amendment and the Clause—

Mr. Mitchison

On a point of order, Mr. Blackburn. Is the question of costs relevant to this Clause? I cannot find anything about costs in it. No doubt costs are relevant to any proposed change of the law, but not specially—

Mr. Nabarro

Further to that point of order. I deliberately prefaced my remarks by saying that, if the Committee decided that the word to be inserted was "if", on the one hand, or "unless", on the other hand, in either alternative the question of costs must arise. I claim, therefore, that I was completely in order in attaching it to this Amendment. If you prefer it, Mr. Blackburn, I will raise the matter again on the Question, "That the Clause stand part of the Bill". It will, no doubt, come up many times in this Bill.

The Solicitor-General

It was because my hon. Friend's query seemed relevant to me in the way that he has described that I thought it would be discourteous not to answer his question. That brings me to the main scope and purpose of this Amendment as it was put by my right hon. Friend the Member for Thirsk and Malton.

He said that there is a feeling by the taxpayer that he is being judged guilty until he proves his innocence. In the first place, there is no question of guilt or innocence here at all. The only question is whether he is entitled to claim to set off a loss against his profits. Again I take up with great respect the language of my right hon. Friend. It is not a strange new doctrine. It runs throughout the tax law that the onus of proof lies on whoever tries to establish a claim to relief.

Oddly enough one of the most striking examples is the section of the code which deals with the taxation of woodlands managed on a commercial basis, because there the test is precisely the same one that is laid down in this Clause. It runs Any person occupying woodland who proves to the satisfaction of the General Commissioners or the Special Commissioners that those woodlands are managed by him on a commercial basis and with a view to the realisation of profits, may elect to be assessed and charged to tax in respect of those woodlands under Schedule D… The Committee will see that this is exactly the same test, and the onus is on the taxpayer to show—

Mr. Turton

I thought I had made it quite clear that if my right hon. Friend the Chancellor of the Exchequer was doing what the Royal Commission had recommended, then this point I was raising in my Amendment would not have arisen. In the case of woodlands, the taxpayer has to prove that he comes within the relevant Schedule before he starts operations or is assessed at the beginning of his operations. In this case, the decision comes when he has already sustained a loss. Therefore, the gravamen of the charge against him is that he has to establish that the loss is not an intentional loss.

The Solicitor-General

I meant to deal with that point about the Royal Commission before coming to the main matter. I do not think that the onus was any different in the recommendation of the Royal Commission from what it is under this Clause. The Royal Commission recommended a new definition of husbandry, which is, in substance, the one that we have adopted. The definition was to be amended to husbandry 'carried on on a commercial basis and with a view to the realisation of profits'. Thus, a farmer who could not satisfy this test would not be under Case I of Schedule D, and consequently would be outside Section 341. We did not approach the matter in this way solely because we were not limiting the case to husbandry, for it would be quite wrong to treat it as a special case. One could get hobby shopkeeping and one might have other hobby businesses. It seems to me that, under the Royal Commission proposal, the taxpayer would still have to show that he satisfied precisely the same test as is now laid on him under the Clause.

Mr. Geoffrey Stevens (Portsmouth, Langstone)

My hon. and learned Friend the Solicitor-General said just now that no question of innocence or guilt arose here, but surely the test is one of motive? I should have thought that in the criminal law improper or evil motive still requires to be proved.

The Solicitor-General

I was going on to deal with what the Inland Revenue has to prove in this case. Oddly enough—and I think that in this I will be supported by all the lawyers in the Committee—my hon. Friend's general statement is not universally true or even generally true. In today's Times Law Report there is a criminal case where the onus lies on the accused and not on the prosecution. There are certainly many such examples. The general rule, as I understand it, is that a person who makes an assertion has to prove it. As the hon. Member for Orkney and Shetland pointed out, to put on any litigant the burden of proving a negative is a very heavy one, and one that is very difficult to discharge. When it relates to a state of mind of the other party, it is one that is virtually impossible to discharge.

It is from that general approach, the general principle of law, that I believe that this Clause places the onus of proof where it should lie. It is by no means inconsonant with the general law of the land, and it is entirely consonant with the taxation Statutes. I said that the Committee would not wish to stultify the operation of a Clause which is otherwise thought to be desirable.

I say advisedly that this Amendment, if adopted, would largely stultify the operation of the Clause. It is right that a person who claims to be entitled to set off losses against other income should show that the conditions, which have to be satisfied to entitle him to do so, are satisfied. That runs throughout the tax code. The taxpayer is the claimant, and the burden of proving his claim to be well-founded ordinarily falls on the person who puts forward the claim. He who asserts must prove, and it is no departure from principle or practice that the burden of proof here should rest on the claimant.

That applies with particular force in the sort of context which we are discussing, because here the claimant knows all the facts. It is he who knows whether the activity is being carried on with a view to the realisation of profits and on a commercial basis. If, in his opinion, it was not, presumably he will not make the claim. If in his view it was, he will claim, and no doubt, in a case where for some years he has sustained losses, he will seek to show that those losses were incurred although he was operating with a view to the realisation of profits. All these facts are in his possession.

There was great force in the observation of my hon. Friend the Member for Lowestoft that to put the burden on the Inland Revenue would mean that the taxpayer might well find himself harried by all kinds of inquiries and questions which we all desire, in the interests of the orderly practice of Revenue law, to avoid.

As I said, the burden of proving a negative is always a very heavy one and difficult to discharge, particularly in the sort of context which we have here where we are concerned with what the view of the taxpayer was—his intention, if one likes. I say with all seriousness that if the Amendment were accepted it would largely stultify the operation of the Clause. The time to decide whether we want this sort of provision is on the Question, "That the Clause stand part of the Bill"

I entirely agree with the approach of my hon. Friend the Member for Shipley that on all these questions of onus of proof we should take the matter seriously. I have taken the matter seriously, and, naturally, my right hon. and learned Friend the Attorney-General has given very great thought to it. I ask the Committee not to accept the Amendment.

Mr. Nabarro

I do not want my hon. and learned Friend to suppose that his answer is in any way satisfactory, but as it appears to be more appropriate to deal with the matter on the Question, "That the Clause stand part of the Bill", I will return to the argument then.

The Temporary Chairman

It depends what the matter is to which the hon Member intends to refer.

Amendment negatived.

5.15 p.m.

Mr. Stevens

I beg to move, in page 12, line 43, after "to", insert "research or".

In order to come within this Clause a trade has to fulfil two requirements. They are dual requirements, not alternative ones. The trade has to be carried on on a commercial basis and with a view to the realisation of profits … I am bound to say that I personally do not know what a commercial basis is. I agree with my hon. Friend the Member for Kidderminster (Mr. Nabarro) in thinking that the legal profession would have a good time in the future. Clause 40—the Interpretation Clause—does not help us on this. As I say, the alternative is with a view to the realisation of profits in the trade. There are some useful Amendments on the Order Paper in connection with this question. Realisation of profits this year, next year, some time or never. This, I say again, is a dual qualification which the trade has to satisfy. We have been talking so far solely about farming, but there is not a word about farming in the Clause. It applies to any kind of enterprise carried on in a certain manner.

I have in mind particularly one most essential part of British industrial life which very seldom shows a commercial profit. Whether or not it is carried on commercially must be a matter of opinion. Incidentally, there is another difficulty which I see, and that is that later on in the same Clause, at the bottom of the page, it says: where the carrying on of the trade formed part of a larger undertaking … I had an Amendment down on that point which the Chair did not see fit to select. I would like my right hon. Friend to clarify trade as part of a larger undertaking…. Does it mean a subsidiary company, part of a group? If so, I can think of a number of subsidiary companies which are in the parent company solely for the purpose of research and experiment and which would never make a profit, but which, none the less, are essential and vital to the group of companies as a whole. For those reasons, I suggest that the word "research" should be added and that it would cover the point I have in mind.

The Chancellor of the Exchequer (Mr. Derick Heathcoat Amory)

I am glad that my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens) has raised this point because I think it is a relevant one and one that I should like to make quite clear. I went quite carefully into the question whether a commercial basis would provide more difficulties, but after taking a good deal of advice on the matter I was told, on the contrary, that it ought not to be a difficult basis to establish.

My hon. Friend has raised the point about one concern in a group, or a sub- sidiary company of the main company, making a loss and going on making losses because it was indulging in an activity like research from which a profit would not be likely to come. A case like that would be completely satisfactorily covered by the present Clause which refers to the undertaking as a whole. If a subsidiary company of a main company made a loss and went on making a loss through research but the main company itself was trading with a view to realising a profit, then the loss of the subsidiary company could be set off against the profits of the main company.

There is the provision in section 20 of the Finance Act, 1953, whereby the main company could make a subvention to cover the loss of the subsidiary company. Clause 18 (2) would not debar that course of action in the case where the main company was operating on a commercial basis with a view to the realisation of profits. Exactly the same situation would arise and the same result could be obtained if instead of the loss-making concern being the subsidiary of a main company it was one company in a group. If the trading activities of the group as a whole were on a commercial scale and with a view to the realisation of profits then the losses of the loss-making members of the group could be set off against the profits of the group as a whole. I therefore hope that I have satisfied my hon. Friend that there is nothing to fear from the provisions of the Clause in the direction which he indicated.

Mr. Turton

I am not at all satisfied with my right hon. Friend's explanation, because I do not regard the definition as dealing merely with subsidiaries. There are certain farmers who are carrying on research and experiments, not on a commercial basis but for the improvement of grazing, for example, or trying out new varieties of cereals. I have taken details of some of these farms. Hon. Members opposite are so keen to sneer at hobby farmers that they forget that some of the people caught by the Clause are the very people who have done most, and will do most, to improve agriculture in this country.

Let me give a few examples. One is of a farm of 104 acres which goes in for research and experiments. In 1957–58 it made a loss of £83 per acre. In 1958–59 the loss was £116 on each one of the 104 acres. Clearly that would come within the definition of the Comptroller and Auditor General of carrying on husbandry notwithstanding the fact that the nature of the activities carried out may be such that losses are virtually inevitable.

The next example is of a market gardener with 110 acres. In 1957–58 he made a loss of £417 for every acre he was farming and in 1958–59 his loss was £472 for every acre he was farming. At first sight it would be said that this man is a hobby farmer but in fact he cannot be, because he is the Minister of Agriculture. I have been quoting the farming results of the research and experimental farms of the Ministry of Agriculture. If they are not hobby farmers, why should that description be applied to a private farmer who is trying to do exactly the same thing? The Chancellor was that "hobby farmer" himself until three years ago. Surely he must ensure that in the Clause he protects the man who is trying to improve land by research and experimentation in agriculture.

If we look back into history we see that all the big developments in agriculture have been conducted by such people. It was people like "Turnip" Townshend and Coke of Norfolk who led the big revolution in agriculture. Is it intended by the tax law in the Clause to cut out these people?

I beg my right hon. Friend to think again about the Amendment, because we are dealing here not merely with subsidiary research. We are dealing with the farmer who is trying to conduct research and experiment. It will be a very long time before such a farmer can ever hope to see a profit. I should like to take the Chancellor to my constituency, where he will see people who are trying to win back moorland and to make it into an agricultural unit. Presumably these would be regarded as hobby farmers, because they are making losses.

Mr. Diamond

The right hon. Member says that these people are trying to make profits in the future by recovering moorland. They are protected by the Clause.

Mr. Turton

I said that they were trying to win back moorland knowing that in all their life time they will be making losses on it

Mr. Diamond

The right hon. Gentleman said that it was with a view to making profits in the future.

Mr. Turton

It is true that in the future profits may be made, but it is a future long beyond our lifetime. I ask hon. Members to think of the redevelopment of land that was agricultural in the Napoleonic wars and which subsequently became derelict in the great depression. These men, by putting in their capital, are trying to win back this land again not merely for commercial purposes but sometimes for experimentation. They are trying to see how they can win back peat and make it into arable land again. Sometimes, and more important, there are social reasons, arising from the fact that villages are dying and that something must be done to save them. I have no sympathy for the so-called stockbroker-farmers around London. I am worrying about how far the Clause will hurt those people who have done so much for rural England.

Mr. Amory

I was not dealing with that aspect but with the aspect raised by my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens). In theory I agree that there could be a case—

The Temporary Chairman

Order. I should be glad if the Chancellor would address the Chair and not his hon. Friends sitting behind him.

Mr. Amory

I am sorry, Mr. Blackburn, and I hope that you will not have to reprimand me for that again. I seem to be acquiring habits from one of my hon. Friends.

Mr. Nabarro

I am glad that I am still called a friend.

Mr. Amory

I think that my right hon. Friend could produce a theoretical case in which an individual might go in for a type of research, almost fundamental agricultural research, with no immediate application to the problem of the land which he was farming. In such a case he might never be within sight of operating an economic unit. But in practice, during the time that I was Minister of Agriculture, I never came across a case of that kind in which a practical farmer or somebody interested in farming went in for a research unit of that type without having any other farming activities at the same time.

I would go the whole way with my right hon. Friend about the advantages of encouraging people who have the means to apply themselves to improving land, and I am certain that this Clause will not interfere with any work of that kind, even long-term work to improve the land, if at the end of the period—if may well be a very long time—the result may be or will be an economic unit.

Going back to the 18th and early 19th century, the great agriculturalists who did so much work in this direction in the Eastern Counties quite clearly had as their objective at the end of the day a profitable undertaking in an economic unit. In our own generation I can think of one wealthy man who has brought tremendous benefit to the Eastern Counties through improving very wide areas of land. He had to carry heavy losses for many years, but at the end of the day he produced a highly economic undertaking. The object of the Clause is to allow that kind of improvement to go on uninterrupted and unaffected in any way, because the realisation of profits will mean that the aim is ultimately to produce economic units.

My right hon. Friend has referred to the Minister of Agriculture and his experimental farms. When I was Minister of Agriculture I took the closest interest in watching the progress towards profitability of the experimental farms. It was very difficult to envisage that many of them would achieve a profit over the whole undertaking, except over a long period, but sections of the undertakings were brought to a state of profitability, and the whole of the background of that research work was to produce a profitable undertaking. I am certain that anyone who is indulging in practical research of that kind, aimed ultimately at an economic project, will be quite safe under the Clause, and I go so far as to say that any practical application of research, if it is to be for the long-term benefit of agriculture, ought to be directed to achieving ultimately some degree of profitability.

5.30 p.m.

My right hon. Friend the Member for Thirsk and Malton (Mr. Turton) in theory could say that if somebody was indulging in pure research not applied in practice on the farm it could never be profitable. I agree that if there were such a case and it was not applied in any sense to ultimately achieving a profit, that case might be caught, but I have never known such a case. If my right hon. Friend knows of any I hope that he will write to me and let me know. If a stage like that is reached I admit that it would be extremely difficult to argue that that was a trade being carried on or an undertaking on a commercial basis, but I do not believe that any case of that kind, isolated from any application of farming practice would be likely to arise.

Mr. Turton

Is the Clause intended to cover farming on 22 acres with a loss in one year of £15,024? Would that be regarded by any general commissioner as being on a commercial basis?

Mr. Amory

I should not like to say at all until I knew the facts or until I knew how the loss of £15,000 arose. As far as realisation of profit goes, that is not limited in any way to one year. The one year is the carrying on of the undertaking in the year of assessment, and the realisation of profit is the ultimate realisation of profit, but I could not answer my right hon. Friend before knowing the details of what sounds a very strange case indeed.

Mr. Douglas Jay (Battersea, North)

Suppose that there were such a case, a programme of pure research quite unrelated to profitability? Even though that is extremely desirable, is there any reason why it should be partly financed by the Inland Revenue?

Mr. Amory

If it were, it would open a very wide door, because there are many other desirable activities beyond research which would fall into the same category. Outside farming one might have a subsidiary undertaking where the aim was not linked in any way with commercial practice but might be some artistic aim. It might be a thoroughly worth-while activity but once one included that as a trade for this purpose one would find oneself in a position which would be quite uncontrollable.

Mr. Mitchison

Usually I farm at a loss, and perhaps inevitably, but at the end of a discussion I may find out whether or not I am a hobby farmer. I agree with the Chancellor and I think that the Amendment would go too far. There are, of course, many farmers who make a most valuable contribution to agricultural knowledge and sometimes to the social life of the countryside by what they discover. They were mentioned in the Report of the Royal Commission on the Taxation of Profits and Income, which struck a balance between the two sides and put down that item as one of the main ones on the credit side.

I have known a good many people who do this kind of thing and I have never known them entirely dissociated from making the farm or whatever it was pay in the long run. I fail to see how interested research, if I may so call it, could be missed by the Amendment. It has to fulfil both the qualification as to a view to profit and as to the commercial basis. There is purely disinterested research and the Minister of Agriculture is not by any means the only person who carries it on. A great many universities do research work in a similar way, but I would not say that that research can possibly be carried on on a purely commercial basis. I believe, therefore, that the addition of these words would not add any considerable class to those who would escape from the perils of the Clause, but that if it did so, it would be likely to acid the wrong people.

I agree respectfully with my right hon. Friend the Member for Battersea, North (Mr. Jay) and the Chancellor in saying that it is not the right way to subsidise research by giving it special fiscal advantages. It is very much better to do it straight, if one can, and that certainly applies when one is considering a special kind of research.

Mr. Stevens

On the basis that the profitability test in appropriate circumstances will be a long-term one and the Clause will cover one or more companies in a group of associated companies, I am satisfied with my right hon. Friend's assurances and I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Sir Henry d'Avigdor - Goldsmid (Walsall, South)

I beg to move, in page 12, line 44, after the first "trade" to insert: in that or any subsequent year". This form of words merely incorporates into law the assurances which my right hon. Friend the Chancellor of the Exchequer has just given us in reply to the debate on the previous Amendment, and also in a speech on Second Reading when he said: Farmers who incur temporary losses while establishing an enterprise, building up a herd, bringing back land into fertility or improving it, should be in no danger provided that the enterprise in which they are engaged is one that can be regarded as likely in due course to become an economic undertaking."—[OFFICIAL REPORT, 3rd May, 1960; Vol. 622. c. 892.] In view of my right hon. Friend's undertaking, the only reason why I think it necessary to move the Amendment is that the time element may be very long indeed.

I do not need to mention woodlands. They are adequately covered by the fact that in order to qualify for Schedule D relief they must be accepted as being worked on commercial lines. Therefore, the implications of a long-term plan are accepted there. At the same time, it is desirable to move a little away from the extremely narrow view of hobby farming which we have been taking up to now. I want to deal particularly with two activities which are by their names suspicious but are in good faith being carried on as businesses with a commercial object.

The first is the breeding of race horses. Whatever our views about racing, and we had a full discussion on it yesterday, there is no question that the breeding of race horses is a serious commercial undertaking both in this country and in Ireland. It is recognised as such by the Inland Revenue, but my point is that it is essentially a long-term activity. It is significant that the great foundation mare Pretty Polly which won a race in 1904 did not have descendants of classical ability until nearly 50 years later. If, next Wednesday—as most of the hon. Members of this Committee are unlikely to be able to do—we were able to be present at Epsom Downs we might see the right hon. Member for Woodford (Sir W. Churchill) leading in a winner who is a descendant of Pretty Polly, a mare born in 1901.

I bring out that point because it seems to me that it would be open to an inspector of taxes to say to the breeder who is attempting to establish a line, "You have gone on making losses for 10, 12 or 15 years. Where is your commercial justification?". I think it is as well to have it on the record that perseverance for 30 or 40 years sometimes brings its reward.

Another aspect is the garden run on commercial lines. I am thinking of one of the greatest gardens in this country. Once again, the Members of the Committee are unlikely to be allowed to see its produce at the Chelsea Flower Show, but this is a garden with a turnover of £30,000 a year. It has a large export business, and it is run at a small profit. There is, therefore, no loss claimed, but whether it runs at a profit or at a loss depends on the weather, and on the many other hazards facing horticulturists.

The point is that that garden has come to maturity over a period of 40 to 50 years, and the breeding of hybrids and in-breeding was not a commercial proposition at the beginning. In fact, it is clear that if it had been started as a commercial undertaking it might have been abandoned, but, because it has been carried on for fifty years it is now a commercial undertaking. It is important that it should be recognised in that case that a commercial garden is not only a possibility, but is one of the greatest adornments of this country, and one of which we should be proud.

Although my right hon. Friend has given this assurance, which I consider to relate mainly to the short term, I am sure that he will accept also that there are activities which need considerably longer than a few years to bring them to successful fruition, and I hope that he will accept the Amendment.

Mr. Houghton

We on these benches do not like the Amendment.

Mr. Nabarro

What about the National Coal Board?

Mr. Houghton

Either the words which the Amendment proposes to insert are superfluous, or hon. Gentlemen are up to no good, and I have yet to discover which it is. Subsection (5) says: For the purposes of this section the fact that a trade was being carried on at any time so as to afford a reasonable expectation of profit shall be conclusive evidence that it was then being carried on with a view to the realisation of profits. That seems to be pretty wide, and indeed the words which come before the words which it is proposed to insert are also pretty wide, because the subsection says: … carried on for that year of assessment on a commercial basis and with a view to the realisation of profits in the trade … The Amendment proposes to insert the words: in that or any subsequent year". I suppose it is possible that a taxpayer would say, "I expect to make profits in the year "dot", so I do not want any argument from you that I am not in business to make a profit. It may be that I shall not make a profit in my lifetime. I will hand on my losses to my heirs and assigns and one fine day a profit will come up."

5.45 p.m.

That is stretching the matter too far, and let me remind the Committee of the very modest expectations of the Royal Commission when it made its recommendation on which this Clause is based. Paragraph 496 of the Report says: … we should not expect our recommendation to bring about any considerable change in the present position, or markedly to reduce the volume of loss claims in respect of farming. But it will be of considerable assistance to the Revenue in putting out of court claims in respect of farming activities which can be seen clearly to lack commercial inspiration and to be nothing more than hobbies or private amenities. I do not believe that the Clause will go any further than the Royal Commission's expectation, so why are these attempts being made to circumscribe, restrict, confine, and make more difficulties in the operation of the Clause? Either right hon. and hon. Gentlemen opposite want to stop this racket, or they do not. I am coming to the conclusion that they do not, and that they are attempting to put fresh obstacles and difficulties in the way of making the Clause effective. I suggest that if cases arise where there is injustice or difficulty the House and the Committee could attend to them later.

What have farmers to fear from the general commissioners in farming communities? Most of the commissioners in these areas are fully appreciative of the value and significance of farming. Many of them are farmers themselves. Mostly they are landowners and farmers of the landed gentry. It is only recently that we have had an ordinary worker as a local commissioner, and I think that only about thirty-five of them have been appointed so far. There are a few doctors, a few shopkeepers, and a few businessmen, but I doubt whether they are in agricultural districts.

Surely the protection which farmers will have from the wisdom—to put it no higher—of the general commissioners for their areas will be enough to safeguard them from injustice or bureaucracy. We regard the Amendment more with suspicion than with approval.

Mr. Nabarro

Before we pass from the Amendment, will the Chancellor of the Exchequer clarify one point which makes it very difficult for several of my hon. Friends to judge the merits of the Amendments on the Notice Paper during the deliberations on this Clause? Are the nationalised industries included in the provisions of Clause 18? Does the Amendment in the name of my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) apply to the National Coal Board or to the British Transport Commission?

My hon. Friend drew attention to the length of time sometimes required to bring investments to profitable fruition. He instanced Pretty Polly, in 1904, and the winner of a race this year. That is a span of more than half a century. My hon. Friend instanced woodlands and the length of time it has taken to bring that to profitable fruition. Is it not indubitably the fact that it may take a long time to bring investment in the Coal Board to profitable fruition? It is losing money year by year, and so is the Transport Commission. That is why £80 million was transferred above the line in this Budget.

Mr. E. G. Willis (Edinburgh, East)

It is not run as a hobby.

Mr. Nabarro

That is what I am wondering. Is it a hobby?

Mr. Willis

What is it set off against?

Mr. Nabarro

The hon. Gentleman asks what it is set off against.

Mr. Mitchison

The whisky board.

Mr. Nabarro

Not the whisky board.

May I relate the matter to farming for a moment? The Coal Board holds tens of thousands of acres of farms in the North-East. We therefore have the paradoxical situation that the parent undertaking—coal mining—makes a heavy loss, but its farms make a profit, so the profit is set off against the loss.

Mr. Willis

It does not come under this Clause.

Mr. Nabarro

I am not so sure. The hon. Member is pontificating on abstruse taxation points. This is not only a matter of hobby farming. Are the nationalised industries included or excluded, especially in relation to the words of the proviso to subsection (1), which raise considerable dubiety in my mind and in the minds of some of my hon. Friends? The proviso contains the words: in the exercise of functions conferred by or under any enactment (including an enactment contained in a local or private Act). All the nationalised industries are operated under enactments. Will my right hon. Friend therefore tell me whether the Coal Board is included and, if so, what his view is on the Board's farms, consisting of tens of thousands of acres.

I am not sure whether these farms make profits or losses, because they do not publish individual and separately audited accounts, but after this debate I shall be asking many Questions on the subject of the Coal Board's being adjudged a hobby farmer, especially in view of the criticisms made by the hon. and learned Member for Ketteripg (Mr. Mitchison).

Mr. Grimond

I agree with the hon. Member for Sowerby (Mr. Houghton). We may be pursuing marginal matters, which can be looked after by the Commissioners. Nevertheless, it is our business to make sure that we are passing laws which we understand. Doubts were raised in my mind by the Chancellor's answer to the right hon. Member for Thirsk and Malton (Mr. Turton). He underestimates the position of some farmers who have undertaken breeding which has only the remotest possibility of being either on a commercial basis or of realising a profit, but which has benefited the general state of farming very considerably. I can give the right hon. Gentleman the names of two men—admittedly, rich men—who, largely as a hobby, carried on systems of breeding which were useful but which I very much doubt yielded a profit.

As the right hon. Member for Battersea, North (Mr. Jay) says, there may be no reason why the Exchequer should assist such people, but we should hear from the Chancellor whether he intends that these people shall be excluded by the Clause as hobby farmers. I was not quite certain from his answer what view he takes.

Further, the definition that the undertaking has to be carried on on a commercial basis, and with a view to the realisation of profits, is a difficult one to interpret. I do not suppose that any of my crofting constituents are likely to be affected by the Clause, but it could be said that many of them run their crofts not on a commercial basis but as ancillaries to other employments, and if that is part of the test they may be excluded from the assistance given by the Minister of Agriculture to genuine agriculturists. I gather that that is unlikely to happen, but it is difficult to find a satisfactory definition.

If the Clause goes through without further scrutiny there is some danger that those whom we may call farmers of an individualistic outlook may be urged to conform. One of the people I have referred to, who has done a certain amount of good to agriculture by breeding, was strongly advised by the Ministry not to carry on that work. No doubt on a strictly legal basis the Ministry was right. Nevertheless, he went on with it and discovered certain valuable facts, largely as by-products of his hobby. The Chancellor should tell us whether these people are intended to be caught by the provisions—and I could understand it if that were his intention—or whether they should carry on as at present.

Mr. Amory

I did not agree with what the hon. Member for Sowerby (Mr. Houghton) said in his references to the Amendments and the interventions of my hon. Friends. Each of my hon. Friends' arguments was entirely relevant to the Clause, and I aim very glad that they raised the points they did, because they merit consideration.

I turn, first, to the remarks of my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid). I understand that the object of the Amendment is to make sure that the Clause cannot be read so that the words "realization of profits" could be limited to the earning of profits in the year of assessment in respect of which the claim to relief is made. The words "for that year of assessment" relate to the trade being carried on, and not to the realisation of profits.

The phrase is the same as that used in other Income Tax Acts to cover cases where the aim is the overall realisation of profits in the long term. A particular example is Section 125 of the Income Tax Act, 1952, relating to the occupier of woodlands. It was recognised that in the case of woodlands it takes a long time to realise profits, yet the aim is the ultimate earning of profits.

My hon. Friend the Member for Walsall, South also raised the question of stud farms, and rightly called them serious commercial undertakings. Anybody who knows how stud farms are conducted, and the nature of their business, knows that such business is likely to result in a series of losses for a number of years, offset with occasional years of good profits—if all goes well. Stud farms are often run in conjunction with ordinary farms, but I want to make it clear that, in any case, in any adjudication the nature of the business, the general experience and the profitability prospects will be taken into consideration. Such a business will be treated as a long-term business, where the aim is the eventual earning of profits.

My hon. Friend also raised the question of gardens. There are different kinds of garden. In respect of gardens in historic houses which are open to the public the definition already in force is the same as that contained in the Clause, namely, that the garden must be managed on a commercial basis with a view to the realisation of profits. Those gardens will be unaffected by the Clause, because it restates the wording of Section 124 (2) of the Income Tax Act, 1952, which already applies to such gardens.

In the case of gardens which are more of the market garden type, where produce is sold, the present definition is that the land must be occupied as a nursery or garden for the sale of the produce. The wording of the Clause will relate to such gardens, but there the practice already is to consider the sales of the garden, and the Inland Revenue authorities disallow expenditure when the sales are insignificant compared with the expenditure. In all other cases, where already a reasonable effort is made to expand and to maximise sales with a view to the eventual earning of a profit, such a garden will not be interfered with.

I think that my hon. Friend will find that this Amendment is unnecessary, because the cases he is worried about will not, in fact, be endangered by this Clause. If I were to accept the Amendment, it would cast doubt on the meaning of this definition, which is included in this Clause and also in other provisions of the Income Tax Acts, where it works perfectly satisfactorily, judging by the small number of complaints and appeals that are made against it. I hope that my hon. Friend, having listened to what I have said, will feel that the Amendment is unnecessary and redundant, and that he will not wish to press it.

6.0 p.m.

Mr. Nabarro

Would my right hon. Friend reply to my questions about the nationalsed industries?

Mr. Amory

I am sorry. My hon. Friend raised the question whether the nationalised industries can be caught as hobby farmers. It is an interesting point, and I own that I have not considered it at all closely before this debate.

If I remember rightly, the statutory duty of a nationalised industry is to ensure that its income and expenditure are balanced, taking one year with another. As the balancing of that income and expenditure includes the servicing of the capital, and, therefore, to service their capital these industries have to earn what would ordinarily be regarded as profits, because it would influence the whole of their capital, then a nationalised undertaking as a whole could be regarded for this purpose as operating on a commercial basis with a view to the earning of profits. If that were so, but the industry still had a subsidiary undertaking that made a loss, as I explained on an earlier Amendment, it would be able to set off that loss against its profits, if any, on the main undertaking.

May I also reply to the point which the hon. Member for Orkney and Shetland (Mr. Grimond) raised with me about breeding, to which I am sorry I did not reply? I say again that, taking the long-term aim, I believe that if any breeding establishment in agriculture is to be sound in its aim and operations, it should set itself the ultimate aim to produce stock for economic operation on a farm. Any breeding establishment of the kind I have come across in farming should be all right, if it has that aim, but if it is indulging in fundamental breeding research of a kind which we can expect to find in a research unit and not on an experimental farm, it would be questionable.

The hon. Gentleman also raised the question whether the definition that we have selected here is the most satisfactory one. All I can say there is that the Royal Commission paid a good deal of attention to that, and, I believe, devoted a good deal of time to it, and eventually decided that the phrase, on a commercial basis and with a view to the realisation of profits was the best practical definition it could give.

Mr. Mitchison

Would the right hon. Gentleman consider the proviso to subsection (1)? The proviso seems to me to cover any question of the nationalised industries, because all of them must be exercising functions conferred by or under any enactment". If, unlike so many of them, they were making losses, the losses would not be included in the losses covered by the Clause.

Mr. Amory

I believe that the hon. and learned Gentleman is right on that. I got a little bit off course when I was talking about agricultural subjects, and I overlooked that proviso which provides for the operations of statutory undertakings.

Mr. Nabarro

Will my right hon. Friend please clarify this matter? Before the hon. and learned Member for Kettering (Mr. Mitchison) intervened, he had assured me that the Coal Board and its subsidiaries would come within this Clause. I raised the point concerning the proviso to subsection (1) in exactly the same way as the hon. and learned Gentleman has now raised it again. Now the Chancellor of the Exchequer says exactly the opposite—that the nationalised industries are excluded from this Clause.

This is a point of some substance. I am not fooling about, I assure my right hon. Friend. The Coal Board happens to own and operate tens of thousands of acres of good farm land in the North-East. Nobody is in a position to say—and I shall press this point later—whether the farms operate at a profit or a loss. The reason for that is because there are no separate and individual accounts published for the farms. The historical origin of the farms is well known. They were bought in the days before nationalisation as a hedge against possible consequential claims for subsidies. I want to find out now, especially in view of what has been said from the benches opposite about hobby farming, whether the Transport Commission, the Central Electricity Generating Board and the Coal Board come within this Clause. If my right hon. Friend cannot answer specifically now, will he give a detailed explanation on the Question "That the Clause stand part of the Bill?"

The Attorney-General (Sir Reginald Manningham-Buller)

I thought that my right hon. Friend the Chancellor had given my hon. Friend a very clear and conclusive explanation. Indeed, he gave two, both consistent and both to the same effect.

When my hon. Friend asks whether a nationalised industry comes within the Clause, that is a rather ambiguous question. To start with, I say that my right hon. Friend made it quite clear in the first part of his reply to my hon. Friend that the nationalised industries should satisfy the provision by showing that their trade was being carried on on a commercial basis and with a view to the realisation of profit in the trade. That was his first answer, and his second answer was entirely consistent with it.

It was to the effect that as they carry out statutory functions, they are not hit by the provision—which in the light of the first answer would none the less not apply—for stopping losses being set off against their income. On both grounds, it is quite clear that they will not be stopped from setting off losses against other income by the provisions of the first part of this subsection.

Mr. Jay

Would the right hon. and learned Gentleman explain to us, in that case, what is the point of the words in the proviso to subsection (1)? If the point is already covered by the words in the previous Clause, what do these words add to the Clause? It is still obscure.

The Attorney-General

It adds to the Clause quite a little in making it absolutely clear beyond any shadow of doubt, and, as the right hon. Gentleman appreciates, it applies not only to functions under general public enactments, but also to functions under enactments contained in local or private acts.

Mr. Nabarro

I must ask my right hon. and learned Friend to consider that here action is being taken against the stockbroker farmer—there have been many complaints about this—on the grounds that he is making a loss on his farming activities and seeks to set it off against alternative income. There is one law for him, but if the Coal Board made a loss on its farm for several years, and sought to set off the loss on the farm against the profit, if it ever made a profit, on its coal mines, we should have the situation that there is one law for the stockbroker farmer and another for the Coal Board farmer, because the nationalised industries are said to be excluded from the provisions of this Clause, and the farms concerned in the North-East, which are very substantial farms, are part of that nationalised industry.

My right hon. and learned Friend cannot have it both ways. [HON MEMBERS: "Nonsense."] It is not nonsense. These nationalised industries are operating very many undertakings which are not exactly in accord with their primary functions and principal production. In this context, there are Coal Board farms which might well make losses in future years and then seek to to set off those losses against the profits incurred. On these grounds, I suggest to my right hon. and learned Friend that there is a very real inconsistency. Why does he attack private taxpayers for doing the same thing and yet let off the nationalised industries?

Mr. G. B. Drayson (Skipton)

I wish to put to my right hon. Friend the Chancellor the case of a widow who inherits farm property, or whose husband has been farming the property before his death, and who finds it necessary to appoint a manager to carry on the work previously done by her husband. As a result of the employment of a manager at a good salary—we are anxious that such managers should receive as high a salary as possible—the farming activities might show a loss. In actual fact that loss would he caused by the salaries of the manager and staff.

In some such cases the widow would have an investment income, or some other kind of income, and might be involved in a scheme for altering the type of farming or carrying out dilapidation improvements so that the manager might take advantage of Government schemes or operate new methods of husbandry. It might, therefore, be a number of years before the farm could show a profit, or there might be cases where a farm would never show a profit.

My attention has been called to such a case by a constituent. Three men are employed and doing excellent work on the property in question, and they are being well paid. But, because of the increase in the staff, the activities carried on have resulted in a loss. It is the wish of the lady concerned to keep her land at a high standard of efficiency, although she is not able to make a profit, so that at a later stage members of the younger generation will be able to take over the farm and enjoy the income now being taken up in paying the manager.

I ask my right hon. Fried to look at this question because there will be a number of cases where the profit is eliminated owing to the salary of the manager, but the Surtax liability of the owner is possibly reduced because she is having virtually to subsidise the farm out of other income in order to ensure that the manager gets a good salary.

Mr. Amory

I am glad that my hon. Friend the Member for Skipton (Mr. Drayson) has raised this practical issue. The presumption behind the case to which he referred is that the widow's husband actively managed the farm during his lifetime and that his services are being replaced by those of a paid manager. In such a case I should assume that, provided the remuneration paid was not fantastic and was related to the work undertaken by the manager and the responsibilities he had assumed, it would not alter the position so far as the widow was concerned. Presumably the farm would still be managed by the manager on a commercial basis with a view to the eventual realisation of profits and therefore his salary would be a fair charge to set against them.

I can quite understand in such a case that for some years after a paid manager had been appointed the profitability of the farm might not be sufficient to cover his full salary. But provided that the farm was operated on a commercial basis, and was not being overloaded with overhead expenses so that it would never be a commercial proposition, there would be nothing to fear.

If the cost of extra labour was reasonable there would be no danger. If the expense of labour was higher than would normally be the case because it was desired to carry out improvements on the farm, and eventually to improve the land, that again would be a perfectly sound thing to do. It would not interfere with the commercial basis and the eventual realisation of profits. From what my hon. Friend has said I do not think that there would be any danger about a case such as he has described, provided that the salary of the manager was reasonable, but if my hon. Friend would like to send me details, I will look into it.

6.15 p.m.

Mr. Turton

My right hon. Friend has made a serious statement regarding the future of farming operations, if it means that a widow or an owner has to prove that the salary paid to a bailiff is not unreasonable. That would appear to be, against the interests of agriculture.

Mr. Amory

I am sorry; I cannot have made myself clear. I was trying to say that the case outlined by my hon. Friend the Member for Skipton relating to the appointment of a paid manager, would establish a perfectly good claim. Although such an appointment might result in the profits being turned into losses for some years, in the long run it would not prevent the farm from being a reasonably economic unit.

I did not intend to say that a loss caused by a salary being paid would affect the situation. But if a fantastic salary were paid it might become clear as the years went by that never in any circumstances could the farm possibly yield a profit. If, for example, the salary paid to the manager of a 100-acre farm was £8,000 or £10,000 a year, I should imagine that never in any circumstances could that farm be regarded as a commercial unit. I did not intend anything more in the way of an inquisition than the implication on future profitability of a fantastic salary. I do not think that my hon. Friend the Member for Skipton had anything of that kind in mind.

Mr. Nabarro

Would my right hon. Friend tell the Committee what is a fantastic salary?

Mr. Amory

Really, my hon. Friend must be reasonable in this respect. I indicated just now what I thought would be a fantastic salary—if £8,000 a year were paid to the manager of a 100-acre farm.

Mr. Nabarro

What my right hon. Friend thinks a fantastic salary, or what the Inland Revenue thinks a fantastic salary, is not necessarily what the widow or the owner would think a fantastic salary. Surely my right hon. Friend is not suggesting that the Inland Revenue is to be placed in a position to judge what a bailiff or a manager should be paid?

Mr. Amory

The hon. Gentleman must listen to what I say. I was instancing a fantastic salary which, if continued over the years, clearly would render the farm uncommercial and make it impossible for there ever to be a profit. It is the same with any expenditure. We may mention a salary, but the same argument would apply to any other expenditure over a long term of years. It is the ultimate profitability which must decide whether the farm is run with a view to the realisation of profits.

Mr. Denzil Freeth (Basingstoke)

My right hon. Friend has used two phrases which please me. He has spoken of the eventual realisation of profits and the ultimate profitability of the holding or trade. Yet, on grounds of which I see the force, he resists adding any such words as "eventual" or "in a subsequent year" or "ultimate" to this Clause because it would not be parallel to Section 125 of the Income Tax Act, 1952, relating to woodlands managed on a commercial basis.

Is my right hon. Friend the Chancellor, or my right hon. and learned Friend the Attorney-General, saying that, in fact, the parallel is absolutely exact? With woodlands it is possible to see the trees and, so to speak, to see the asset which will be sold and thereby realise the ultimate profit. With farming —except with livestock over a short period—there is no such visible proof of what will be sold. In the case of farming, or some other trade where it is not possible to see the article which will ultimately be sold to create the profit, is my right hon. Friend certain that it is not desirable to add some such word as "eventually" to the Clause?

Mr. Amory

I think I can say to my hon. Friend that I am satisfied of that because it is a question of considering the profitability against the background of the experience and prospects of similar kinds of undertakings. That is exactly what is done in the case of forestry and it will be done in the case of farms. My opinion that this will be all right is reinforced by the fact that the Royal Commission—I am told after considering a number of different definitions—came to the conclusion that this was the right definition to cover cases where profits could not be expected year in and year out, but could be expected ultimately in the light of the nature of the business and the profitability expectations for the kind of business concerned.

Sir H. d'Avigdor-Goldsmid

As my right hon. Friend has learned, it is not given to man to tax and to be loved. As no doubt he will learn, it is not given to man to love and to be wise. I have learned that it is not given to back benchers to find a form of words which is acceptable to the Parliamentary draftsmen of the Treasury. However, in view of the very full assurances which my right hon. Friend gave in answer to my Amendment, I feel satisfied that the spirit of the Amendment is fully met by what he has said, and I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

The Temporary Chairman (Sir Norman Hulbert)

If it is convenient to the Committee, the next Amendment, in the name of the hon. Member for Gloucester (Mr. Diamond), in page 13, line 6, at the end to insert: (2) The last foregoing subsection shall apply to allowances under section three hundred and fourteen of the Act of 1952 (allowances for certain capital expenditure), being allowances in respect of which an election has been made under the proviso to subsection (1) of section three hundred and twenty-four of the Act of 1952 (manner of granting, and effect of, allowances made by way of discharge or repayment of tax), as it applies to the losses mentioned. and the Amendment immediately following, in the name of the right hon. Member for Huyton (Mr. H. Wilson), in line 6, at the end to insert: (2) The last foregoing subsection shall apply to allowances under section three hundred and fourteen of the Act of 1952 (Allowances for certain capital expenditure) as it applies to the losses mentioned. can be referred to together.

Mr. Diamond

I am grateful, Sir Norman, for that indication.

These two Amendments come at the same point in the Bill. I take it that you have no objection to me formally moving the second Amendment, but not the first? The Second Amendment is the simpler of the two. Perhaps it would be adequate if I dealt with that almost exclusively on the assumption that, if the Government prefer the first of the two Amendments and refuse the second, I could then move the first as that, presumably, would be suitable to my hon. Friends.

The Temporary Chairman

I understand that the hon. Member for Gloucester does not desire to move the Amendment in his name, the first of these two Amendments, but the Amendment standing in the name of his right hon. Friend the Member for Huyton?

Mr. Diamond

Yes, Sir Norman, that is what I endeavoured to indicate, but, as I was explaining to the Committee, if the Government preferred the first of the two Amendments, presumably the second could be withdrawn, with the consent of the Committee, and then the first could be formally moved.

The Temporary Chairman

Order. The hon. Member cannot go backwards. If he is moving the second Amendment he cannot subsequently move the first Amendment.

Mr. Diamond

If it is your Ruling, Sir Norman, that it would be going backwards because they are in that order on the Notice Paper, although they come at the same point in the Bill, of course I accept it.

I beg to move, in page 13, line 6, at the end to insert: (2) The last foregoing subsection shall apply to allowances under section three hundred and fourteen of the Act of 1952 (allowances for certain capital expenditure), being allowances in respect of which an election has been made under the proviso to subsection (1) of section three hundred and twenty-four of the Act of 1952 (manner of granting, and effect of, allowances made by way of discharge or repayment of tax), as it applies to the losses mentioned. This will leave it open to me to move the second Amendment later. Although I am moving the first of the two Amendments, I shall address the Committee mainly on the second one because it is simpler. As to which is more suitable in the view of the Government Front Bench, I do not yet know.

This is a limited Amendment and deals with the exclusion from the restrictions of this Clause of depreciation allowance on agricultural buildings. I read the Clause as meaning what the Chancellor intended it to mean when he said on Second Reading of the Finance Bill: I have also thought it reasonable that the new provisions should not apply … to capital allowances in respect of farm buildings under Section 314 of the Income Tax Act, because we do not want to discourage the provisions of useful new buildings."—[OFFICIAL REPORT, 3rd May, 1960; Vol. 622, c. 893.] I read the Clause as being consistent with that wish and not excluding capital allowances under Section 314 from the provisions of the Clause.

The Amendment seeks to include those capital allowances in the restriction provided by the Clause. In short, what it says, as opposed to what the Chancellor said, is that it is wholly unreasonable that, unless the Clause is altered, an adjudged hobby farmer—to the right hon. Member for Thirsk and Malton (Mr. Turton) I explain that I do not mention the genuine farmer because genuine farmers have no problem at all in this connection; we are merely discussing the hobby farmer who is adjudged a hobby farmer under the Clause—should be able to do the following things. He will be able next year, the year after and the year after that to acquire agricultural buildings and, although he is an adjudged hobby farmer, to get Income Tax and Surtax relief from the depreciation on those agricultural buildings.

I stand to be corrected, but I suddenly realise that I have not included investment allowance. The amount of his relief will be eleven-tenths of the cost of the agricultural buildings—one-tenth on investment allowance and ten-tenths on capital allowance. I want to make it quite clear that that one-tenth allowance is an extremely heavy allowance. It is one of the very few categories of capital expenditure which is wholly written off after ten years. Off hand I cannot remember another case.

Mr. Millan

There is no other.

Mr. Diamond

My hon. Friend, from his deep technical knowledge, says that there is not another case. In the case of a motor car there is a much heavier allowance at first, but then one gets a reduced allowance. In this case it is an allowance on one-tenth in each of ten years, plus the one-tenth investment allowance, so one get eleven-tenths allowance at the appropriate rate, and the appropriate rate may be the standard rate or the reduced rate, plus the relevant Surtax rate.

As the hon. Member for Kidderminster (Mr. Nabarro) is paying me the unusual courtesy of listening to what I am saying, may I tell him that since his intervention on a previous Amendment I have been armed with figures given by the Financial Secretary in an Answer to a Question in which the Financial Secretary told us that 70 per cent. of the losses claimed by hobby farmers were claimed by Surtax payers. It is, therefore, reasonable to assume that in 70 per cent. of the cases not only will there be Income Tax at standard rate allowed on eleven-tenths, but a further Surtax relief of about 10s, in the £, and possibly more—

Mr. Turton

I am sure that the hon. Member wants to be fair—

Mr. Diamond

Just a moment. I am in the middle of a sentence. I always give way, especially to the right hon. Member.

Mr. Turton

In a previous sentence the hon. Member said that the losses claimed under Section 314 were losses made by hobby farmers. I am sure that in the interests of genuine farmers he would want to withdraw the statement that 70 per cent. of the cases were in respect of hobby farmers.

Mr. Diamond

What I wanted to do was to give the effective Answer which was given by the Financial Secretary. Perhaps I had better read it. It was as follows: About 70 per cent. of individuals given relief for farming losses under Section 341 … during the year to September, 1959, were Surtax payers. The amount of extra Surtax that would have been assessed had reliefs not been given is not known.—[OFFICIAL REPORT, 26th April, 1960; Vol. 622, c. 6.] 6.30 p.m.

I am not seeking to be unfair, and I hope that I am being very fair. I started my remarks by saying that the reason I referred only to hobby farmers was that the genuine farmer is not affected by the Clause. He carries on his operations on a commercial basis with a view to making a profit. The Amendment can deal only with the hobby farmer. The genuine farmer is perfectly safe and does not fall within the Amendment at all.

The effect of the Clause as it stands is that the adjudged hobby farmer will in future years be able to put up an agricultural building and to claim eleven-tenths of its cost—110 per cent.—at the relevant Income Tax and Surtax rates which, from the figures that I just gave, might average 10s, in the £.

It does not stop there. In addition, he may be given an improvement grant of one-third of the cost of the building. Thus he may be given an improvement grant of one-third of the cost of the building and on the balance of two-thirds have eleven-tenths of one half, 55 per cent., allowed on Income Tax and Surtax. In other words, the adjudged hobby farmer could receive about 70 per cent. of the cost of putting up these cottages and other farm buildings out of the contributions made by other taxpayers.

Mr. Prior

He would not be given the improvement grant unless it could be proved to Ministry officials that the improvement would have an effect on the profitability of the farm. If it were entirely a hobby farm he would not be entitled to an improvement grant.

Mr. Diamond

I realise that. That is why I was careful to say "may get a grant" and not "will get a grant." Further, any hobby farmer can change from being a hobby farmer into a genuine farmer and, similarly, can change from being a genuine farmer into a hobby farmer. The test of the two is not the same, and the jury which tests the two is not the same jury. It is conceivable that in addition to being a hobby farmer, which would be known only to the inspector of taxes and would not be self-evident on an official inspection of the farm, he would receive an improvement grant, as well as the claim on Income Tax and Surtax.

Mr. A. C. Manuel (Central Ayrshire)

That is absolutely correct.

Mr. Diamond

I am fortified by the hon. Gentleman, who tells me that what I have said is absolutely correct.

Mr. Nabarro

A hobby engine driver.

Mr. Manuel

In view of the fact that there is so much dubiety on the other side of the Committee, I would explain that we have been having some investigation into this in Scotland. We find that very rich landowners, whether they are hobby farmers or not, if they are designating a building for agricultural purposes, and especially if they are improving an old house into which they say they intend to put a worker, receive the improvement grant from the local authority without any question. That applies to any agricultural category.

Mr. Prior rose—

Mr. Diamond

Perhaps I may explain to the hon. Member that this is the Committee stage and that he can make his speech a little later.

Having had 70 per cent. of the cost contributed by the Exchequer in one form or another, there is nothing to prevent the man from selling the farm for a profit of at least 100 per cent. of the cost of the building which he has added to it, which profit would escape Income Tax and Surtax. In those circumstances surely a very solid case must be made out before the hobby farmer is entitled to the benefit under the Clause.

We dealt with an Amendment a short time ago which referred to plant and machinery bought before, not after, the coming into effect of the Act, and we were then told that there was one, and only one, justification for it. The Solicitor-General replied to the long debate by giving only one answer. He evidently thought it safer to avoid answering all the other points which I had put to him. He said that if plant and machinery had been bought on the assurance that it would be treated as allowable for tax purposes, surely it would be unjust to remove that tax relief.

Here we are not talking about that. We are talking about agricultural buildings, the provision of which is not at present in the hobby farmer's mind. They have not been bought and he has not thought of buying them until this debate has taken place, and he now realises that when the Bill has come into effect he will be able, next year or the year after or at any time in the future, to profit himself in this way at the expense of all the other taxpayers, including the regular Schedule E man who pays under P.A.Y.E. and who pays his full, effective rate as the House intends that he should.

The hobby farmer in the future will be able to be adjudged to be carrying on hobby farming and yet have 110 per cent. of his costs allowed at a rate of tax of about 70 per cent., and then sell at a tax-free capital profit. I think that at all events this is something which the Committee does not want and that it would prefer to accept the simple Amendment which puts the matter in order.

The Financial Secretary to the Treasury (Sir Edward Boyle)

As the hon. Member for Gloucester (Mr. Diamond) has clearly shown, this Amendment is designed to withdraw from hobby farmers the right to set against income other than agricultural and forestry income capital allowances in respect of capital expenditure on farm buildings and works. He has correctly said that the total amount of this allowance is, in effect, eleven-tenths. This is a point which, as he also rightly said, my right hon. Friend mentioned on Second Reading, when he explained that he had thought it reasonable that the new provisions of Clause 18 should not apply to capital allowances in respect of farm buildings under Section 314 of the 1952 Act, because the Government do not want to discourage the provision of new buildings.

Broadly speaking, there were two considerations especially which brought my right hon. Friend to that conclusion. First, by any reckoning there is surely a valid distinction to be made between ordinary revenue losses leading to loss claims and allowances for capital expenditure on works and buildings which are likely to last a very long time. It seems to me a perfectly arguable proposition that the kind of code which is appropriate for loss claims is not necessarily appropriate when we are considering allowances on buildings which will last a long time, certainly beyond the life of any person farming the land. Indeed, it is surely very likely that even if the buildings are erected by someone who is a hobby farmer, they will, in the course of their life, be used at some time or another for genuine commercial farming purposes.

I should like to go a little beyond that, and here I want to say a brief word about the two Amendments which we are discussing together. What I imagine will happen, if the hon. Member is dissatisfied with my reply and wishes to press the point to a Division, is that he will withdraw the Amendment which he has moved and move formally the second Amendment, on which we would then take a Division. The first Amendment is not satisfactory, purely for the reason that as a matter of drafting it is not possible to provide for the restriction of allowances under Section 314 by reference to Clause 18 (1), which deals with relief due under Section 341 of the 1952 Act. I therefore think that if we are to have a Division on the subject it would be much better to have it on the second Amendment, which refuses Section 314 allowances altogether.

I would put just one other argument against the Amendment, which is an important one. It seemed to me that throughout most of his speech the hon. Gentleman was thinking primarily in terms of the person who was a hobby farmer and remained a hobby farmer. I think that when considering the Amendment we have to take account of the case —and I am sure that there will be many cases after the Clause has passed into law—where the hobby farmer later mends his ways and puts his activities on a proper business footing. It would be unfair to deny relief in respect of capital expenditure incurred while the farmer was carrying on his hobby farming against farming profits earned later, when he had altered his practices and had put his activities on a proper basis.

For that additional reason, I think that the Amendment would be unfair and would not, in fact, work out satisfactorily. I therefore ask the Committee to endorse the line that my right hon. Friend took on Second Reading, and to reject the Amendment.

Mr. Millan

I found the Financial Secretary extremely unconvincing on his last point, that the hobby farmer who subsequently became a genuine commercial farmer would be penalised by not having capital allowances for a building that he put up whilst he was hobby farming. Surely that is something that could quite easily be put into the Clause even were my hon. Friend's Amendment accepted. As I say, I find that an extremely unconvincing answer, and I cannot seriously believe that the hon. Gentleman believes it to be a good answer to the case so ably presented by my hon. Friend.

I should like to take up another point advanced by the Financial Secretary. He said that there is a distinction between losses that are on a yearly basis and those that arise from capital allowances for what is a type of long-term loss, because the buildings concerned are likely to last for a long time. The hon. Gentleman also said that it might very well be that the buildings would subsequently be used for genuine commercial farming purposes.

That might be so for the person who originally put up the buildings, but it might also be so because the hobby farmer sold the buildings to a genuine commercial farmer who subsequently used them for genuine commercial farming purposes. One of the points put by my hon. Friend to the Committee was that if that sort of transaction happens it happens because the hobby farmer, having got allowances on the farm buildings, subsequently sells them at a capital profit. He has not been carrying on on a genuine commercial undertaking. From the community point of view, he is really getting capital allowances for nothing at all and is subsequently allowed to sell the buildings for a capital profit. The buildings then become used, as the Financial Secretary says, for genuine commercial farming purposes.

The Amendment is not aimed in any way against the farmer carrying on a genuine business. We are here dealing specifically with those people who have been adjudged hobby farmers, and in that connection there is very considerable justice in the Amendment. I am very surprised, not that the Government have not accepted the Amendment, but that all the arguments for not accepting it have been so weak.

6.45 p.m.

Mr. Mitchison

I regard the Government's deplorable attitude to these two Amendments as an indication of the wrong spirit in which, in some respects, they are approaching the problem. I shall not elaborate the difference between the two Amendments—it does not really matter. The substantial point is whether or not a hobby farmer should be allowed to recover in respect of any agricultural buildings that have been put up, perhaps with a subsidy, perhaps without one—that, again, does not seem to me to matter. I want, however, to deal with the Financial Secretary's two points. There were, I think, only two.

The first was this. The Government would like to see agricultural buildings put up, and for that reason they do not want to prevent the hobby farmer from putting them up. If that is the guiding principle, I wonder what the Clause is doing in the Bill at all. I should have thought that that applied just as much to all the hobby farmer's other activities; and that what the Clause ought to seek to do is to prevent the hobby farmer getting what I may call a revenue advantage out of activities that are not carried on for a commercial purpose or with a view to making profits. That, by and large, is what the Clause is intended to do.

What will happen in this case? Suppose the hobby farmer, in this year or the next, puts up buildings of this kind. He will get the allowances indicated by my hon. Friend the Member for Gloucester (Mr. Diamond), and confirmed by the Financial Secretary. Those are considerable allowances, and they will be set off against his income in other respects. As to the building itself, there is no reason whatever why he should not sell it, with or without the whole of the rest of the farm, at a profit to which those allowances have contributed. Where is the point in making this peculiar exception to the Clause?

We are told that buildings are very durable, but much depends on what they are. I get the eleven-tenths allowance, or am in the process of getting it, in respect of an exceedingly useful cowshed. It is put up in wood—I hope, quite well put up, but who is to say whether the cow shed or the tractor lasts the longer? We know these implements may last a considerable time, and they are written off over long periods. What is the distinction? It is not so much a question of how long the building lasts, but of how long it takes to write off the building—or the tractor, as the case may be. What logical distinction is there between the two cases?

Again, if it is in the public interest—and this is what I have in mind here—that many of these farms should be run for profit and that if the present farmer cannot or does not choose to run them for profit, they should be handed over, for a consideration, to someone who does want to run them at a profit; if that is in the public interest—and I should have thought that that was one of the possible points behind the Clause—why should the hobby farmer be subsidised because he has put up the building first? I just cannot see it.

We come, now, to the hon. Gentleman's second argument which, if I understood it rightly, was that if there is a change in ownership, or if there is a change in the "hobbyness"—if I may coin the word —or otherwise of the farmer, a man may have put up his building at one period and be disentitled to allowances because he put it up at that period. That is not how I read the Amendment. These buildings are put up, and the allowance is carried forward against farming income or forestry income.

If there is not any income for the purpose—as there will not be, as a rule, in the case of the hobby farmer—it is set off in ten annual instalments against the rest of his income. If he changes his mode of farming, or if the identity of the farmer Changes during that time, then during the period when there is no hobby farmer there the allowance will be paid, but it will not be paid during the period when there is a hobby farmer there. I see nothing unfair in that arrangement, and it seems to me to be the clear meaning of the Amendment.

I said at the beginning that I regard these Amendments as of very considerable importance, and so I do. These concessions by way of allowances in one form and another on agricultural buildings have been made for some time past. They have no doubt been made by successive Governments—I should be surprised if they had not. But when one considers people who are not carrying on a proper farming business—I am shortening the language—but doing something which does not entitle them to the allowances they would have if they were carrying on a proper farming business, why should they be entitled to the particular advantages which have been given in the interests of what one may call commercial or operative agriculture?

It is a very simple point. This is not a finnicky matter. It is not a question for subtle distinctions. Taking the case of the hobby farmer—there are, of course, others hit by the provisions of the Clause—do the Government intend that the hobby farmer should or should not have tax advantages in respect of

his farm? If they consider that he should not, I understand the rest of the Clause, but I see no possible objection to their acceptance of the Amendment. If they refuse the Amendment, I find the answers given by the Financial Secretary absolutely unconvincing. I see no substance in them at all, apart from their defects of form, if I may so put it. In the circumstances, unless the Government can reconsider their attitude and tell us that they will look into the matter again, I hope that we shall press it to a Division.

Mr. Diamond

In view of the wholly unsatisfactory nature of the Government's reply, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Amendment proposed: In page 13, line 6, at end insert: (2) The last foregoing subsection shall apply to allowances under section three hundred and fourteen of the Act of 1952 (Allowances for certain capital expenditure) as it applies to the losses merstioned.—[Mr. Diamond.]

Question put, That those words be there inserted: —

The Committee divided: Ayes 172, Noes 242

Division No. 90.]	AYES	[6.53 p.m.
Ainsley, William	Edwards, Walter (Stepney)	Jenkins, Roy (Stechford)
Allaun, Frank (Salford, E.)	Evans, Albert	Johnson, Carol (Lewisham, S.)
Awbery, Stan	Fitch, Alan	Jones, Dan (Burnley)
Bacon, Miss Alice	Fletcher, Eric	Jones, J. Idwal (Wrexham)
Baxter, William (Stirlingshire, W.)	Foot, Dingle	Jones, T. W. (Merioneth)
Bence, Cyril (Dunbartonshire, E.)	Forman, J. C.	Kelley, Richard
Benson, Sir George	Fraser, Thomas (Hamilton)	Kenyon, Clifford
Blyton, William	Galtskeil, Rt. Hon. Hugh	Key, Rt. Hon. C. W.
Boardman, H.	George, Lady Megan Lloyd	King, Dr. Horace
Bowden, Herbert W. (Leics, S. W.)	Gooch, E. G.	Lawson, George
Bowies, Frank	Gordon Walker, Rt. Hon. P. C.	Lee, Frederick (Newton)
Boyden, James	Gourlay, Harry	Lee, Miss Jennie (Cannook)
Braddock, Mrs. E. M.	Grey, Charles	Logan, David
Brown, Thomas (Ince)	Griffiths, Rt. Hon. James (Lianelly)	MacColl, James
Butler, Herbert (Hackney, C.)	Griffiths, W. (Exchange)	McInnes, James
Butler, Mrs. Joyce (Wood Green)	Hall, Rt. Hon. Glenvil (Colne Valley)	McKay, John (Wallsend)
Caliaghan, James	Hamilton, William (West Fife)	McLeavy, Frank
Cattle, Mrs. Barbara	Hannan, William	MacMillan, Malcolm (Western Isles)
Chetwynd, George	Hart, Mrs. Judith	Mahon, Simon
Craddock, George (Bradford, S.)	Hayman, F. H.	Mallalieu, E. L. (Brigg)
Cronln, John	Healey, Denis	Mallalieu, J. P. W. (Huddersfield, E.)
Crosland, Anthony	Henderson, Rt. Hn. Arthur (Rwly p[...]gis)	Manuel, A. C.
Grossman, R. H. S.	Herbison, Miss Margaret	Marquand, Rt. Hon, H. A.
Cullen, Mrs. Alice	Hilton, A. V.	Mason, Roy
Darling, George	Holman, Percy	Mendelson, J. J.
Davies, G. Elfed (Rhondda, E.)	Houghton, Douglas	Millan, Bruce
Davies, Ifor (Cower)	Howell, Charles A.	Mitchiton, G. R.
Deer, George	Hughes, Cledwyn (Ang[...]y)	Monslow, Waiter
de Freitas, Geoffrey	Hughes, Emrys (S. Ayrshire)	Moody, A. S.
Dempsey, James	Hughes, Hector (Aberdeen, N.)	Morris, John
Diamond, John	Hunter, A. E.	Mort, D. L.
Dodds, Norman	Hynd, John (Attercliffe)	Moyle, Arthur
		Mulley, Frederick
Donnelly, Desmond	Irvine, A. J. (Edge Hill)	Neal, Harold
Driberg, Tom	Irving, Sydney (Dartford)	Noel-Baker, Francis (Swindon)
Ede, Rt. Hon. Chuter	Janner, Barnett	Noel-Baker, Rt. Hn. Philip (Derby, S.)
Edwards, Rt. Hon. Ness (Caerphilly)	Jay, Rt. Hon. Douglas	Oliver, G. H.
Edward, Robert (Bilston)	Jeger, George	Oswald, Thomas
Owen, Will	Short, Edward	Wainwright, Edwin
Padley, W. E.	Skeffington, Arthur	Warbey, William
Pannell, Charles (Leeds, W.)	Slater, Mrs. Harriet (Stoke, N.)	Weitzman, David
Parker, John (Dagenham)	Slater, Joseph (Sedgefield)	Wells, Percy (Faversham)
Parkin, B. T. (Paddington, N.)	Small, William	Wheeldon, W. E.
Pearson, Arthur (Pontypridd)	Smith, Eills (Stoke, S.)	White, Mrs. Eirene
Peart, Frederick	Sorensen, R. W.	Whitlock, William
Plummer, Sir Leslie	Soskice, Rt. Hon. Sir Frank	Wilkins, W. A.
Popplewell, Ernest	Spriggs, Leslie	Willey, Frederick
Price, J. T. (Westhoughton)	Steele, Thomas	Williams, D. J. (Neath)
Probert, Arthur	Storehouse, John	Williams, w. R. (Openshaw)
Proctor, W. T.	Stones, William	Willis, E. G. (Edinburgh, E.)
Pursey, Cmdr. Harry	Strachey, Rt. Hon. John	Wilson, Rt. Hon. Harold (Huyton)
Randall, Harry	Strauss, Rt. Hn. G. R. (Vauxhall)	Winterbottom, R. E.
Rankin, John	Swingler, Stephen	Woodburn, Rt. Hon. A.
Rhodes, H,	Taylor, John (West Lothian)	Woof, Robert
Robens, Rt. Hon. Alfred	Thomas, Iorwerth (Rhondda, W.)	Yates, Victor (Ladywood)
Roberts, Albert (Normanton)	Thompson, Dr. Alan (Durfermline)	Zilliacus, K.
Robinson, Kenneth (St. Pancras, N.)	Thomson, G. M. (Dundee, E.)
Ross, William	Thornton, Ernest	TELLERS FOR THE AYES:
Shinwell, Rt. Hon. E.	Timmons, John	Dr. Broughton and Mr. Redhead.
NOES
Agnew, Sir Peter	Deedes, W. F.	Jackson, John
Aitken, W. T.	de Ferranti, Basil	Jennings, J. C.
Allan, Robert (Paddington, S.)	Digby, Simon Wingfield	Johnson, Dr. Donald (Carlisle)
Ailason, James	Doughty, Charles	Johnson, Eric (Blackley)
Amory, Rt. Hn. D. Heathcoat (Tivt'n)	du Cann, Edward	Kerans, Cdr. J. S.
Ashton, Sir Hubert	Duncan, Sir James	Kerby, Capt. Henry
Atkins, Humphrey	Duthie, Sir William	Kerr, Sir Hamilton
Balniel, Lord	Eden, John	Kershaw, Anthony
Barber, Anthony	Elliott, R. W.	Kirk, Peter
Barlow, Sir John	Emery, Peter	Kitson, Timothy
Barter, John	Emmet, Hon. Mrs. Evelyn	Lambton, Viscount
Batsford, Brian	Errington, Sir Eric	Leburn, Gilmour
Bell, Ronald (S. Bucks.)	Farey-Jones F. W.	Legge-Bourke, Maj. H.
Bennett, Dr. Reginald (Gos & Fhm)	Farr, John	Legh, Hon. Peter (Petersfield)
Bevins, Rt. Hon. Reginald (Toxteth)	Fell, Anthony	Lilley, F. J. P.
Bidgood, John C.	Finlay, Graeme	Linstead, Sir Hugh
Biggs-Davison, John	Fisher, Nigel	Litchfield, Capt. John
Birch, Rt. Hon. Nigel	Fletcher-Cooke. Charles	Longden, Gilbert
Bishop, F. P.	Fraser, Ian (Plymouth, Sutton)	Loveys, Walter H.
Black, Sir Cyril	Freeth, Denzil	Low, Rt. Hon. Sir Toby
Bossom, Cilve	Gammans, Lady	Lucas-Tooth, Sir Hugh
Bourne-Arton, A.	Gardner, Edward	McAdden, Stephen
Bowen, Roderic (Cardigan)	Gibson-Watt, David	MacArthur, Ian
Box, Donald	Glyn, Dr. Alan (Clapham)	McLaren, Martin
Boyle, Sir Edward	Glyn, Sir Richard (Dorset, N.)	Maclean, Sir Fitzroy (Bute & N. Ayrs.)
Bralne, Bernard	Goodhart, Philip	McLean, Neil (Inverness)
Brewis, John	Goodhew, Victor	Macleod, Rt. Hn. Iain (Enfield, W.)
Bromley-Davenport, Lt.-Col. W. H.	Gower, Raymond	MacLeod, John (Ross & Cromarty)
Brooman- White, R.	Grant-Ferris, Wg Cdr. R. (Nantwich)	McMaster, Stanley R.
Browne, Percy (Torrington)	Green, Alan	Macpherson, Niall (Dumfries)
Bullard, Denys	Gretham Cooke, R.	Maddan, Martin
Burden, F. A.	Grimond, J.	Maginnis, John E.
Butcher, Sir Herbert	Grimston, Sir Robert	Maitland, Cdr. J. W.
Campbell, Gordon (Moray & Nairn)	Grosvenor, Lt.-Col. R. G.	Manningham-Buller, Rt. Hn. Sir R,
Carr, Compton (Barons Court)	Hamilton, Michael (Wellingborough)	Markham, Major Sir Frank
Carr, Robert (Mitchun)	Hare, Rt. Hon. John	Marshall, Douglas
Cary, Sir Robert	Harris, Frederic (Croydon, N.W.)	Marten, Nell
Channon, H. P. G.	Harrison, Brian (Maldon)	Mathew, Robert (Honlton)
Chataway, Christopher	Harrison, Col. J. H. (Eye)	Matthews, Gordon (Meriden)
Chichester-Clark, R.	Harvey, John (Walthamstow, E.)	Mawby, Ray
Clark, Henry (Antrim, N.)	Heald, Rt. Hon. Sir Lionel	Maydon, Lt.-Cmdr. S. L. C.
Clark, William (Nottingham, S.)	Henderson, John (Catheart)	Molson, Rt. Hon. Hugh
Cleaver, Leonard	Hendry, Forbes	Montgomery, Fergus
Cole, Norman	Hicks Beach, Maj. W.	Moore, Sir Thomas
Collard, Richard	Hilley, Joseph	Morgan, William
Cooper, A. E.	Hill, Mrs. Eveline (Wythenshawe)	Morrison, John
Cooper-Key, Sir Neill	Hill, J. E. B. (S. Norfolk)	Mott-Radclyffe, Sir Charles
Cordeaux, Lt.-Col. J. K.	Hirst, Geoffrey	Nabarro, Gerald
Cordle, John	Hobson, John	Neave, Airey
Corfield, F. V.	Holland, Philip	Noble, Michael
Costain, A. P.	Hollingworth, John	Nugent, Sir Richard
Coulson, J. M.	Holt, Arthur	Osborn, John (Hallam)
Courtney, Cdr. Anthony	Hope, Rt. Hon. Lord John	Osborne, Cyril (Louth)
Craddock. Beresford (Spelthome)	Hopkins, Alan	Page, A. J. (Harrow, West)
Crosthwaite-Eyre, Col. O. E.	Hornby, R. P.	Page, Craham
Cunningham, Knox	Howard, Hon. G. R. (St. Ives)	Pannell, Norman (Kirkdale)
Curran, Charles	Howard, John (Southampton, Test)	Partridge, E.
Currie, G. B. H.	Hughes-Young, Michael	Pearson, Frank (Ciltheroe)
Dalkeith, Earl of	Hutchison, Michael Clark	Peel, John
Dance, James	Iremonger, T. L.	Peyton, John
d'Avigdor-Goldsmid, Sir Henry	Irvine, Bryant Godman (Rye)	Pickthorn, Sir Kenneth

Pilkington, Capt. Richard	Shaw, M.	Tiley, Arthur (Bradford, W.)
Pitman, I. J.	Shepherd, William	Turton, Rt. Hon. R. H.
Pitt, Miss Edith	Simon, Sir Jocelyn	Tweedsmuir, Lady
Pott, Percivall	Smith, Dudley (Br'ntf'rd & Chiswick)	van Straubenzee, W. R.
Powell, J. Enoch	Smithers, Peter	Vaughan-Morgan, Sir John
Price, H. A. (Lewisham, w.)	Smyth, Brig. Sir John (Norwood)	Vickers, Miss Joan
Prior, J. M. L.	Spearman, Sir Alexander	Wakefield, Edward (Derbyshire, W.)
Prior-Palmer, Brig. Sir Otho	Speir, Robert	Wall, Patrick
Profumo, Rt. Hon. John	Stevens, Geoffrey	Ward, Dame Irene (Tynemouth)
Proudfoot, Wilfred	Storey, Sir Samuel	Watts, James
Redmayne, Rt. Hon. Martin	Studholme, Sir Henry	Webster, David
Rees, Hugh	Summers, Sir Spencer (Aylesbury)	Wells, John (Maidstone)
Renton, David	Sumner, Donald (Orpington)	Williams, Paul (Sunderland, S.)
Ridley, Hon. Nicholas	Tapsell, Peter	Wilson, Geoffrey (Truro)
Robertson, Sir David	Teeling, William	Wise, A. R.
Robinson, Sir Roland (Blackpool, S.)	Temple, John M.	Wolrige-Gordon, Patrick
Ropner, Col. Sir Leonard	Thomas, Leslie (Canterbury)	Woodnutt, Mark
Sandys, Rt. Hon. Duncan	Thomas, Peter (Conway)	Worsley, Marcus
Scott-Hopkins, James	Thompson, Kenneth (Walton)
Seymour, Leslie	Thornton-Kemsley, Sir Colin	TELLERS FOR THE NOES:
		Mr. Whitelaw and Mr. Sharples.

7.0 p.m.

Sir E. Boyle

I beg to move, in page 13, line 20, at the end to insert: (4) Subject to the following subsection, where a trade is, or falls to be treated as being, carried on for part only of a year of assessment or accounting period by reason of its being, or falling to be treated as being, set up and commenced, or discontinued, or both, in that year or period, the foregoing provisions of this section shall have effect in relation to that trade as regards that part of that year or period as if any reference to the manner of carrying on the trade for or by the end of that year or period were a reference to the manner of carrying it on for or by the end of the said part thereof. (5) Where in any year of assessment or accounting period there is a change in the persons engaged in carrying on a trade, then, for the purposes of the application of the foregoing provisions of this section in the case of any person who, being engaged in carrying on the trade immediately before the change, continues to be so engaged immediately after it, the trade carried on by that person immediately before the change shall be treated as continuing to be carried on by him not withstanding the change, whether or not it falls to be treated for any other purpose as having been discontinued on the change. This Amendment adds two new subsections to the Clause. They are needed to put right a flaw in the Clause which fails to provide for cases where a business has not been carried on for the whole of the Income Tax year of assessment. In effect, the proposed subsection (4) says that where a trade is carried on for only part of the tax year the Clause is to apply to that trade in relation to that part of the year as it does in relation to the whole year in the ordinary case.

The proposed subsection (5) provides for the case where, during the year of assessment, there has been a partnership change which falls to be treated for tax purposes as if the trade had been discontinued and a new trade set up. It enables partners engaged in the business throughout to have their loss claims determined under the Clause by reference to the way in which the business is being carried on by the end of the year of assessment. For instance, if the old partnership conducted its activities in such a way that loss relief would be ruled out by the Clause but the activities of the now partnership satisfied the new criteria laid down in the Clause, the continuing partners would be able to get relief under Section 341 for their share of the losses sustained by the earlier partnership.

I do not think that these are very controversial points, but we should get them right in the Clause.

Mr. Mitchison

We have considered this Amendment and, so far as we can judge, it is fair and in conformity with the spirit of the Clause. We see no objection to it.

Amendment agreed to.

Sir E. Boyle

I beg to move, in page 13, line 21, to leave out subsection (4).

It might be convenient, Sir William, to take with this Amendment that in page 13, line 27.

The Deputy-Chairman (Major Sir William Anstruther-Gray)

Yes.

Sir E. Boyle

These Amendments correct a drafting error in that at present subsections (4) and (5) appear in the reverse order. I am well aware from another Amendment which has been tabled that both sides of the Committee have spotted this point.

Mr. Mitchison

We agree with these Amendments, and would only make the comment that we spotted the point first.

Amendment agreed to.

Further Amendment made: In page 13, line 27, at end insert: (7) The foregoing provisions of this section shall apply to professions and vocations as they apply to trades, and references to a commercial basis shall be construed accordingly. —[Sir E. Boyle.]

Major Hicks Beach

I beg to move, in page 13, line 31, at the end to add: (7) Nothing in this section shall affect the provisions of section three hundred and forty-one of the. Act of 1952 so far as the same relates to a loss sustained by any person in the occupation of woodlands. This is an extremely simple Amendment and I think that I can explain it very briefly. The sole purpose of it is to ensure that the present basis of assessment for tax on woodlands remains the same as it is at present.

I should disclose an interest here in that I own an area of woodlands which, I am glad to say, has been replanted. The hon. Member for Gloucester (Mr. Diamond) will know these woodlands well, and I am sure that he will agree with me that his constituents as well as mine have derived much enjoyment from them for a number of years, and I hope that they will continue to do so.

The present system of assessment in respect of woodlands is well known to the Committee and I do not think I need waste time by explaining it. I have taken advice on this Clause which has made me apprehensive as to whether the very complicated working of the Clause will not change the present basis of assessment in respect of woodlands. I think that my right hon. Friend has indicated during our discussions that the Government have no intention of interfering in any way with the present basis of assessment in respect of woodlands. My only object in proposing the Amendment is to make certain that the Government's intention is incorporated in the Bill.

We must not overlook the fact that, whatever the Government say, it is what the courts decide which affects the taxpayer. I hope very much that the Committee will accept the Amendment, the sole object of which is to clarify the position and to ensure that the Clause is interpreted by the courts in the way that the Government intend.

Mr. Amory

I hope that I can satisfy my hon. and gallant Friend the Member for Cheltenham (Major Hicks Beach) that the position with regard to the occupation of woodlands is entirely unaffected by the Clause. If an occupier of woodlands is assessed under Schedule B he cannot obtain relief for a loss by setting it off against other properties. If he seeks to be assessed under Schedule D he has to satisfy the Revenue that he occupies woodlands on a commercial basis with a view to the realisation of profits. This is precisely the condition that an occupier of woodlands would have to satisfy under the Clause.

If an occupier of woodlands succeeds in establishing his claim to be assessed under Schedule D it is impossible for him to be touched by the Clause. My hon. and gallant Friend might say to me, "If that is so, why did you include forestry in the Budget proposals?" The answer is that at that time I had it in mind to propose to the Committee not these words but the words, "in the expectation of earning a profit".

If those words had been used there would have been some question about woodlands. The fact that we have now adopted the words recommended by the Royal Commission, which are identically the words which qualify the occupier to be assessed under Schedule D, means that there is no occasion that I can envisage in which the occupier of a woodland would be directly or indirectly affected by this Clause.

Mr. F. M. Bennett (Torquay)

One question arises from that. A good deal has been said on an earlier Amendment about "during the lifetime of a person". Would my right hon. Friend's last assurance, which we all welcome, cover the case of woodlands, such as hard woods, which cannot be expected to obtain a profit, even within the lifetime of the present owner? That is a point which has been concerning some of us since the first statement to which my right hon. Friend referred in his Budget speech.

Mr. Amory

I can give my hon. Friend the assurance he requires. It is not dependent in any way on the life of the person. These words have been in force now for a number of years for woodlands and, so far as I know, no difficulty has arisen. It has been and must be recognised that the occupation of woodlands is a long-term business and that if woodland is planted it is impossible to expect a profit to arise for many years, the number of years, of course, depending on the type of trees planted.

I can assure my hon. Friend that I see no chance of any woodland owner being affected in any way by this Clause. The fact that the profitability of woodlands is very long term has always been recognised and has led to no difficulties of which I know in the administration of the present law.

Mr. Houghton

The Committee certainly does not want to worsen the tax position of woodlands. We thought that it stayed as it was. The hon. and gallant Member for Cheltenham (Major Hicks Beach) apparently wanted to make doubly sure. The Chancellor has now given two assurances to the Committee that everything is just as it was and I suggest that we take his word for it and get on.

Major Hicks Beach

In view of the very satisfactory reply of my right hon. hon. Friend, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

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

Mr. Stevens

I should like to raise three points, in respect of one of which I received an assurance from my right hon. Friend which, on the whole, satisfies me. That is with regard to the meaning of the words: or… if the trade formed part of a larger undertaking … I thought that meant a company which was one of a group of associated companies. My right hon. Friend gave me some assurance on that.

There is a second point which is very important. When is a loss not a loss? Under this Clause certain losses are to be disallowed as set-off for Income Tax and Surtax purposes against other income on the basis that there is no likelihood of a trade making a profit in the future. Supposing that the expectations of the farmer and the inspector in two or three years' time are falsified and that the trade makes a profit? In ordinary circumstances the losses would be available for set-off against the profit thus made in the subsequent year. If a loss has been made and disallowed under Clause 18, is it still available for carry forward in a later year when a profit has in fact been made? In other words, if the loss is disallowed under Clause 18 and there is a subsequent profit, can the tax status be recovered in a subsequent year?

My last point is again on the words: … or if the trade formed part of a larger undertaking… I can best illustrate the point by an example. I have in mind the case of a doctor whose principal source of income comes from patients under the National Health Service and who is assessed for Income Tax under Schedule E. If he is also a consultant in Harley Street any profits would be shown under Schedule D. He might make no profits from his consulting practice and might carry that on purely with a view to keeping up to date with the latest medical improvements. He may do so simply for the general purpose of keeping himself right on top of the line. Will the loss which is constantly made in his Harley Street practice be available for set-off against his income under Schedule E as an employee of the National Health Service? That is one example, and I am sure that there must be others.

7.15 p.m.

Mr. Turton

I express my dislike of the Clause. It has been obvious throughout the discussion that hon. Gentlemen opposite have been anxious not only to attack the hobby farmer but to attack the farming industry in general, quite oblivious of the fact that some of the provisions would hit the whole agricultural community.

I believe that one way to deal with the problem of hobby farming would be to attach the expenditure which ought not to be included in the accounts. That is the real problem that faces the Chancellor. He has taken a different course. I have not the slightest sympathy with anybody who is tax evading and who is carrying on farming with the intention thereby of evading tax, but I have always had the suspicion that this Clause is so framed and directed that it will carry into the dragnet many people whom, I am sure, the majority of the Committee would not want to be so penalised.

Since the earlier debate this afternoon, my apprehensions have grown considerably. We had, first, the Chancellor replying to my hon. Friend the Member for Skipton (Mr. Drayson) who gave the illustration of a widow who, when her husband died, employed a farm bailiff. The Cancellor said that it depended on what salary she paid the bailiff. Then we had the curious reply of the Financial Secretary to the Treasury, who gave the picture of the person involved, whom we call a hobby farmer, coming in and out of these provisions. That does not sound to me as if we were really dealing with the tax evader.

It is clearly admitted by the Government that a number of marginal cases will be caught by Clause 18. I am thinking of the type of case of a man who is suffering from T.B., or something like that, and who cannot go into industry and has to go into farming. These are men who cannot do a full day's work because of their disability. They have to have an employee. They are not strictly speaking, in farming for commercial reasons but they are certainly not there to evade tax. They are there to lead a country life and to enjoy the farm. That is the type of case which is in danger of being caught by these provisions. From what I know of the agricultural community, I do not believe that a commercial basis is the most important thing in that sort of life. Farmers are often thinking of improving the land and improving the line of pedigree.

Before leaving the Clause, I wanted to say how much I still dislike it and how much I hope that the Chancellor, in the later stages, will see whether he cannot so redesign it that it deals merely with the tax evader and keeps out of the net those who, at heart, are genuine farmers although they may not have a very great expectation of profit.

Mr. Crosland

Before speaking about the general principles of the Clause, I should like to answer the paint made by the right hon. Member for Thirsk and Mahon (Mr. Turton) that the attitude—I agree, a more sceptical attitude —which same of us on this side adopt as compared with hon. Members opposite is due to a general hostility on this side of the Committee towards the farming community. This is not a view which the right hon. Gentleman would find amongst a large section of British farmers, who remember Mr. Tom Williams's tenure of office at the Ministry of Agriculture and what the postwar Labour Government did for farmers.

The right hon. Gentleman, whose expert subject this is, knows very well that during the years after the war, when the Labour Party was in power, it did, to put it mildly, at least as much as his own party has ever done for the farmers. Therefore, the right hon. Gentleman must not be allowed to get away with the suggestion that our attitude to the Clause is dictated by hostility on our part to the farming community.

Having said that, one must draw attention to the fact that this has been one of the most curious debates which I have ever heard on a Clause of the Finance Bill and I do not doubt that this experience will be repeated on several subsequent Clauses. During the first half of the debate on the Amendments, we had an attendance on the benches opposite of a kind which, except for a large-scale foreign affairs debate or a Budget debate, is not seen on more than five or six days a year. During the first two hours of today's discussion, there must have been an attendance of something like 200 hon. Members opposite for discussion of one Clause of the Finance Bill.

One asks oneself what is the reason for that. To anybody who is cynical, many possible explanations might spring to mind. One might assume that a number of hon. Members opposite were themselves hobby farmers. That, however, is not the case, because every hon. Member opposite who has risen to speak has said that he has no sympathy whatever for hobby farmers. We must assume, therefore, that they are not themselves interested personally in hobby farming.

The next obvious explanation is that the Clause deals with a subject which is of such vital importance, affecting so many people and so many thousands of possible claims against the Revenue, and affecting such losses to the Revenue, as to justify so unusual an attendance on a Finance Bill debate. But that is not the explanation either, because every hon. Member who has spoken from the Government side, having said first how much he despises hobby farmers, has gone on to say that the whole thing is simply being blown up by a sinister conspiracy of the Treasury Front Bench and a few nagging accountants on the Opposition side and that there are probably only one or two, ten or twenty, or who knows how many, of these hobby farmers. The right hon. Member for Thirsk and Malton said that there were probably only one or two of them throughout the country.

If that is the size of the problem, I pay my tribute to hon. and right hon. Members opposite. Their devotion simply to the principle of the Clause in view of the very small, tiny—one or two only—number of people affected by it, shows that something at least is happening to members of the party opposite in their concern for these basic moral principles.

In a sense, the debate has been farcical. When hon. Members opposite say that there is no problem at all and that only one or two people are concerned in it, they know, and we all know, that this is nonsense. We all know that it is nonsense, even those of us on this side with a more urban background, if only from our own experience of talking to people in different parts of the country, or, today, talking to people in the House of Commons while the Clause has been discussed. If personal experience and impression are not enough, although they are quite sufficient, to show that we are dealing with a problem, we have had the figures which have been quoted in the debate. We know the figures of tax-loss cases and the amount lost—respectively, 10,000 and £15 million. I concede at once to the right hon. Member for Thirsk and Malton that not all of these cases, and, possibly, nothing like all of them, are of hobby farming.

There are many other explanations of why losses are made and why loss claims are submitted. Even making the most generous allowance for the other explanations of these losses, however, it seems to me that the evidence is that a substantial proportion of them at least are made in hobby farming. I am the more inclined to believe this when this interpretation fits in with what one knows from talking to people and from one's own knowledge.

Mr. Stevens

The hon. Member has made great play with the suggestion that the Conservatives support hobby farming. How does he equate that with the fact that it is a Conservative Chancellor of the Exchequer who is sponsoring the Clause?

Mr. Crosland

By the obvious fact that it appears to be introduced by the most unpopular Conservative Chancellor. I am delighted that the hon. Member—I hope that his example will be followed by his hon. Friend the Member for Kidderminster (Mr. Nabarro) and others—is seeking to obtain positive credit for these Clauses, which are so much disliked on his side of the Committee, by pointing to the fact that they are introduced by a Conservative Chancellor. At least, this is a real problem with which we are dealing.

What is the policy even of newspapers which might be expected to support hon. Members opposite in this matter? For example, the Economist, in its City columns, when the Clause was introduced by the Chancellor, conceded that the problem was a real one and that anybody in contact with the countryside would know this. Futhermore, on the evidence of figures given by my hon. Friend the Member for Sowerby (Mr. Houghton), it is a problem which appears to be on the increase. The number of claims which are made annually is on the increase. The amount of the claims is on the increase.

From one's general knowledge of what goes on in farming today, it is impossible to believe that farming is growing less and less prosperous every year so that genuine farming losses are growing. On the contrary, common sense suggests the conclusion that farming is prosperous, that genuine farming losses are not on the increase and that what has been on the increase in recent years are hobby-farming losses.

In the debate on the Clause—I do not doubt that this will recur during discussion of Clauses 19 to 26—a difference of approach has been shown between the two sides of the Committee. It is not simply that one side of the Committee is concerned with the individual and the other side is concerned to protect bureaucracy. We on this side, in our attitude to tax-loss farming and to subsequent Clauses, are much more concerned than hon. Members opposite with the loss to the remainder of the taxpaying body, with the possible loss in Government expenditure that is involved in tax avoidance on a wide scale and generally in tightening up against tax avoidance. Incidentally, I point out to the right hon. Member for Thirsk and Malton that in the Clause we are discussing, not tax evasion, but tax avoidance. The distinction should be drawn.

For that reason, although I am delighted to hear that the hon. Member for Portsmouth, Langstone (Mr. Stevens) and all his colleagues equally support the Chancellor on the Clause, their delight has been somewhat masked by the tone of some of their speeches on the Bill. Now, however, I have discovered that the hon. Member for Kidderminster and others have been giving wholehearted and overwhelming support to the Chancellor.

Whether or not that is a correct interpretation, I am glad that the Clause has ben introduced and that a number of rather wrecking Amendments have been rejected. I do not know whether the Clause will do the job that it is intended to do. If, however, the conflict of interest is between the tax-loss farmer and the rest of the community, I am on the side of the rest of the community.

7.30 p.m.

Sir John Barlow (Middleton and Prestwich)

I am very glad to be able to fallow the hon. Member for Grimsby (Mr. Crosland), who drew attention to the fact that so many hon. Members on this side of the Committee appear to be interested in farming. If he had been in his place last week, when agriculture was being discussed, he would have found a similar number of Members on this side of the Committee and an almost total absence of back benchers on his side, which shows that we are consistent in our real interest in agriculture.

I do not like the Clause any more than do many of my hon. Friends, but I recognise that there is an abuse of so-called hobby farming, which I dislike intensely. Many losses have been made in farming and will be made for the good of the future of farming and agriculture in general, but I hope that the Chancellor will ensure that the net is not too tightly drawn and that it scoops in only the people we all want to catch, the so-called hobby farmers who abuse good honest farming, and that he does not draw in too many, as he would then do enormous harm to agriculture as a whole.

This afternoon we have heard much about different kinds of farming losses, but I have not heard any reference to one class to which I direct the Chancellor's attention. Many of us know of industrial, chemical or gas works which destroy the vegetation and ruin the fertility of land in the area around the works concerned. In many cases, tremendous claims for compensation have been made and paid, and after a time many companies have found that it is much more economic to buy the surrounding land and farm it as best they can, knowing that they will make a loss, but knowing that it is cheaper to do that than to pay compensation annually. Those farms have no chance of making a profit in the foreseeable future, not even, as in forestry, at the end of a lifetime. It is not likely that they will ever make a profit, but as the Clause stands they may easily be drawn into the net. They may escape because of the provision in the last line on page 12 and the first line on page 13. I had down an Amendment to try to make this point clearer, but, unfortunately, it was not called. I urged the Chancellor to consider this matter, because many companies may be severely handicaped and some of the nationalised industries as well might be included.

Mr. Nabarro

They are not in it. Will my hon. Friend allow me to intervene?

Sir J. Barlow

No. My hon. Friend can have his share later. This is an important matter and I hope that the Chancellor will look into it and see that those companies which are farming with substantial losses, but perfectly legitimately, are not penalised.

Mr. Prior

The hon. Member for Grimsby (Mr. Crosland) made a clever speech criticising the actions of hon. Members on this side of the Committee. I agree with him that the Labour Party looked after farmers very well when it was in power, but conditions then were extremely diffierent from what they are now. I am glad the hon. Member paid tribute to the present prosperity of farming.

The Clause will be welcomed by the farming community. Some hobby farmers are an undesirable element in agriculture. They tend to sell their crops and other products at low prices merely in order to get rid of them and they are not particularly concerned with how much they make. That depresses the whole farming market and the Clause will help to get rid of that situation.

As drawn, the Clause will not affect improvements to buildings, reclamation of land and improvements to cottages, matters of importance to agriculture and the community in the countryside. Some improvements have been brought about in agriculture as a result of capital coming in from industry, but hobby farmers who make losses are generally making losses through bad husbandry. The majority of losses are made by bad marketing and bad husbandry and not by undertaking extensive and extravagant improvements to farm buildings, nor by buying expensive equipment. They generally result from sheer bad farming, and in that respect the effect of the Clause will be wholly beneficial, in that it will stop these people and ensure that the level of prices is somewhat raised so that we can cut down deficiency payments.

For those reasons I welcome the Clause. Naturally, we are all worried that the Inland Revenue may be able to exert too much influence on farmers, particularly on farmers setting off losses under Section 341, but my experience of the Inland Revenue is that it is extremely fair about farming losses. It could be somewhat stricter than it is with some of its existing powers over matters like allowances for motor cars and so on. I would prefer the Revenue to use those powers more widely than to take the new powers in the Clause.

However, I welcome the Clause generally and I hope that it will result in the farming community continuing to gain the enormous benefit which it has derived in the last few years from capital coming into agriculture from other sources while getting rid of the small minority of undesirable people who have done the farming community as a whole great harm.

Mr. Diamond

I begin by suggesting that the Chancellor should redraft the Bill so as to take subsection (6) out of the Clause and make it a separate Clause. That subsection has practically nothing to do with the rest of the Clause. It is confusing to those who want to run as they read and, as the right hon. Gentleman will be aware, no one has spoken on this provision. It is a perfectly sensible provision and the fact that no one has referred to it shows that very few people realise that it is there, or that it has nothing to do with hobby farmers or the rest of the Clause.

If the Chancellor is kind enough to consider that, he might, at the same time, consider leaving out the horrible expression "off of". I do not know why we are adopting this habit of "setting off of" losses against profits when, so far as I am aware, it is perfectly intelligible and good English to set profits against losses. All of us want the drafting to be as intelligible as is consistent with the difficult circumstances with which we are dealing, and I hope that that plea for simple English will not fall on unsympathetic ears.

Now that we have come to consider the Clause as a whole, I cannot be as affable as I have been hitherto. I am wholly dissatisfied with the strength of the Clause. Having regard to the bad system and to the framework within which it has to work, the Clause is as good as it can be, but we have a system in which capital gains are not taxed and in which we have to deal with the problem of farmers who make a current revenue loss which is liable for tax in order to make capital gains on resale which are completely Income Tax and Surtax free.

If one is working in that unsatisfactory framework, one has to have a Clause of this kind, but this Clause is totally inadequate. It does not do the job which the Front Bench opposite has said that it does. I have already referred to the fact that the Attorney-General said that this would stop hobby farming, the promotion of a private amenity at the cost of the taxpayer. It does not do that. My hon. Friend the Member for Grimsby (Mr. Crosland) was quite right, but extremely cautious and conservative as usual, in his estimates of the number of hobby farmers, but of all the losses made and claimed, a part only will be claimed by hobby farmers, while for all the profits which are understated—by the same definition of losses—a large proportion again will be hobby farmers.

Hobby farming shows up only when one gets to the point of loss. It does not mean that much hobby farming does not go on with the effect of making reduced profits. There is really no difference between making a loss, from the point of view of losing revenue, and not making a profit. In both these cases revenue is lost to the Chancellor.

This Clause does not touch that point at all. The right hon. Gentleman the Member for Thirsk and Malton (Mr. Turton) was on a very good point indeed when he said that the Chancellor should have got down to the problem of disallowable expenditure. It has not been touched by the Clause. He should have dealt with it in other ways—by introducing Schedule B as a minimum, for instance. He could have said, as we on these benches have said before, that all farmers should be taxed on a notional income. If they did not want that, and preferred Schedule D, then they could have that, but there should be a minimum of notional income. There is a precedent in Schedule A. It is not based on the rent one pays for a house. If I provided the hon. Member for Kidderminster (Mr. Nabarro) with a free house at the North Pole in the hope that he would live in it and enjoy doing so, assuming that the North Pole—

The Temporary Chairman (Mr. F. Blackburn)

The North Pole is a long way from this Clause.

Mr. Diamond

I was making it clear that if one gives property to a person under Schedule A so that the person lived in that property rent-free, his Schedule A tax is not reduced to the amount of rent but is based on what the property ought to have fetched. Why could we not deal with hobby farming on the basis of assessing profits which should have been made?

The Temporary Chairman

It might perhaps have been dealt with in that way, but the Chancellor did not do so, and it is only what is contained in this Clause that we are discussing.

Mr. Diamond

I am grateful to you, Mr. Blackburn, for underlining my argument. It is my point that the Chancellor has not done that, and I regret it extremely. There are further weaknesses in the Clause. I was not suggesting that you were intervening on any side of the Committee, but was only expressing my gratitude to you as a courtesy due to the Chair.

There is the question of determining the nature of the farm, whether it is a hobby farm or a genuine farm. The farmer is allowed twelve months in which to hobby farm, provided that on the last day he turns it into a genuine farming operation. It is only on the very last day that this has to happen. He may hobby farm for eleven months, three weeks and six days—

Sir Richard Glyn (Dorset, North)

What sort of farm can be farmed 364 days of the year as a hobby farm and on the 365th day not as a hobby farm?

7.45 p.m.

Mr. Diamond

If that is the difficulty in the hon. Gentleman's mind, why does not the Chancellor alter this and say that this should be determined by the operation at the beginning of the year? One has to fix a date. Why pick it at the end of the year? Of course, I agree with these difficulties, but why not, by the same argument, fix the date at the beginning of the year for this to be determined under this Clause? Subsection (3) states: where during a year of assessment or accounting period there is a change in the manner in which a trade is being carried on, it shall be treated for the purposes of this section as having been carried on throughout the year or period, as the case may be, in the way in which it was being carried on by the end of the year or period. Why could we not have substituted for "end of the year" the words "beginning of the year"?

Sir R. Glyn

The hon. Gentleman has not quite grasped my point or what I believe to be the weakness of his point. The hon. Gentleman was objecting that this day should be at the end of the year because, he suggested, it was possible to farm far 364 days as a hobby farmer and then, in some curious way, switch over to farming not as a hobby farmer. The hon. Member suggested that he would be happier if my right hon. Friend the Chancellor of the Exchequer had elected to choose the first part of the year for this decision. If it were possible—which only exists in the realm of pantomime—with good fairies turning pumpkins into coaches

Mr. Nabarro

Cloud-cuckooland.

Sir R. Glyn

—to farm 364 days and then switch over to becoming a real farmer, it is just as possible to farm as a real farmer for one day and then switch to being a hobby farmer for the succeeding 364 days. Farms do not work like that, however.

Mr. Diamond

This Clause envisages that, at some point of time, a hobby farmer may become a genuine farmer. Of course this does not happen on a particular day, but notionally it has to be deemed to happen on some day or other. One has to decide either at the end of the year, half-way through, or at the beginning. It would be reasonable to decide half-way through; that would be fair to both points of view. But the Chancellor has not been tough with the hobby farmers, as in everything else in this Clause as far as details are concerned.

This situation first came to the notice of the Revenue in 1954. I suspect that it was rapidly growing. It was not existing in 1951 to the same extent. If I am wrong in that, perhaps the Chancellor will tell me. Certainly the Royal Commission has indicated that the figures it produced for 1954 were the results of a rapid increase in the numbers of losses made in farming. I would be interested to know why we have not dealt with this problem hitherto, why it had to be left until 1960–61, until a report was brought forward by the Auditor-General, and until there was such a row outside the House that the Government proceeded to do their duty in terms of fiscal legislation.

Genuine farmers dislike hobby farming considerably. I understand from what was said by the hon. Member for Lowestoft (Mr. Prior) that it is his point of view that hobby farming is damaging to the interests of genuine farmers. My concern is that it is much more damaging to standards of citizenship. Because this Clause seeks to put an end to an accepted and well-known tax-dodging device, every possible difficulty is being put in the way of improving the Bill from the other side of the Committee. If this attitude of laughing support of the tax dodger continues, it is not surprising that the rest of the community takes its cue from this place and proceeds to regard it as right and proper to avoid tax as far as it legally can. It is not surprising, especially when one had a junior Minister who went so far as to say—I am not quoting—that any man who got the better of an inspector of taxes was a friend of his.

It is because of this continual encouragement of the natural wishes of so many thousands of people to avoid tax that there is a general pattern under which tax avoidance becomes acceptable to the community and that year after year we have to deal with this problem of tax avoidance.

Sir Charles Mott-Radclyffe (Windsor)

We have had quite a long discussion on the Clause, but I want to say one or two things to the hon. Member for Gloucester (Mr. Diamond) and his hon. Friends. They attempt to allege that we on this side of the Committee are here to protect the tax-dodger and the "spiv". I resent that very much and so do my hon. Friends. It is quite untrue, and the hon. Member for Gloucester knows it. The reason why the benches on this side of the Committee are more fully occupied than are the benches opposite is that we understood very well that, unless the Clause was very closely scrutinised, it could have an extremely detrimental effect on the agricultural industry generally, in the sense that we all support the Chancellor in his attempts to catch the "spiv", but, unlike hon. Members opposite, we are anxious not to catch in the same net, by accident, a large number of perfectly genuine farmers who are making perfectly genuine losses for perfectly genuine reasons.

I would advise the hon. Member for Gloucester not to continue on this high moralising note about "spivs", because if ever there was a period in British Parliamentary life when the "spiv" had the laugh on the holder of National Savings certificates it was the period when the then Mr. Dalton was Chancellor of the Exchequer. I shall not follow the hon. Member for Gloucester in his tortuous opinion on the difference between profit and loss, and why he thinks that the farmer should be taxed on a profit which he ought to have made. I do not suppose that the hon. Member would very much like to be judged in the House of Commons or by his constituents on speeches which he ought to have made.

If the party opposite had its way, it seems to me that no capital from outside would ever be encouraged to come in to refresh the agricultural industry, and no one would ever conduct any experiment except the Minister of Agriculture. That would he thoroughly unhealthy. Industrialists and businessmen of one or other or no political party have for centuries, towards the end of their lives, before retirement or just after, gone back to the land and bought a farm or farms. Some of us may envy—and I do envy—the scale on which some of them do things, but cannot stand in this Committee and say that the activities of every industrialist in agriculture are detrimental to the agricultural industry. They are not. I am quite certain that my right hon. Friend the Chancellor agrees with me.

This expression "hobby farmer" seems to have been bandied about a great deal without anyone opposite trying to define it.

Mr. Crosland

It was not invented by us.

Mr. Nabarro

It was.

Sir C. Mott-Radclyffe

As far as I know, there is no crime in being a hobby farmer. The crime which we all condemn is that of being a "spiv". There are farmers and woodland owners among hon. Members. We are hobby farmers in the sense that we cannot manage farms or woodlands day by day while sitting in the House of Commons, but that does not mean that we are "spivs". What we are trying to do is to stop forms of tax evasion without discouraging in any way perfectly legitimate activities in agriculture.

I confess that I was a little apprehensive about certain implications in the Clause when we started to debate it today. I am less apprehensive now in view of the various assurances given by the Chancellor. I should think that the party opposite has lost a great deal of support, if it ever had any in the country, by clearly failing to distinguish between the wood and the trees.

I want to put two points to my right hon. Friend. I am not worried about the application of the Clause, provided that it is interpreted wisely and sensibly, as I think it will be, according to the various assurances that he has given us, but I ask him to beware of the Clause in relation to the farmer who is farming marginal land under various marginal production schemes. I refer particularly to the hill farmer. As my right hon. Friend will know from his experience in the Ministry of Agriculture, he has only to alter slightly the structure of various grants to turn many hill farms overnight into hobby farms in the sense that they would no longer be capable, with any reasonable expectation, of making a profit.

Nor do I think that my right hon. Friend would wish any farmer who has consistently farmed at a slight loss to turn that loss into a slight profit under this Clause by rather ruthless methods. It can be done easily by being ruthless with old farmhands who, on the grounds perhaps of sheer efficiency, should go, but nobody wants to get rid of them. They stay on in their cottages at low rents, they work hard, and all the genuine farmers are quite happy still to employ them. We must not interpret the difference between profit and loss on so narrow a front that a farmer must farm ruthlessly, with complete disregard for any human factor. It would be quite wrong.

I should like to draw my right hon. Friend's attention to the following words in subsection (1): Provided that this subsection shall not apply to a loss made, or an allowance in respect of expenditure incurred, in the exercise of functions conferred by or under any enactment… I do not know what is meant by …conferred by or under any enactment… Does it mean carrying out a statutory obligation?

Woodland owners are under a statutory obligation under the Forestry Act to replant when they fell, and landowners are under statutory obligation to carry out the rules of estate management under various agricultural Acts since 1948, but to carry out a statutory obligation is not to my mind the normal interpretation of "functions conferred". I am not certain whether I am on a right or a wrong point, or whether I have misunderstood the subsection. I hope that my right hon. Friend will be kind enough to enlighten me when he replies to the debate.

I am satisfied with the assurances given by my right hon. Friend on the Clause. I am quite certain that the Commisisoners of Inland Revenue will carry out the interpretation of the Clause in the sense that the Chancellor means, and we all know that agriculture has never had a better friend than was my right hon. Friend when he was Minister of Agriculture.

8.0 p.m.

Mr. Charles Fletcher-Cooke (Darwen)

I am not a farmer and therefore it is with particular pleasure that I hear farmers all around me supporting the Clause, as I do. If we take some time over this and other tax-avoidance Clauses, as we may have to do, it is not because we on this side of the Committee do no support the principle of stopping tax avoidance, as the hon. Member for Grimsby (Mr. Crosland) implied. It is because we know that with this difficult problem unless one goes carefully there is a danger of ruining the fabric of the law and of doing more damage by attempting to solve the problem than would be done by its continued existence. That is why the benches on this side of the Committee have been thronged today and are likely to be thronged for the next few days on the Committee stage.

I should like to ask my right hon. Friend the Chancellor of the Exchequer about a single case which I think would be caught by the Clause and which should not be caught. Suppose that a farm be it a hobby farm or not—has been carried on at a loss for some time, and it is clear to the farmer, and indeed to the inspector, that there is very little prospect of it making a profit in the future. It must be sold. The decision to sell it is taken, but when a thing is doing badly it is unwise always to sell immediately. It is decided to sell after a period, perhaps after having incurred a certain amount of expense in putting the farm into a more saleable condition as a saleable unit. The expenditure incurred in the course of that perfectly proper commercial operation would not have been incurred with a view to the realisation of a profit in the ordinary sense of an annual profit because the purpose of doing so would be to make it a more saleable asset.

Would such expenditure be caught by the Clause as it stands, as I think it would, and if so, should it be so caught? If not, and I think it should not, would my right hon. Friend consider meeting that point before the next stage of the Bill?

Mr. Nabarro

I accept the need for the Clause, and I believe that my right hon. Friend the Chancellor of the Exchequer has made an honest, sincere, and liberal attempt to deal with what is undoubtedly a grave abuse in a limited number of cases.

The abuse to which I refer is perhaps best expressed by the attempt on the part of a small minority of persons engaged in farming to make losses year after year without any attempt ultimately to achieve profitability on their holdings. It is for that reason that I support the general need for the Clause, but I think that only a very few cases will be caught by it. I think that it will cause a lot of persons who have been guilty of this abuse in the past to mend their ways and break even, or even earn a small profit, and if my right hon. Friend succeeds thus far I shall consider that to be a step in the right direction.

The reason I do not think that he will achieve any very salutary result from the Clause is because of the words "on a commercial basis". My understanding of "on a commercial basis" is to earn a profit, but there are so many circumstances of such a diverse character in farming—and in any other sort of business or undertaking of every description—that cause a person not to earn a profit, although he is still conducting the undertaking on a commercial basis, that I think there will be very few cases indeed caught by the Clause.

This is, as I say, an honest, sincere, and liberal attempt to stop an abuse which existed in this small minority of cases, and, as I said in the opening sentence of the speech that I made on the Budget on 5th April, I support the Chancellor in what he is doing, but I have two apprehensions, and I ask my right hon. Friend please to look at them between the Committee and Report stages of the Bill.

I am not happy about the provision in subsection (1) to which my hon. Friend the Member for Windsor (Sir C. Mott-Radclyffe) referred, the provision which returns us to the controversy I had with the Chancellor earlier on the subject of the nationalised industries. The reason I am not happy about my right hon. Friend specifically excluding nationalised industries—and I repeat excluding them —is for no party political or partisan reason. It is simply that members of the Conservative Party, at the last General Election and the General Election before that, said that it was our intention to conduct these industries on a strictly commercial basis. The Clause is concerned not only with farming, but with every kind of business everywhere and there should be no discrimination in the Statute between a nationalised industry, on the one hand, and private industries or businesses, on the other hand.

We believe that they ought to be conducted or a commercial basis, and if any evidence is required of that, the nationalised industries are assessed to Income Tax and to Profits Tax. If they are assessed to Income Tax and Profits Tax, surely it is manifest that they are commercial undertakings, and, as such, should be adjudged within the ambit of the Clause. I hope that between now and the Report stage my right hon. Friend will consider reframing that provision.

I realise that there has to be a provision of that kind in the Bill to exclude, for example, a home farm attached to a mental institution, of which there are many examples throughout the country. The home farm is generally farmed at a loss. It sells part of its produce, but the remainder of the produce goes into the asylum. We understand that, and the provision as it is printed in the Bill would cover a case of that kind, but I think that there should be an additional provision resting on the simple proposition that if we assess the nationalised industries to Income Tax and Profits Tax they should be treated on exactly the same footing in the Clause as a private industrial undertaking.

The second apprehension that I have, and I warned you earlier, Mr. Blackburn, that as it was strictly within the context of the Question, "That the Clause stand part of the Bill" I would raise it again, is this general matter of costs.

The Temporary Chairman

Order. I do not think that it is within the general context of this particular Clause. I do not think that the question of costs arises here. I allowed certain references to be made to it when I was in the Chair on a previous occasion, but I had hoped that that would be the end of it.

Mr. Nabarro

I would not challenge your Ruling in this matter, Mr. Blackburn, but I am sure that you have taken the point in the Clause that, as a result of the new arrangements, there is likely to be a substantial increase in the number of cases taken before the Commissioners.

The Temporary Chairman

It does not follow that they will be, nor does the Clause say who shall be responsible for costs. Therefore, I do not think that it can possibly be discussed on this Clause.

Mr. Nabarro

Then I shall confine myself to pointing out that, as a result of my right hon. Friend's proposal, there is likely to be an increase in the number of cases taken before the Commissioners. In such cases there must be scrupulous equality as between the taxpayer, on the one hand, and the tax gatherer, on the other. No reference to costs there, Mr. Blackburn. There must be scrupulous equality.

My hon. and learned Friend the Solicitor-General pointed out that there was no special rule contained in the Clause on the point that I am making, and I shall have to seek other means later to raise it again, but if we believe that the Inland Revenue should have greater powers for proceeding against the taxpayer, I believe that the honest, scrupulous and conscientious taxpayer must be afforded full and proper protection against the blandishments of the Revenue, and there are often blandishments of a very severe, if not a charming, kind, of which many hon. Members of this Committee have general, if not personal experience. I appeal to my right hon. Friend to consider that point, and I have not mentioned costs from beginning to end.

Mr. Anthony Kershaw (Stroud)

I thought that I would be the last hon. Member to detain the Committee on the Clause. I know that the Financial Secretary would like to see the last of it, but I make no apology for pursuing it further, because it is an extremely important Clause for the two reasons which have been advanced by other hon. Members. First, the Clause should not be drawn too widely so as to catch an honest man as a matter of fiscal propriety. Secondly, the Clause, dealing as it does more with the farming community than with other communities, should not impose a special handicap on that community with which so many hon. Members on this side of the Committee have an interest.

The hon. Member for Grimsby (Mr. Crosland) said that he did not understand anything about farming, and from the speech of the hon. Member for Gloucester (Mr. Diamond) it was quite clear that, although he understands a lot about figures—and I have a healthy respect for him in that regard—he does not understand anything about farming. I wonder if he has thought out his proposition that profits should also be set against losses. I see that you are rising Mr. Blackburn; I am merely taking up the hon. Member's point, so I must be in order.

The Temporary Chairman

If the hon. Member casts his mind back, he will remember that I stopped the hon. Member for Gloucester (Mr. Diamond) when he began discussing matters not referred to in the Clause.

Mr. Kershaw

The hon. Member was allowed a certain time to develop that part of his argument. Nevertheless, I will not go further, except to say that if the hon. Member for Gloucester pursues the matter in his mind he will find that the inability to make profits was one reason why independent farmers have recently been done out of business in Eastern Germany.

I still regard the Clause with a certain amount of apprehension, although I was relieved to some extent not only by the assurances which my right hon. Friend the Chancellor has been able to give—but has been unwilling to write into the Clause in the form of an Amendment—but also by the speech of my hon. Friend the Member for Lowestoft (Mr. Prior), who has great knowledge of these matters as a working farmer. He said that he does not feel that the Clause will impinge upon him at all, and that it might even have good effects.

But the debate has generally been dealing with extraordinary cases. We have had references to the breeder of racehorses, who does not expect to make a profit between 1901 and 1960; we have had references to the research farmer—largely my right hon. Friend the Minister of Agriculture, who makes astronomical losses on 15 acres of ground—and we have heard of the man who is bringing moors and Scottish forests back into cultivation. Mention has even been made, by my hon. Friend the Member for Middleton and Prestwich (Sir J. Barlow) of the gas 'works farmer. I did not know that he existed.

It is easy for my right hon. Friend to give assurances that that type of special operator, whose profits come along many years ahead, will receive special treatment. It is not with those persons that I am concerned. I am not entirely satisfied that the Clause, as drawn, will not catch ordinary people who live on the land and try to make, if not a lavish living at least a background to their life —for whom farming is a way of carrying on their life. They may be doing it for health reasons, or because of the large number of children they have. My hon. Friend the Member for Truro (Mr. G. Wilson) may agree that if one has many children it is a very good reason to take up farming. It is necessary to have a large, rambling house, especially when there is nobody to look after the children, or perhaps there is only one's wife—and hon. Members know that wives sometimes have to be here.

I am concerned with those people, and also with those who are engaged in horticulture. Severe changes in prices in the past six years have made it extremely difficult for the genuine operator in the horticultural market consistently to make a profit. Let us suppose that, despite all his endeavours, a horticulturist, or a man running a small farm, consistently makes a small loss—or even a large loss—for ten years. Is he to be caught by the Clause? He may hope to sell a bull for £1,000, which would make all the difference to him in one year. The deal may never come off, and he may not be able to sell the bull. He may make a loss of £500 every year for ten years. Is not the patience of the tax collector to be exhausted in the end? Will he not tell the farmer, "Mr. Jones, you come to me every year telling me that you will make a profit next year, but you never do. Do you not think that you ought to pay up?" I should like an assurance from my right hon. Friend, if he is able to give it, that that type of man will not be caught by the Clause.

8.15 p.m.

Sir R. Glyn

The point that I had intended to make has just been made by my hon. Friend the Member for Stroud (Mr. Kershaw). We have heard practically nothing about horticulture in this debate, although horticulturists will be affected by the Clause. They are in a special position, and I should like to hear my right hon. Friend refer to them. They are tremendously exposed to changes in the market, perhaps due to events overseas over which they have no control.

That point also applies to small farmers, especially those engaged in pig and egg production. The moment there is some change in the market it becomes clear alit some small man who in the past could make a profit is now in a position which makes it increasingly impossible for him to do so. If a small farmer—perhaps a retired man—with other sources of income is to be told by the Commissioners, "This farm, which was a commercial unit a year ago, is not now regarded as such, and you cannot set off any losses you are likely to incur," it will be very unfortunate.

I also have in mind the case of the farm out of which too much profit has been taken—the farm that has been worked to death, where the farmer who previously had it has "farmed to go" and has left the land utterly impoverished and of very poor fertility. In such a case it is necessary for the succeeding farmer to farm the land for years in such a way as to bring it back to fertility. He will have to put a good deal of money into it, and many years will go by before he can hope to see any profit back out of it. I hope that people who take over farms in such a condition and put money into them to restore the fertility of the ground will not be caught by the Clause.

I share the anxiety which has been expressed that the Clause will cause a good number of people to be brought before the Commissioners. That can cause a good deal of anxiety, inconvenience and expense. When the Clause finally becomes pant of the Act I hope that it will not have 'the effect of creating difficulty and trouble for many honest, straightforward farmers, who could not possibly be called hobby farmers, and of making them go before the Commissioners perhaps over and over again to try to persuade them that they should be allowed to set off their losses against other income.

Mr. Mitchison

The Clause has had a somewhat lukewarm reception from hon. Members opposite. It is not a penal Clause; the rules about onus of proof and 'the like in criminal proceedings are not applicable. It is not even penal in the sense that it puts any penalties on anybody, but it is intended to stop people exercising the statutory right to set off losses when it is not thought right that they should be able to do so. It does not penalise anyone, but it deprives people, in certain circumstances, of the statutory right which they would otherwise have.

I agree with what my hon. Friend the Member for Grimsby (Mr. Crosland) said. The practice of hobby farming, as referred to by the Royal Commission, was obviously well known and widely prevalent when it reported six or seven years ago. The figures, by comparison with those given for 1958, are rather interesting. The number of payments in respect of these losses has not altered greatly. It was between 9,200 and 9,300 in the year ending September, 1954, and it is now about 10,000. But the losses, which in 1954 were about £10 million, are now about £15 million. Whether or not the same people are concerned, the number incurring losses in this way has changed very little, but the extent of the lasses has risen considerably.

As my hon. Friend said, one may ask why they go on losing money in this way. In many cases—and I have mentioned that I have farmed at a loss—there are reasons for it. None the less, the fact that about the same number of people are involved but that there is a greatly increased amount of loss seems to indicate that the abuse has not diminished but increased. Of course, it is not an abuse confined to hobby farming. I would not say that market gardeners in some cases were by any means exempt from criticism in this respect, and I can think of other cases.

as did the Royal Commission, where trouble of this kind, on the same legislation and broadly to a similar effect, has happened.

I have not the least doubt that the Chancellor has been justified in saying that the time has arrived to do something about it. My only comment is that, on the figures given at the time of the Royal Commission, something ought to have been done earlier. The party opposite has been in power all this time. If it is as concerned, as it claims to be, with the true interests of agriculture, I should have thought that that would have been an inducement to it to take earlier action. When all is said and done, while I recognise that there are people who do good at a loss, this practice, by and large, cannot be conducive to farms being run for the best national purpose by the people best qualified to run them.

When I talk of qualifications, I do not merely mean technical qualifications. I mean the qualification of being a dirty boots farmer and doing the job yourself. I have already said that I am to that extent—as I dare say are some hon. Members opposite—a clean boots farmer, but I think it is a pity to have clean boots farmers if we can have dirty boots farmers, that is to say, people who, as far as possible and in the best interests of agriculture, spend more than a casual time in farming.

I should have thought it rather unnecessary for hon. Members opposite at this time to accuse the party on this side of the Committee of neglecting the interests of agriculture. The very simple answer to that is. "Go and see how farmers did under the Labour Government, and how they did, either since then or, even more forcibly, how they did in the period after the First World War when they had a rotten time under a succession of non-Labour Governments." I am not going into that. It seems to me that that sort of remark simply indicates that one has nothing better to say. [Laughter.] I entirely agree. They are very unpopular at present, but they must suffer that from time to time. They will recover, and I hope that we may have a Government that have got something behind them in agricultural matters, and not merely farmers' grouses to deal with.

Let me turn from that to make one or two comments about the Clause. We are dealing with a social evil and there is no point in trying to make out that it does not exist, that it is of negligible proportions or that only a few people are concerned. I entirely agree with some hon. Members opposite who said, as did the Royal Commission, that this provision will not necessarily have a sweeping effect. I do not take the view that it will result in whole numbers of people being involved in the machinery of this Clause. It will have an effect, no doubt, and it is what the Royal Commission recommended. It seems to me to be the right thing on which to start, but if we are going to start on it, I should have thought that we might have been at least more logical about it.

What is the position at present? We get people who are not to be allowed any longer to set off their agricultural losses against their other income. We then allow them to set off instalments of capital depreciation which fall to be treated as income. We allow them to set off allowance on agricultural buildings and a number of other things which are still concerned with the more substantial point that the trade which they purport to he carrying on is not really an agricultural trade in the true sense—if hon. Members wish, a commercial agricultural trade. I wish the Government had gone further in that respect. The Amendments that have been brought forward from the benches opposite did not seem to me to amount to very much, even if they had been accepted. In one or two cases, they added little or nothing to the purport of the Bill.

I think that in a matter of this sort we must try the ground, and that we ought not to regard the Clause itself as necessarily the last word. As a first step, we on this side of the Committee approve of it generally, though we would have extended it in one or two respects which we have indicated by Amendments. We approve of it because we think it will, at any rate, start to do the job. It may do the whole job. I have very little fear indeed that it will catch any people who ought not to be caught. I do not think that this form of words, which was regarded by the Royal Commission as a very mild effort, is going to do any damage that way. What may happen, though I hope it will not, is that it will not catch enough and will have to be reconsidered by subsequent Chancellors. For the time being, there it is, and, broadly speaking and subject to the criticisms that I have made, we on this side of the Committee welcome it.

Mr. Amory

The hon. and learned Member for Kettering (Mr. Mitchison) has told us that he is a farmer. Time alone will show whether he is a hobby farmer or not. He has also told us that he much prefers a farmer with dirty boots to a farmer with clean boots. I should like to say to him that this is the most important time of the year on a farm, and that if he feels that his duty to his party requires him honourably to dirty his boots there. I shall have no objection to him leaving immediately and visiting his farm, and on every single remaining clay of the Finance Bill discussions.

Mr. Mitchison

I hope that the right hon. Gentleman is not going to put into practice the advice which he has given me.

Mr. Amory

I have no farm.

We have been talking a little bit about hobby farming as if it were a crime to be a hobby farmer. We must get this in perspective and realise that if somebody chooses to farm his land as a hobby it is legitimate for him to do so. We may or may not think it a good plan, but it is perfectly legitimate. The question with which we are concerned is whether, if he does so, he should be able to set off his losses against other income.

I should like to deal with the various points made by various hon. Members in their speeches. My hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens) asked whether if a farmer were regarded as a hobby farmer he would he able to carry forward his losses and set them off against a profit, if and when he made a profit. The answer is, "Yes, he would". He asked about a doctor who might be working under the National Health scheme, who might be assessed under Schedule E and who might have premises in Harley Street for prestige reasons. My hon. Friend asked whether that would qualify. Well, it all depends, but I should not have thought it difficult for such a doctor to show that he was occupying his premises in Harley Street with the aim of the realisation of profit. Without going into the circumstances it would be rather difficult to be sure that there would not be some extreme case which might be caught.

My right hon. Friend the Member for Thirsk and Malton (Mr. Turton) was still unhappy about the position of farmers farming perfectly properly and engaged in the difficult long-term task of improving the land. On one or two occasions I have said—I will repeat it again—that that could be perfectly easily reconciled with the eventual realisation of profit. It is certainly not the aim that the provisions in this Clause shall make life more difficult for someone who is farming legitimately and doing his best to improve his land and make his farm as economic and productive as possible. I do not think there is any danger in that regard.

8.30 p.m.

Agriculture is a very competitive industry and I do not think that genuine farmers have much time for fancy farming or super-luxury farming with no regard to commercial operations. They consider that so far as there are any lessons to be learned from such types of farming they are not the right lessons. Secondly, they see that such enterprises result in putting up the price of breeding stock and land to dangerously artificial levels.

I wish to make clear that a series of losses over a series of years would not in itself make a farm subject to the provisions of this Clause. It all depends on the circumstances, the background of the industry, the type of farming and the project itself. My hon. Friend the Member for Middleton and Prestwich (Sir J. Barlow) referred to certain companies and mentioned that in their perfectly legitimate activities it would be almost impossible for them to realise a profit. He asked whether they would be caught.

My first reaction is that I think they would not be caught, because they would be saved by the provision that it would be the undertaking as a whole which would be the criterion. If the aim of the undertaking as a whole was the realisation of profit they would probably be all right. But it is a rather specialised point and I should like to consider it. I am grateful to my hon. Friend for raising it. My hon. Friend the Member for Lowestoft (Mr. Prior) made the point which I have just made, that genuine work in improving a farm would be perfectly legitimate and could be reconciled with the aim of the realisation of profit.

The hon. Member for Gloucester (Mr. Diamond) asked whether it would not have been better had subsection (6) been a substantive Clause. I am not sure. I will consider it, but I should have thought that it was all right as the Clause is drafted. The hon. Gentleman asked why we used the words "off of". The answer is that we followed the Statute which contains the words "off of". In this case I think we were right to follow the Statute.

The hon. Gentleman asked whether hobby farming was on the increase. The hon. and learned Member for Kettering has given figures about that. The short answer is that there is no evidence that the number of hobby farmers has grown over recent years, though the aggregate losses are probably greater, possibly owing to the more competitive state of the industry today.

In what I thought a very good speech, my hon. Friend the Member for Windsor (Sir C. Mott-Radclyffe) said that he resented the allegations of certain hon. Members opposite that my hon. Friends were out to support the "spivs" and those deliberately abusing their position as farmers. I have heard nothing from my hon. Friends to leave me with that impression. Every point which has been raised by hon. Members on this side of the Committee was perfectly legitimate. I agree with my hon. Friend the Member for Windsor that in such a Clause as this we must be careful that we do not catch genuine cases as well as those we are out to catch. I am grateful to my hon. Friends for making the points which they have made and which, as I say, I consider are all legitimate ones.

I agree with my hon. Friend the Member for Windsor that many industrialists who participate in farming do so to the benefit of agriculture. He asked me to give an assurance that this Clause would be sensibly and fairly interpreted. I believe that the inspectors of Inland Revenue treat farming operations with understanding and fairly and sensibly. One or two tributes have been paid to them this afternoon.

The point my hon. Friend made about marginal land is a perfectly good one. I do not believe that genuine farming operations on that difficult land are in danger. He asked a question about the statutory functions referred to in the proviso to subsection (1) and whether the kind of obligations which woodland occupiers enter into under the woodlands assistance schemes would be involved here. My answer would be "No," it is not that sort of statutory obligation we have in mind here, but the sort of statutory undertaking such as a marketing board.

My hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke) raised an interesting point about a farmer who might be proposing to sell his farm but, for one reason or another, finds that the farm is not ripe for sale. He might wish to carry out certain improvements on it before selling. If those improvements were—as I presume they would be—to improve the sale as a farm and such improvements which in the long term ought to be carried out from the point of view of making the farm economic, I should have thought that he would be in no danger. If he were a hobby farmer and simply said, "I am going to sell my farm, but I shall continue farming it exactly as I have farmed up to now for another two or three years before I sell it," I think he might be in danger, and probably ought to be.

My hon. Friend the Member for Stroud (Mr. Kershaw) and my hon. and gallant Friend the Member for Dorset, North (Colonel Sir R. Glyn) raised the question of a farmer genuinely trying to earn a living under difficult circumstances. If he were genuinely trying to earn a living out of his farm and doing his best, therefore, to farm it in the best commercial way of which he was capable, I think he would be perfectly safe under the Clause. There is nothing in the nature of hobby farming about it if he is genuinely trying to make a living out of it.

Both my hon. Friends raised the question of horticulture. We all know what a precarious industry that is and how sharp changes in it can be. There can be a series of bad years when losses run, and no one can stop that happening. Any series of losses will be considered against the background of the trade, the nature of the trade and the scope or profitability. I do not think that any horticulturist who is doing his best to operate his holding on a commercial basis, if the holding has any possibilities of being a commercial unit, is in danger.

The inspector of taxes has been talked about a great deal. If the farmer is dissatisfied his appeal, if he wishes, goes to the local General Commissioners. I used to be a General Commissioner. Certainly my colleagues and I used to pride ourselves on the fact that we knew what was possible and feasible in the way of profitability. Certainly every case which came to us we considered against the background of what was practicable and possible. I do not think that a farmer is likely to get a fairer or better hearing than he would be likely to get from his neighbours, who know the possibilities of farming in the area.

My hon. Friend the Member for Kidderminster (Mr. Nabarro) asked me an extremely difficult question to answer about the nationalised industries. I should say that the proviso in lines 3 to 6 of page 13 was intended more for marketing boards and possibly some local authorities. We do not consider that anything which could approximate to a hobby or amenity operation of a business would come within the scope of the nationalised industries, but, as my hon. Friend has raised the matter, I shall look at it and see if I can find any possibility of any danger from that proviso.

This Clause is not designed to catch any undertaking which is run as a serious business, even if it is not very successfully managed. We are after the extreme cases which do not justify the term "farming undertaking", in which expenditure very greatly exceeds income or any possible income which can ever be made and in which, however long the period, no degree of profitability can ever be reached. After listening to the debate I am still as sure as I was at the beginning that no genuine farming enterprise, in which the aim is to run as efficiently and productively as possible, with the long-term purpose of earning a profit, can possibly be endangered by the Clause. We have drawn it as carefully and as narrowly as we can and in a way which I hope, will mean that it will be effective in catching the kind of cases which I believe every hon. Member in the Committee wishes to see caught.

Mr. Diamond

Let us assume that we are talking only about that kind of case which every hon. Member in the Committee wishes to see caught. Will the Chancellor deal with the substantial point that by the Clause he is attempting to deal only with that part of those people's expenditure which is greater than their income? Why not deal with the whole of their expenditure on the ground that it is an activity of which the Revenue does not approve? Why deal only with the loss and not with the whole of the expenditure?

Mr. Amory

I believe that the cases in which the serious abuse takes place are those where there are very substantial losses. I do not believe that the other cases to which the hon. Member has referred amount to serious abuse. We are out to deal with extreme cases which cannot be justified by any consideration.

Question put and agreed to.

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