HC Deb 03 July 1961 vol 643 cc1013-38

3.51 p.m.

The Economic Secretary to the Treasury (Mr. Anthony Barber)

I beg to move in page 19, line 2, to leave out "the three foregoing sections" and to insert: sections twenty-one to twenty-three and section (Cars: provisions as to hire-purchase, etc.) of this Act

The Chairman

I think that it might be convenient to the Committee to discuss with this Amendment the other Amendments to this Clause and the proposed new Clause—(Cars: provisions as to hire-purchase, etc.).

Mr. Barber

Do I take it, Sir Gordon, that you suggest that we should discuss all the Amendments to Clause 24 together?

The Chairman

Yes, I thought that that might be convenient to the Committee.

Mr. Harold Wilson (Huyton)

I take it, Sir Gordon, that you are referring not only to the Amendments in page 19, line 6, to leave out "The three foregoing sections" and to insert: Sections twenty-one to twenty-three and subsections (2) and (3) of section (Cars: provisions as to hire-purchase, etc.) of this Act". In line 14, at the end to insert: (3) None of the provisions of sections twenty-one and twenty-two and subsections (2) and (3) of section (Cars: provisions as to hire-purchase, etc.) of this Act shall apply in relation to a vehicle provided by a person who is a manufacturer of such vehicles as are mentioned in subsection (1) of this section, or of parts or accessories for such vehicles, if he shows that it was provided solely for the purpose of testing the vehicle or parts or accessories for such vehicles: Provided that if during the period of five years beginning with the time when the vehicle was provided he puts it, to any substantial extent, to a use which does not serve that purpose and that purpose only, this subsection shall be deemed not, to have had effect in relation to the vehicle. (4) Paragraph 4 of the Third Schedule to the Finance Act, 1957 (additional assessments and adjustments of assessments) shall have effect as if references therein to that Schedule included references to subsections (2) and (3) of section (Cars: provisions as to hire-purchase, etc.) of this Act and the foregoing subsection. In line 10, to leave out "the three foregoing sections" and to insert: Sections twenty-one to twenty-three of this Act". In line 13, to leave out "(on or after that day)" and to insert "to expenditure incurred".

In line 14, at the end to insert: where either—

  1. (a) the expenditure is incurred within twelve months after that day, or
  2. (b) the contract is one of hire-purchase or for purchase by instalments,
and subsections (2) or (3) of section (Cars: provisions as to hire-purchase, etc.) of this Act shall not apply where the contract was entered into before that day". In line 15, to leave out "the three foregoing sections" and to insert: sections twenty-one to twenty-three and section (Cars: provisions as to hire-purchase, etc.) of this Act". In line 24, to leave out "and the three foregoing sections" and to insert: section and sections twenty-one to twenty-three and (Cars: provisions as to hire-purchase, etc.) of this Act". but also the new Clause to which you have referred? Is that understood?

The Chairman

Yes.

Mr. Barber

And the Amendments in page 19, lines 9, 10, 13 and 14, to which the right hon. Member for Huyton (Mr. H. Wilson) has just referred?

Mr. H. Wilson

I was not quite clear, Sir Gordon. As well as the Amendment in line 14, would it not also be convenient to take the Amendments in line 13, at the end to insert: but not after the seventeenth day of October, nineteen hundred and sixty-one". and in line 14 to leave out "that day" and to insert: the said seventeenth day of April". standing in the names of myself and of my hon. Friends? That would then cover the whole lot.

The Chairman

Yes.

Mr. Barber

Although all these Amendments deal with Clause 24 and most of them are consequential on the new Clause—(Cars; provisions as to hire-purchase, etc.)—some of the Amendments deal with aspects which are not related to the general body of the Amendments, and I think that it would probably be convenient to the Committee if, first, I were to deal with the new Clause and with the Amendments in page 19, line 2, line 6, line 10, line 15, and line 24, which are consequential upon the new Clause.

The new Clause, at first sight, seems to be somewhat complex, and, while I will be as brief as I can, I think that it is necessary to explain just why it has been necessary to table the Clause. It is designed to remedy certain defects which have emerged in connection with the proposals in Clauses 21 to 24 which, as the Committee knows, restrict the tax allowances for those motor cars costing more than £2,000. The defects are concerned mainly with hire-purchase contracts and with collusive arrangements which are dressed up as hire-purchase contracts.

Clause 23, the Committee will remember, imposes restrictions on the amount which may be deducted in computing trading profits for the hire of these more expensive motor cars, and the amount to be allowed is restricted in the proportion which £2,000 bears to the price of the motor car. Clause 23 as at present drafted expressly excludes from its operation hire-purchase contracts. The reason for this exclusion was that amounts paid under hire-purchase contracts are divisible into two parts. One part represents the capital element and the other represents the interest element. Capital allowances, of course, are given on the capital element, and the interest element is allowed in full as a deduction for tax purposes.

It was not necessary to deal, in Clause 23, with hire-purchase contracts, because the capital allowances on a car bought in this way would already be restricted by the provisions of Clause 21. As regards the interest element, a restriction would have been out of place because the trader, instead of buying the car by hire purchase, could have borrowed the necessary money from a bank or from some other lender.

The interest payable on such a loan would, in any event, have been allowable for tax purposes as a deduction under the general provisions of the law, and it would obviously have been impracticable to attempt to disallow any part of that, because one could not distingush it from any other interest which might be payable in respect of loans. In short, as the capital element is already restricted by Clause 21 and the interest element should not be restricted, we consider it to be proper to exclude hire-purchase agreements altogether from the Clause in question.

While, in general, the position so far as hire-purchase contracts are concerned is satisfactory, since we considered this matter in Committee two defects have emerged. The first defect concerns the allocation of the consideration under a hire-purchase contract as between the capital element and the interest element. I am told that the present practice is to take as the capital element the ordinary price of the car at the time that the agreement was made. If one supposes that the retail price of a car is £6,000 and that the total instalments payable under a hire-purchase contract amount to £7,000, there is, in fact, no express provision in the Income Tax Acts to show how the allocation as between capital and interest of the £7,000 is to be made; but, in practice, the capital element has been taken as £6,000, which is the purchase price of the car at the time that the contract is entered into, and the interest element as the remaining £1,000.

This is obviously a reasonable way of making the allocation. In fact, in most cases it does not matter very much to the purchaser of the car how the allocation is made, because, sooner or later, he gets tax relief by reference to the whole of the instalments and the division as between the two elements mainly affects the time of the tax relief which he gets.

But under the Bill as drafted without this proposed new Clause and the consequential Amendments, it would be open to a taxpayer to claim that the capital element of the total payments was not the price of the car when it was first bought, but some other price. It might be suggested that it should be calculated by reference to its value at the date, say, three years later, when the property in the car passed to the person. It is impossible to say whether such a claim on the part of the hire purchaser would, in fact, succeed.

It is obviously undesirable to leave this uncertainty, and consequently subsection (4) of the new Clause provides that the capital element shall be equal to what it would have cost to buy the car outright at the time when the agreement was entered into. I think that the Committee will agree that that provision, which follows the practice which has hitherto been adopted, is both fair and reasonable, and will prevent the avoidance by a hire purchaser of the intention which lies behind these Clauses and particularly Clause 23.

I said that there were two defects which had come to our notice since we considered this matter earlier. The second defect which has emerged in the Clause as drafted concerns cases where there is a hire-purchase agreement or some other kind of agreement under which the property in the car does not immediately pass, and where, before the end of the period laid down in the agreement, it is brought to an end without the property in the car passing.

In other words, to take the normal case of a hire-purchase agreement, something intervenes, there is a deliberate decision or agreement between the two parties, or there may be some form of collusive agreement so that in the end the property in the car never passes. Suggestions have been made in the technical Press, in particular, in an article in the Accountant of 10th June, arguing that there was here a loophole. We have looked into the matter and, while I do not think that the position is quite as was suggested in that article, there is undoubtedly a defect.

4.0 p.m.

As many hon. Members will know, there are already provisions in the existing law which deal with capital allowances which are given in respect of plant and machinery where hire-purchase or other agreements are terminated prematurely. These provisions were introduced to prevent the possibility that in certain circumstances double initial or investment allowances might have to be given on the same piece of plant.

These provisions, which are contained in Section 16 and the Third Schedule to the Finance Act, 1957, proceed on the basis that, where an agreement is brought to an end without the property in the plant or machinery passing, the liability for the years in question is in certain circumstances to be reopened. Any allowances which, in the light of events as they actually have turned out, ought not to have been given are to be withdrawn. In effect, the new Clause applies the same principle to the treatment of cars affected by Clauses 21 to 23.

The effect of subsection's (2) and (3) of the new Clause—the Committee will recall that I dealt with subsection (4) in connection with the earlier point in this debate—is, briefly, that as the property in the car never passes to the trader the payments are to be treated as what they are in reality, that is, pure hire payments, and restricted accordingly.

Those observations cover the new Clause and the series of Amendments to which I referred. The Government Amendment in page 19, line 9, to insert two new subsections, and the two further Government Amendments, in page 19, line 33, and in page 19, line 14, which can be taken together with the two Amendments in the name of the right hon. Member for Huyton (Mr. H. Wilson) and some of his hon. Friends—in page 19, line 13, and in page 19, line 14—raise rather different points.

I will take, first, the Amendment in page 19, line 9. This Amendment proposes two new subsections the object of which is to give full tax allowances for cars costing over £2,000 if they are provided solely for the purpose of the testing by manufacturers of cars, car parts or car accessories, and are not used substantially for any other purpose. This provision deals with matters raised by same of my hon. Friends when we last considered this group of Clauses, and I hope that they will now consider that it reasonably meets the points which they made. The second subsection of this Amendment, the new subsection (4), contains machinery which applies not only to cars provided for testing, but also to the new Clause dealing with hire-purchase contracts to which I have already referred.

The effect of the proposed new subsection (3) in the Amendment is that the manufacturer will not have his allowances restricted if the car is provided solely for the purpose of testing either the car itself or car parts or accessories. To qualify for the full allowance it is not necessary that the products to be tested should be those made by the manufacturer himself; they can be made by rival manufacturers. I hope that that covers the points which certain of my hon. Friends raised.

I come now to the Amendments in page 19, line 13, and in page 19, line 14, which raise much the same point as that raised by the two Amendments tabled by the right hon. Member for Huyton. The object of the two Government Amendments is to restrict the allowances for expenditure under pre-Budget contracts for the purchase or hire of cars costing more than £2,000 unless either the expenditure was incurred within one year of the date of the Budget or the contract was by way of hire purchase or sale by instalments. The two Opposition Amendments have broadly the same effect except that, first, they propose that only six months' grace should be given instead of one year and, secondly, they make no exception for contracts of hire purchase or sale by instalments.

My right hon. and learned Friend has given this matter very careful consideration since the point was first raised. I am sure that it is right that there should be some limitation, but I hope the Committee will take the view that six months would really be too short and that, while inevitably, whatever period one chooses must be a matter of judgment, the year proposed by my right hon. and learned Friend is about right.

There is the further distinction between the Government Amendments and the Opposition Amendments in this respect in that the Government Amendments make the exception for hire-purchase and credit sale agreements made before Budget day. I think that it would be wrong to restrict agreements of this kind where the taxpayer has already got possession of the car. In such cases the allowances will be given in full without restriction whenever the expenditure was incurred. I hope that the Opposition will, on reflection, regard this as the right approach.

The last two lines of paragraph (b) in the Government Amendment to page 19, line 14, are consequential on subsections (2) and (3) of the new Clause, under which expenditure on hire purchase of cars costing more than £2,000 is restricted for all years if the contract is not completed. These last two lines ensure that the provision in the new Clause will not apply to such contracts made before Budget day. As subsections (2) and (3) of the new Clause are mainly intended to meet artificial arrangements which may be made to get round the restrictions in connection with cars costing more than £2,000, I hope that the Committee will agree that it is neither right nor necessary to apply them to pre-Budget contracts.

I commend the new Clause and the series of Amendments to the Committee.

Mr. John Diamond (Gloucester)

I am sure that we ought to start the afternoon in a courteous way, and I thank the hon. Gentleman for having explained with great clarity the various Amendments and the new Clause. Hon. Members opposite will wish with us to thank the Government for having listened, at all events up to a point, to some of the arguments and objections which were raised earlier and for having met them, as I say, up to a point.

I suggest, however, that the Government have not sufficiently met our objections. We are grateful to them for having looked into the matter and coming forward with some suggestions after we drew attention earlier to the possibility of what the Economic Secretary called artificial arrangements or collusive arrangements, but we do not think that their suggestions go far enough, for the reason that I shall endeavour to explain.

I preface my remarks by saying that the Economic Secretary said that timing is largely a matter of judgment. Although I was listening most carefully, I failed to hear any argument to support his judgment that twelve months is the right period. Not one word was said as to why nine, six or three months should not be chosen. Although we recognise that the hon. Gentleman has considerable judgment, we do not deny that quality to ourselves. We think that our judgment is as worthy of consideration as the Government's judgment, particularly in view of the arguments which I propose to put forward.

There are two aspects to the Amendments why my right hon. Friend the Member for Huyton (Mr. H. Wilson) proposes. The first is the generality of extending the period for twelve months and the second is the exception which the Government have included and which we have omitted in respect of hire-purchase and credit sales. The Government recognise that, notwithstanding that they are always most anxious not to have anything which savours of the slightest degree of retrospection and, therefore, want to be most careful to exclude any taxpayer from his inability to foresee Budget Resolutions months and possibly quarters ahead, it is obviously necessary, as the Government have recognized, that where a taxpayer is given notice under the Clause in its present form he is liable to take steps to protect himself.

These collusive or artificial arrangements are such that they are not likely to be easily discerned, not likely to be difficult to carry out and not likely to be brought to the attention of the inspector of taxes. If they are brought to his attention, they are not likely to be worth considerable argument because the amounts involved, although numerous in number, may be very small in each case. It is doubtful whether the inspector will argue about a transaction affecting a £3,000 car and spend time wondering whether it is worth bringing it to appeal and going through the rigmarole possibly of going to the Law Courts as well as to the Commissioners to decide whether it was as an artificial transaction and should be limited to an allowance of £2,000 instead of £3,000. These artificial transactions may not be worth the Inland Revenue's time and, therefore, there ought to be an overall restriction to protect the ratepayers.

I strongly suggest that six months is ample time for such an overall restriction. If anything, it errs on the side of generosity. No subject expects to be protected against a sudden Budget increase in Purchase Tax. If a person decides to buy something on 16th April, but postpones it until the 17th April when the Budget comes out and increases the price of the article that he wished to buy through an increase in Purchase Tax, he regards it as bad luck, but he does not complain about it. He recognises that the Government have a right to alter legislation which affects future financial relationships between the taxpayer and others. Everybody recognises that.

There are many transactions and contracts entered into which cover a period of years—nothing to do with motor cars—which are affected by subsequent Budget Resolutions and Finance Acts altering the liability of the taxpayer. No Government can possibly deny themselves the right to alter our taxation laws once a year, or more often, as the case may require. There is no fundamental right on the side of the taxpayer saying that he should be given considerable notice of these changes.

4.15 p.m.

As the Government are not prepared to meet us and to say that any purchase which is made or any contract entered into prior to Budget day but which is not executed until after Budget day shall not escape the provisions of this Clause, we have to be reasonable, as usual, and to attempt to find a compromise. I should have thought that a reasonable compromise was the period of six months. This gives the taxpayer a full six months' warning of what is to happen in six months' time. It discourages artificial transactions, because they are not worth entering into for a period of six months other than in very exceptional cases, and it enables the Inland Revenue to get on with its business without having to decide in case after case whether each transaction involving a motor car is caught by this Clause or not. We think that six months is a much better period than twelve months and that it errs on the side of generosity.

Where hire-purchase and credit sales are entered into prior to Budget day, and are continuing after six months, under the Government's proposed alterations the payments made after six months will be liable for tax purposes, whereas under my right hon. Friend's Amendments they will not be liable for tax purposes. I admit that this is not as clear-cut a case as the other one. Hire-purchase and credit sale transactions are in a slightly different category from a straightforward transaction under which a taxpayer contracts to buy a car before Budget day, but buys it a few days after Budget day.

However, I do not see that the nature of these transactions is sufficiently different so as to give the taxpayer that freedom from being caught for taxation purposes which every taxpayer expects and regards as normal, right and fair, namely, that after any Budget his tax position may be altered, and that the transactions into which he has entered may not be as advantageous as he expected because the law will be altered as from Budget day.

That is why, in our Amendments, we thought it right to keep to a period of six months, suggested by my hon. Friend the Member for Glasgow, Craigton (Mr. Milian) as a compromise. I am sure that if he were here he would be grateful to the Economic Secretary, who undertook to look into the matter and has done so with sympathy. We have not thought fit to exclude hire-purchase or credit sales, because the difference in the nature of the transactions is not of a sufficient degree as to take them out of the scope of the restrictions.

I hope that the Government will consider our suggestion of six months. If they do not undertake to do so, I hope that there will be an opportunity of showing how strongly we feel that this is a very sensible way of meeting the views of both sides of the Committee.

Mr. R. Gresham Cooke (Twickenham)

I wish to make one or two comments on the Amendment in page 19, line 9, allowing the full tax allowance for experimental motor cars owned by manufacturers. I am sure that companies like Rolls-Royce will be grateful to the Chancellor of the Exchequer for tabling this Amendment and for going some way to meeting their own special cases, but I am wondering whether the Clause as it stands goes far enough.

There are three types of experimental prototype cars. The first is the car made by the manufacturer with a view to putting it on the market in two or three years' time. Then there is the experimental car which the manufacturer buys from abroad, perhaps even from a competitor, so that he can test it. A company like Rolls-Royce would probably buy some very expensive cars from the United States and Germany to test them over a period of years to see how they compared with the company's own models. The third type is not a fully prototype car. It may be a standard car in which a manufacturer will put a prototype component, such as a gearbox, for testing purposes.

While these cars are used solely for testing purposes they would be covered by the Clause. But it is the practice for a manufacturer to test a foreign car for a year or eighteen months by putting it into his transport fleet. Observation is kept on the vehicle and weekly calculations are made, and a long-term test may extend over three or four years. I am wondering whether that will be covered by the Clause, or whether the proviso: … if during the period of five years beginning with the time when the vehicle was provided he puts it, to any substantial extent, to a use which does not serve that purpose and that purpose only, this subsection, shall be served not to have had effect … will apply.

My point is that these foreign experimental cars can be tested only under laboratory conditions or fully tested over a period of two or three years, and during some part of that time the vehicle may be in the company's transport fleet. It would be a pity if a manufacturer lost the advantage of the provisions of this Clause merely because the vehicle became one of the cars running round on his business. There is also the semi-prototype car which is perhaps used for demonstration purposes. This vehicle may be put in the manufacturers' fleet for a period for testing purposes.

I hope, therefore, that the Clause will be administered tolerantly. If it were administered too strictly, manufacturers would be discouraged from buying foreign cars or making alterations to standard cars or conducting research and testing. I hope that my hon. Friend will be able to say something on this subject.

Mr. Geoffrey Hirst (Shipley)

I am grateful to my hon. Friend the Member for Twickenham (Mr. Gresham Cooke) for raising this point. There is another matter which is in the same category and about which we should be grateful if my hon. Friend the Economic Secretary would say a word. I refer to the question of tyres. I am not sure whether the testing of tyres is included and I think that it would be helpful were my hon. Friend to say a word about that.

Mr. Douglas Jay (Battersea, North)

I am grateful to the Economic Secretary for giving us a clear exposition of what is becoming a rather intricate argument. On the other hand, in my opinion there may he rather more between us than would appear at first sight. There is a good deal of revenue involved in the question of initial allowances for business cars, even in the case of the particularly expensive cars which we are now discussing.

The Government have come some way to meet us, but I agree with my hon. Friend the Member for Gloucester (Mr. Diamond). I do not think that they have come as far as they should. I realise that Ministers are anxious not to do anything which might appear to be imposing taxation retrospectively on people who have already entered into contracts. But surely this is not the only case in which a taxpayer may find that, because of a change in taxation as a result of the Budget proposals, he has to pay more tax in respect of some contract into which he had previously entered.

I suppose that a taxpayer might enter into a contract to accept an appointment in which he would be paid a certain salary, and at a later date, as a result of the Budget proposals, Income Tax or Surtax might be increased. I do not think that anyone could argue reasonably that such a person ought to be exempt from paying the extra tax for six months or a year. The same situation might also arise in respect of Purchase Tax.

We read in the Press almost daily that the Chancellor is to use his regulator to raise the whole range of Purchase Tax in the course of this month. Someone might enter into a contract to furnish, say, a block of offices, a hotel, or a house and, before the contract had been carried out, he might have to pay more Purchase Tax on the furniture. Most of us would not sympathise with an argument that this person should pay less Purchase Tax than anyone else. I do not think that the principle of exempting people who enter into contracts before the Budget is so morally defensible as the hon. Gentleman appeared to imply.

Admittedly, a little latitude is necessary and the latitude which would be allowed by my hon. Friend might be permitted. But I do not understand why the Economic Secretary should think that six months is too short a period. He categorically asserted that he thought six months was too short, but he gave no reason. I do not think that my hon. Friends are satisfied with such a sweeping assertion.

The difficulties with which we are faced this afternoon, and the intricacies of this argument, illustrate the trouble we encounter from adopting what we have always thought the mistaken policy of applying this initial allowance to motor cars at all. I will not argue that in principle again today, because we did so at an earlier stage. Since that discussion I have received a letter from the Financial Secretary—who now seems to have handed over this argument to the Economic Secretary—in which he attempted to argue that the initial allowance on motor cars was not a substantial concession to the taxpayer at all because it merely slightly lengthened the period over which he had to meet his liability.

I think that the Financial Secretary would agree, taking taxpayers as a whole, and assuming that the great number of them in the cases we are considering buy new cars regularly—perhaps every two or three years—that if an initial allowance is granted on a car instead of the ordinary depreciation allowance, taxpayers as a whole are better off and the Exchequer is not.

The Solicitor-General (Sir Jocelyn Simon) indicated dissent.

Mr. Jay

I see that the Solicitor-General is shaking his head. But we all know—I do not think that the Financial Secretary would dispute this— that when the initial allowance is introduced there is in the early years a loss of revenue to the Exchequer. If the allowance were withdrawn, it would result in a gain to the Exchequer, and that must apply in respect of motor cars as well as other things. If the hon. Gentleman would care to look up the matter, he could probably tell us exactly what is the figure. If the initial allowance on motor cars is anything less than a concession to the taxpayer I do not know what we are arguing about. We could merely withdraw it and the taxpayer would not be the loser.

I think, therefore, that this argument illustrates that the whole policy of granting this allowance in respect of passenger cars is mistaken, as the Government realise when they declined to apply the investment allowance to passenger cars. But having gone into the difficulties, for the purpose of argument we still fear that the hon. Gentleman has not come far enough to meet us. Will he tell us why he thinks that six months is too short a period and will he not carry too far the argument about contracts entered into before the Budget, in view of the fact that that argument is not applied to other kinds of taxpayers?

4.30 p.m.

Mr. Gerald Nabarro (Kidderminster)

Before my hon. Friend replies, may I add just two sentences to what has been said by the right hon. Gentleman the Member for Battersea, North (Mr. Jay)?

I would not like the Chancellor of the Exchequer, who is listening intently to this debate, to imagine that the case for the abolition of initial allowances on passenger motor cars bought by business firms or partnerships is confined only to the pleas made by the Opposition.

I am a very strong supporter of outright abolition of initial allowances on passenger motor vehicles, and I want to ask my hon. Friend the Economic Secretary, in order to put his arguments on this group of Amendments into the correct perspective, whether he does not realise that in the present state of the financial legislation a business firm buying motor cars receives in the year of purchase not only 38 per cent. initial allowance but in addition 25 per cent. depreciation allowance. So there is a quite ridiculous situation that a busi- ness firm charges 55 per cent. of the capital cost of a passenger car against Income Tax and Profits Tax in the year of purchase.

That does not apply to any other business asset. It is wholly out of proportion and ought to be considered by the Chancellor of the Exchequer sympathetically with a view to the abolition of the initial allowances—for reasons which I will explain, I hope, if I catch your eye, Mr. Williams, on the Purchase Tax Clauses to follow—on motor cars next year.

Mr. Martin Lindsay (Solihull)

I do not intend to take up the time of the Committee for more than about 30 seconds, but I feel that I must support my hon. Friend the Member for Shipley (Mr. Hirst) and my hon. Friend the Member for Twickenham (Mr. Gresham Cooke) in the speeches they have made.

Of course, this does not apply only to Rolls-Royce, but to all cars costing more than £2,000. We all know that all the time companies are learning from one another, and it is obviously quite unfair—and I am sure that it cannot be the intention of my right hon. and learned Friend the Chancellor—that those companies should be penalised in this way. They must be allowed to use these motor cars for demonstration purposes and for experimentation without being penalised, and I hope very much that my right hon. and learned Friend will note carefully what my hon. Friends have said and see what concession he can give.

Mr. Barber

The right hon. Gentleman the Member for Battersea, North (Mr. Jay) and the hon. Gentleman the Member for Gloucester (Mr. Diamond) both spent some time considering whether the period referred to in the Government Amendments, in page 19, line 13, and page 19, line 14, should be six months or one year. It is true, as I think I said at the outset, when I dealt with these Amendments, that that must inevitably be a matter of judgment.

Originally, the hon. Gentleman the Member for Gloucester and the hon. Gentleman the Member for Glasgow, Craigton (Mr. Millan) wished to restrict the allowances to all expenditure incurred after Budget day, and that, indeed, was, I think the purpose of the Amendments which appeared on the Notice Paper when we last considered this matter but which were not called at that time. However they have suggested six months and my right hon. and learned Friend has suggested a period of one year. I was asked to say why it was that we reached the conclusion that a year was about right. I will put two points to the Committee, which should be borne in mind.

First, I would have thought that six months after Budget day was really a rather short period when one bears in mind that these Clauses cannot be considered to be in their final form till the Report stage of the Bill has been completed, and, after all, about two months have now passed since Budget day. Consequently, I think that six months is really on the short side.

While it is not directly relevant and I do not want to make too much of it—that is why I did not mention it at the outset, when dealing with this matter—perhaps I may remind the right hon. Gentleman the Member for Battersea, North that when the Leader of the Opposition was Chancellor of the Exchequer, in 1951, and suspended initial allowances, he decided, on that occasion to give a year's notice of his intention. I did not mention this because I did not want to make too much of it and one can always find analogies either way.

Mr. Jay

Would the hon. Gentleman not agree that that change applied to the whole plant and equipment for industry and, therefore, was really a very different matter?

Mr. Barber

I agree that it was different in certain respects, but I would have thought that there was no difference in principle, for the reason which the right hon. Gentleman gave, just because this applies only to motor cars and the Leader of the Opposition's proposals applied right across the board. I would not have thought that a reason not to choose one year as provided in present circumstances.

Mr. H. Wilson

Does not the hon. Gentleman see that in the case of an industrial establishment embarking on a major capital investment a sudden charge in initial allowances dislocates the investment programme of that firm? What we are arguing about now is only one car. Surely the Chancellor of the Exchequer made it quite clear on Budget day that he was introducing this provision and people had plenty of time to adjust themselves? It sounds quite extraordinary to think that contracts made for cars, Daimlers and Rolls-Royces, are running on as much as a year after Budget day. This is very different from what happened in 1951.

Mr. Barber

With respect, I do not think that it is so. Again, I do not want to weary the Committee by going into details, but I think that there are a number of cases of contracts for the purchase of cars which would extend for as much as a year, or perhaps beyond. Consequently, we do not believe it to be unreasonable that this exemption should be made in respect of pre-Budget contracts. I would have thought that six months from 17th April, bearing in mind that only now are we dealing with this matter in its final form, would be a little short; but I quite agree, of course, that the plant and machinery, which the Leader of the Opposition had in mind in 1951, was of a very different nature from the motor cars which we are considering now.

Mr. Diamond

The hon. Gentleman is basing his case on the fact that there is not a great deal of notice to the taxpayer inasmuch as it is not till Report is concluded that the taxpayer will consider carefully and decide what he should do, but is the hon. Gentleman not aware that three days after his right hon. and learned Friend's speech—within three days—there appeared a very large advertisement in The Times, which advertise-tisement, presumably, must have been put in not later than two days after his right hon. and learned Friend's speech, drawing attention to the advantage not any longer of buying Rolls-Royces and Daimlers and Aston Martins and all the rest, but of hiring, and giving the telephone number and a contract and everything, indicating that the public react very quickly indeed to, and read very carefully, everything that his right hon. and learned Friend says? Surely they have had very full warning indeed.

Mr. Nabarro

Dealers.

Mr. Barber

With respect, I cannot see the relevance of that, because here we are not considering the reactions of people to announcements made by my right hon. and learned Friend on 17th April; here we are considering the tax consequences in respect of contracts entered into before my right hon. and learned Friend announced his Budget, and these are the cases which my right hon. and learned Friend is trying to cover in this proposal.

But if I may get on, the right hon. Gentleman the Member for Battersea, North also thought that this would occasion difficulty with the Revenue, would waste its time, and so on, in dealing with these cases. Again, I can only say that this will apply only to pre-Budget contracts, and, consequently, I really do not think—and, certainly, in my discussions with the Revenue, I have not been led to believe—there will be any difficulty in operating this provision.

Thirdly, the right hon. Gentleman said he doubted whether it was wise to deal with hire-purchase contracts in the way that is suggested in these Amendments. That is what I understood him to say. Is it not so?

Mr. Jay

My hon. Friend the Member for Gloucester (Mr. Diamond) said that.

Mr. Barber

I am so sorry. Yes, it was the hon. Gentleman the Member for Gloucester who took that view. I can only say to him that subsections (2) and (3) in the new Clause are meant, in the main, to deal with artificial arrangements and, consequently, I do not think that it would be right to include in the category of artificial arrangements contracts entered into before my right hon. Friend made his announcement on Budget day. This was one of the primary reasons why we chose to deal with hire-purchase contracts in this way.

My right hon. Friends the Members for Twickenham (Mr. Gresham Cooke), Shipley (Mr. Hirst) and Solihull (Mr. Lindsay)—

Mr. Nabarro

Hon. Friends.

Mr. Barber

Yes, my hon. Friends.

My hon. Friends raised certain very important matters in connection with the Amendment in page 19, line 9, to insert the new subsections which concern the tax allowance which may be claimed in respect of cars used solely for the purpose of testing. My hon. Friend the Member for Twickenham raised three particular types of circumstances and asked how the Clause would cover them. The first set of circumstances concerned the case where a manufacturer used as a prototype his own car, which he had manufactured. Here, I would have thought that as long as he uses it solely for the purposes of testing there would be no difficulty at all, though in a moment I will come to the meaning of the proviso to subsection (3) of the Amendment.

The second case to which my hon. Friend referred was that of a manufacturer in this country purchasing a car from abroad for experimental purposes. Here again, there will be no difficulty because it is not necessary, in order to secure the benefit of the Amendment, that a car used for the purposes of testing should have been manufactured by the person doing the testing.

The third case that my hon. Friend mentioned was that of a company purchasing a standard model of a car for the purpose of testing a piece of machinery or apparatus such as a gearbox. It is here that the proviso to subsection (3) of the Amendment becomes relevant, because to qualify for the full allowance the manufacturer must show that the car has been provided solely for testing purposes. As long as he uses it only for testing purposes, obviously there will be no difficulty and the full allowance will continue with no restriction on expenditure over £2,000.

But the effect of the proviso is that if, within five years of providing the vehicle, the person uses it substantially for other purposes, for example, for ordinary travel, the exemption will cease to apply and the allowances, including the allowances for past years, will he accordingly restricted. We came to the conclusion that this proviso was necessary to prevent any abuse. Without it there is the possibility that a car might be bought ostensibly for testing and then, within a short time, be diverted for private use. The wording is also designed to prevent the full allowance being obtained by combining testing with some other use. Without the proviso, directors might possibly use same test cars almost as much like their own private cars.

My hon. Friend spoke about a manufacturer of gearboxes purchasing a standard motor car to test them. It might well be said, however, that a car radio needed testing by so many miles running, and a director or an employee could do the testing while using the car for what were otherwise private purposes. Consequently, in order that the full allowance may be given, the proviso requires that the purpose shall be for testing only.

4.45 p m.

There is, 'however, one very important let-out in the Amendment. My hon. Friend the Member for Twickenham asked that the Inland Revenue should exercise some toleration in the way it administered the Clause, but I think that he will see that toleration is built into the Clause itself, because there is the let-out for occasional use for purposes other than testing. The car will still qualify for the full allowance unless the non-testing use is to any substantial extent—and the words "to any substantial extent" are embodied in the proviso to subsection (3) of the Amendment in page 19, line 9. I think that that goes a long way to ensure that this relaxation which my right hon. and learned Friend has provided is not of a too restrictive nature. But I hope that my hon. Friends, on their part, will appreciate that we would have been leaving the door wide open for a considerable amount of abuse if we had not drafted these provisions as we have.

Mr. Jay

Why does the hon. Gentleman think it necessary to give more than three months' notice of change of tax from the Report stage to the purchasers of expensive cars whereas in the case of the ordinary purchaser of the ordinary motor car it is provided under Clause 5 of the Bill that the rise in the Excise duty on vehicles applies to licences taken out after 17th April? In other words, they receive no notice at all and have to pay a higher tax even before the Finance Bill is presented.

Mr. Barber

When I referred to what the right hon. Gentleman the Leader of the Opposition did in 1951 I said that one cannot refer to one case and say that it must be a precedent for another and different case. I am not saying that because the Excise duty on vehicles is treated in one way it is necessarily right and proper for another change of taxation to be dealt with in the same way. I ask the Committee to consider the proposal which my right hon. and learned Friend has made and say whether they think it fair and reasonable in all the circumstances, as I would have thought it was.

Amendment agreed to.

Further Amendments made: In page 19, line 6, leave out "The three foregoing sections" and insert: Sections twenty-one to twenty-three and subsections (2) and (3) of section (Cars: provisions, as to hire-purchase, etc.) of this Act".

In line 9, at end insert: (3) None of the provisions of sections twenty-one and twenty-two and subsections (2) and (3) of section (Oars: provisions as to hire-purchase, etc.) of this Act shall apply in relation, to a vehicle provided by a person who is a manufacturer of such vehicles as are mentioned in subsection (1) of this section, or of pats or accessories for such vehicles, if he shows that it was provided solely for the purpose of testing the vehicle or parts or accessories for such vehicles: Provided that if during the period of five years beginning with the time when the vehicle was provided he puts it, to any substantial extent, to a use which does not serve that purpose and that purpose only, this subsection shall be deemed not to have had effect in relation to the vehicle. (4) Paragraph 4 of the Third Schedule to the Finance Act, 1957 (additional assessments and adjustments of assessments) shall have effect as if references therein to that Schedule included references to subsections (2) and (3) of section (Cars: provisions as to hire-purchase, etc.) of this Act and the foregoing subsection.

In line 10, have out "the three foregoing sections and insert: sections twenty-one to twenty-three of this Act".

In line 13, leave out "(on or after that day)" and insert "to expenditure incurred".—[Mr. Barber.]

Amendment proposed: In page 19, line 13, at end insert: but not after the seventeenth day of October, nineteen hundred and sixty-one".[Mr. Diamond.]

Question put, That those words be there inserted:—

The Committee divided: Ayes 154, Noes 233.

Division No. 234.] AYES [4.52 p.m
Ainsley, William Henderson, Rt. Hn. Arthur (Rwly Regis) Panned, Charles (Leeds, W.)
Albu, Austen Hilton, A. V. Pavitt, Laurence
Allen, Scholefield (Crewe) Holman, Percy Pearson, Arthur (Pontypridd)
Awbery, Stan Houghton, Douglas Peart, Frederick
Bacon, Miss Alice Howell, Charles A. (Perry Barr) Pentland, Norman
Benson, Sir George Howell, Denis (Small Heath) Popplewell, Ernest
Blyton, William Hoy, James H. Prentice, R. E.
Bowden, Herbert W. (Leics, S.W.) Hughes, Emrys (S. Ayrshire) Price, J, T. (Westhoughton)
Bowles, Frank Hughes, Hector (Aberdeen, N.) Probert, Arthur
Boyden, James Hunter, A. E. Pursey, Cmdr, Harry
Braddock, Mrs. E. M. Hynd, H. (Accrington) Randall, Harry
Brockway, A. Fenner Hynd, John (Attercliffe) Rankin, John
Broughton, Dr. A. D. D. Irvine, A. J. (Edge Hill) Redhead, E. C.
Brown, Alan (Tottenham) Irving, Sydney (Dartford) Reynolds, G. W.
Brown, Rt. Hon. George (Belper) Janner, Sir Barnett Robertson, John (Paisley)
Butler, Herbert (Hackney, C.) Jay, Rt. Hon. Douglas Robinson, Kenneth (St. Pancras, N.)
Butler, Mrs. Joyce (Wood Green) Jeger, George Ross, William
Callaghan, James Jenkins, Roy (Stechford) Shinwell, Rt. Hon. E.
Castle, Mrs. Barbara Johnson, Carol (Lewisham, S.) Short, Edward
Chapman, Donald Jones, Rt. Hn. A. Creech(Wakefield) Silverman, Julius (Aston)
Chetwynd, George Kelley, Richard Slater, Mrs. Harriet (Stoke, N.)
Cliffe, Michael Key, Rt. Hon. C. W. Slater, Joseph (Sedgefield)
Cronin, John King, Dr. Horace Snow, Julian
Crossman, B. H. S. Lee, Frederick (Newton) Sorensen, R. w.
Cullen, Mrs. Alice Lever, L. M. (Ardwick) Soskice, Rt. Hon. Sir Frank
Darling, George Lewis, Arthur (West Ham, N.) Spriggs, Leslie
Davies, G. Elfed (Rhondda, E.) Lipton, Marcus Stewart, Michael (Fulham)
Davies, Harold (Leek) Loughlin, Charles Stones, William
Deer, George Mabon, Dr. J. Dickson Strachey, Rt. Hon. John
de Freitas, Geoffrey McCann, John Strauss, Rt. Hon. G. R. (Vauxhall)
Delargy, Hugh MacColl, James Stross, Dr. Barnett (Stoke-on-Trent, C.)
Diamond, John McInnes, James Swain, Thomas
Dodds, Norman McKay, John (Wallsend) Swingler, Stephen
Driberg, Tom Mackie. John (Enfield, East) Symonds, J. B.
Dugdale, Rt. Hon. John McLeavy, Frank Taylor, John (West Lothian)
Ede, Rt. Hon. C. Mallalieu, E. L. (Brigs) Thompson, Dr. Alan (Dunfermline)
Edwards, Robert (Bilston) Manuel, A. C. Tomney, Frank
Edwards, Walter (Stepney) Marsh, Richard Wainwright, Edwin
Evans, Albert Mayhew, Christopher Warbey, William
Foot, Dingle (Ipswich) Mellish, R.J. Wells, William (Walsall, N.)
Foot, Michael (Ebbw Vale) Mendelson, J. J. White, Mrs. Eirene
Gaitskell, Rt. Hon, Hugh Milne, Edward J. Whitlock, William
Ginsburg, David Mitchison, G. R. Wigg, George
Cordon Walker, Rt. Hon. P. C. Monslow, Walter Wilkins, W. A.
Gourlay, Harry Mort, D. L. Willey, Frederick
Grev, Charles Moyle, Arthur Williams, W. T. (Warrington)
Griffiths, W. (Exchange) Mulley, Frederick Willis, E. C. (Edinburgh, E.)
Hale, Leslie (Oldham, W.) Neal, Harold Wilson, Rt. Hon. Harold (Huyton)
Hall, Rt. Hn. Gleovil (Colne Valley) Noel-Baker, Rt. Hn. Philip (Derby, S.) Woof, Robert
Hamilton, William (West Fife) Oliver, G. H. Zilliacus, K.
Harman, William Oram, A. E.
Hayman, F. H. Paget, R. T. TELLERS FOR THE AYES:
Mr. Rogers and Mr. Lawson.
NOES
Agnew, Sir Peter Boyle, Sir Edward Craddock, Sir Beresforo
Altken, W. T. Braine, Bernard Critchley, Julian
Allason, James Brewis, John Crowder, F. P.
Arbuthnot, John Bromley-Davenport, Lt.-Col. Sir Walter Cunningham, Knox
Atkins, Humphrey Browne, Percy (Torrington) Curran, Charles
Barber, Anthony Bryan, Paul Dalkeith, Earl of
Barlow, Sir John Buck, Antony Dance, James
Barter, John Bullus, Wing Commander Eric Davies, Rt. Hn. Clement (Montgomery)
Baxter, Sir Beverley (Southgate) Burden, F. A. d'Avigdor-Gotdemid, Sir Henry
Beamish, Col. Sir Tufton Butcher, Sir Herbert de Ferranti, Basil
Bell, Ronald Campbell, Sir David (Belfast, S.) Digby, Simon Wingfield
Bennett, F. M. (Torquay) Campbell, Gordon (Moray & Nairn) Donaldson, Cmdr. C. E. M.
Berkeley, Humphry Carr, Compton (Barons Court) Duncan, Sir James
Bevins, Rt. Hon. Reginald Carr, Robert (Mitcham) Eccles, Rt. Hon. Sir David
Bidgood, John C. Channon, H. P. G. Elliot, Capt. Walter (Carshalton)
Biggs, Davison, John Chataway, Christopher Elliott, R.W. (Nwcastle-upon-Tyne, N.)
Birch, Rt. Hon. Nigel Clark, Henry (Antrim, N.) Emery, Peter
Bishop, F. P. Clark, William (Nottingham, S.) Errington, Sir Erio
Black, Sir Cyril Cooke, Robert Erroll, Rt. Hon. F. J.
Bossom, Clive Cooper, A. E. Farey-Jones, F. W.
Bourne-Arton, A. Cordeaux, Lt.-Col. J. K. Farr, John
Box, Donald Costain, A. P. Fell, Anthony
Boyd-Carpenter, Rt. Hon. John Courtney, Cdr. Anthony Finlay, Graeme
Fisher, Nigel Linstead, Sir Hugh Russell, Ronald
Fletcher-Cooke, Charles Litchfield, Capt. John Scott-Hopkins, James
Fraser, Ian (Plymouth, Sutton) Lloyd, Rt. Hon. Selwyn (Wirrall) Seymour, Leslie
Gammans, Lady Longbottom, Charles Sharpies, Richard
Gardner, Edward Longden, Gilbert Shaw, M.
Gibson-Watt, David Loveys, Walter H. Simon, Rt. Hon. Sir Jocelyn
Glover, Sir Douglas Lucas-Tooth, Sir Hugh Skeet, T. H. H.
Glyn, Dr. Alan (Clapham) McAdden, Stephen Smith, Dudley (Br'ntf'rd & Chiswick)
Glyn, Sir Richard (Dorset, N.) Mac Arthur, Ian Spearman, Sir Alexander
Goodhart, Philip McLaren, Martin Speir, Rupert
Goodhew, Victor McLaughlin, Mrs. Patricia Stevens, Geoffrey
Gower, Raymond Maclean, SirFitzroy (But & N. Ayrs.) Storey, Sir Samuel
Grant, Rt. Hon. William Macmillan, Rt. Hn. Harold (Bromley) Studholme, Sir Henry
Green, Alan Macmiilan, Maurice (Halifax) Summers, Sir Spencer (Aylesbury)
Gresham Cooke, R. Macpherson, Niall (Dumfries) Sumner, Donald (Orpington)
Grimond, J. Maddan, Martin Tapsell, Peter
Grimston, Sir Robert Maitland, Sir John Taylor, Sir Charles (Eastbourne)
Gurden, Harold Manningham-Buller, Rt. Hn. Sir R. Taylor, Edwin (Bolton, E.)
Hall, John (Wycombe) Marshall, Douglas Teeling, William
Hamilton, Michael (Wellingborough) Marten, Neil Temple, John M.
Harris, Frederic (Croydon, N. W.) Mathew, Robert (Honlton) Thatcher, Mrs. Margaret
Harrison, Brian (Maldon) Matthews, Gordon (Meriden) Thomas, Leslie (Canterbury)
Harvey, Sir Arthur Vere (Macolesf'd) Mawby, Ray Thompson, Richard (Croydon, S.)
Harvey, John (Walthamstow, E.) Maxwell-Hyslop, R. J. Thornton-Kemsley, Sir Colin
Harvie Anderson, Miss Maydon, Lt.-Cmdr. S. L. C. Thorpe, Jeremy
Hay, John Mills, Stratton Turner, Colin
Heald, Rt. Hon. Sir Lionel Montgomery, Fergus Turton, Rt. Hon. R. H.
Henderson-Stewart, Sir James More, Jasper (Ludlow) van Straubenzee, W. R.
Hicks Beach, Maj. W. Morrison, John Vane, W. M. F.
Hill, Dr. Rt. Hon. Charles (Luton) Nabarro, Gerald Vaughan-Morgan, Rt. Hon. Sir John
Hill, Mrs. Eveline (Wythenshawe) Nicholson, Sir Godfrey Vickers, Miss Joan
Hill, J. E. B. (S. Norfolk) Nugent, Sir Richard Vesper, Rt. Hon. Dennis
Hirst, Geoffrey Oakshott, Sir Hendrie Wakefield, Edward (Derbyshire, W.)
Holland, Philip Orr-Ewing, C. Ian Walder, David
Hopkins, Alan Page, John (Harrow, West) Walker, Peter
Hornsby Smith, Rt. Hon. Patricia Page, Graham (Crosby) Walker-Smith, Rt. Hon. Sir Derek
Howard, Hon. G. R. (St. Ives) Pannell, Norman (Kirkdale) Wall, Patrick
Howard, John (Southampton, Test) Pearson, Frank (Clitheroe) Ward, Dame Irene
Hughes-Young, Michael Peel, John Watkinson, Rt. Hon. Harold
Hutchison, Michael Clark Pickthorn, Sir Kenneth Wells, John (Maidstone)
Iremonger, T. L. Pitt, Miss Edith Whitelaw, William
James, David Powell, Rt. Hon. J. Enoch Williams, Dudley (Exeter)
Johnson, Dr. Donald (Carlisle) Price, David (Eastleigh) Williams, Paul (Sunderland, S.)
Johnson, Eric (Blackley) Prior, J. M. L. Wills, Sir Gerald (Bridgwater)
Johnson Smith, Geoffrey Proudfoot, Wilfred Wilson, Geoffrey (Truro)
Kerans, Cdr. J. S. Quennell, Miss J. M. Wise, A. R.
Kerby, Capt. Henry Rawlinson, Peter Wolrige-Gordon, Patrick
Kerr, Sir Hamilton Redmayne, Rt. Hon. Martin Wood, Rt. Hon. Richard
Kershaw, Anthony Rees-Davies, W. R. Woodhouse, C. M.
Lancaster, Col. C. G. Renton, David Woodnutt, Mark
Langford-Holt. J. Ridsdale, Julian Worsley, Marcus
Leavey, J. A. Robinson, Sir Roland (Blackpool, S.) Yates, William (The Wrekin)
Leburn, Gilmour Robson Brown, Sir William
Legge-Bourke, Sir Harry Roots, William TELLERS FOR THE NOES:
Lewis, Kenneth (Rutland) Ropner, Col. Sir Leonard Colonel Sir Harwood Harrison and
Lindsay, Martin Royle, Anthony (Richmond, Surrey) Mr. Noble.

Amendments made: In page 19, line 14, at end insert: where either—

  1. (a) the expenditure is incurred within twelve months after that day, or
  2. (b) the contract is one of hire-purchase or for purchase by instalments,
and subsections (2) or (3) of section (Cars: provisions as to hire-purchase, etc.) of this Act shall not apply where the contract was entered into before that day".

In line 15, leave out "the three foregoing sections" and insert: sections twenty-one to twenty-three and section (Cars: provisions as to hire-purchase. etc.) of this Act".

In line 24, leave out "and the three foregoing sections" and insert: section and sections twenty-one to twenty-three and (Cars: provisions as to hire-purchase, etc.) of this Act".—[Mr. Barber.]

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