HC Deb 08 June 1961 vol 641 cc1528-42
Mr. Alan Green (Preston, South)

I beg to move, in page 18, line 28, at the end to insert: nor where a vehicle is acquired for the purpose of testing it or its components".

The Deputy-Chairman

We can take with this the Amendment in page 18, line 25, to leave out from "apply" to "wholly" in line 26 and to insert: to either the person carrying on the trade or the person incurring the expenditure on hiring where the vehicle is used or to vehicles acquired for the purpose of testing such vehicles or component parts or equipment for those or similar vehicles".

Mr. Green

Clause 23 (2), to which we seek to add these words, is itself written so clearly and definitely that we felt that these additional words should be used, because we are sure that it was not intended to exclude a vehicle acquired for the purpose of testing it or its components.

Sir E. Boyle

This is a point of which my right hon. and learned Friend has already taken delivery. In view of our discussions I should like to make it plain that my right hon. and learned Friend has no intention of permitting any wrecking Amendment to the Clause, but here there is no question of a wrecking Amendment and I agree that one has to look at the position of traders who buy cars for the testing of their own products. This is a matter which my right hon. and learned Friend will consider carefully between now and Report. It is a small and definite matter which he recognises he should look at.

Mr. Green

With that assurance, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

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

Mr. Diamond

Subsection (3) refers to the date on which these provisions shall apply. It says that References in the three foregoing sections to expenditure incurred on the provision or hiring of a vehicle do not include references to expenditure incurred before the seventeenth day of April, nineteen hundred and sixty-one". That is a perfectly reasonable provision.

But the subsection goes on to add: or (on or after that day) under a contract entered into before that day. Nobody wants retrospective legislation and, equally, nobody wants to be foolishly generous the other way round, and there are many contracts under which a person undertakes to buy a car and then, after a certain period, to buy a replacement for that car, and so on. A contract of that kind can run, as far as I can see, for years and years. There are many varieties of contracts relating to the buying and using of motor cars on a replacement basis.

One can well understand that if a contract is entered into to buy a car before the relevant date mentioned in the Clause, and the car is delivered a few days later, and the purchaser pays the price a few days later, one would not necessarily want the purchaser to be caught by the Clause, though when we are dealing with Customs and Excise provisions we do not make regulations like this. The day the curtain falls and the announcement is made, that is it; and there is no attempt to protect a person who has contracted to buy goods which may be varied in price by Purchase Tax or other duty as a result of the Finance Bill. I should prefer to see no provision of this kind and to leave the matter to the simple normal course when buying a car, the relevant date being the date when the car was bought.

It may be alleged that there is some undue hardship, but I cannot believe that there is, when a person has undertaken to buy a car knowing that the Chancellor of the Exchequer would share the cost with him, but then realising that the Chancellor will bear only part of the cost as limited by the previous Clause and not wishing to carry on with his purchase. I do not believe that that is likely to happen, and the Government do not believe so. They have told us that they do not believe that Rolls-Royce is likely to be seriously prejudiced by the provisions which we passed earlier.

I repeat that the simplest way to deal with this matter would be to exclude completely any reference to anything other than ordinary purchase, the date when the expenditure is incurred, but, if the Government are not prepared to meet me on that, are they not prepared to look at the other case which I have brought to their attention, in which a contract can go on year after year?

The very thing which the Committee and the Government are anxious to do can be frustrated because of the desire of the car user and the car selling firm with which he has made an arrangement—it is not collusion, but as a matter of convenience between the two—which can go on for a very long time.

As I have mentioned collusion, I am sure that the Government are aware that it is very simple to have a contract for the purchase of a car, a contract which, unfortunately, is not dated at the time it is entered into. If somebody decides to go to the car salesman and say, "This contract was made last week, was it not, old man?", the answer is "Certainly, old boy." If there is a fairly substantial commission involved, and it is a fairly substantial car, that is obviously a method which would occur to some people in the trade, provided that it was not going back too far. I repeat that a provision for contract opens a loophole of that kind and might open a continuing contract over a very long time. I hope that the Government will look into that possibility.

Mr. Ronald Bell

I am wondering about the position of the Rolls-Royce Company itself, or its subsidiary companies, because the words which my hon. Friend has been talking about are not "bought" or "sold" but: expenditure incurred on the provision of the vehicle". For example, Clause 21, which is governed by this Clause, says: In determining what amount…is allowable…for the purposes of a management expenses claim… Does this mean, for example, that Rolls-Royce, or one of its subsidiaries, which would be a separate legal person, has to use the cars of its rivals or else have only two-thirds of the value which is allowed in its management expenses claim or in the writing off for Income Tax purposes of the value of the motor car? It would be extremely harsh if Rolls-Royce or one of its associated companies could not use its own motor cars without incurring that penalty.

Mr. Harold Lever (Manchester, Cheetham)

I am sorry that I missed a good deal of this debate, but I am sure that I have not missed a passionate defence by hon. Members opposite of Rolls-Royce car owners, because it is obvious that nobody has a great deal of sympathy with anyone who is so foolish, distinguished or rich as to be able to afford "the best car in the world". Clearly, no spokesman on his behalf is likely to be heard here, or in any democratic assembly such as Conservative back benchers.

I am reminded that several years ago, when the Labour Government were in office, I was urging on the then Chancellor, the late Sir Stafford Cripps, that he should end petrol rationing by taxing petrol so that it was rationed by the purse. As I spoke, apart from the considerable indignation which surrounded me on my own side of the Committee, quite understandably, the hon. Member for Eastbourne (Sir C. Taylor) grew redder and redder with indignation and finally could restrain himself no longer and indignantly demanded, "Call that Socialism?". I now feel tempted to return the compliment when a Conservative Chancellor presents an oppressive and somewhat unargued case for preventing people from spending more than £2,000 on a Rolls-Royce. Apparently, everybody concedes that his attack is on the Rolls-Royce and Bentley car owners who seek to charge the cost to expenses. If hon. Members opposite do not stand for the defence of Rolls-Royce, what do they stand for? One does not know of a coherent, economic or political principle that holds the Conservative Party together, except the simple desire for office.

10.15 p.m.

I am not going to suggest that the taxpayer should finance the activities of those who enjoy driving Rolls-Royce or Bentley cars, but I am somewhat surprised that the Committee has not made more comment upon the utterly unprincipled nature of these provisions, which are in a number of pages of almost incomprehensible prose.

The Deputy-Chairman

Order. We are debating Clause 23, and that occupies only one page, not a number of pages.

Mr. Lever

But Clause 23 brings into operation the three preceding Clauses which have not been compressed, as you suggest, Sir William. The effect of this is that the Government have suggested that the Committee should divert its mind from the question of what is a reasonable expense into a piece of Conservative Party Central Office demagogy designed to divert attention from logical expenditure and the question of expenses on to the anomalous one of the somewhat squalid envy of those who have Rolls-Royce and Bentley cars.

I do not accept these partial anomalies and the unargued case for restriction of particular expenditure. I think that the whole problem ought to have been tackled in a proper and logical way. It seems to me that we are diverting public attention from the real question, which is that firms should be allowed, as expenditure against their trading profits, reasonable expenses only. As a matter of fact, for some trades cars exceeding £2,000 could be of considerable value and could be a reasonable expenditure. If the hon. Members on the Front Bench wish to support me in what I am saying, I am ready to give way. I have no doubt that the Financial Secretary to the Treasury has a very extensive reply, closely woven and reasoned, to offer to the Committee as soon as I sit down.

It seems to me that the Government are drawing attention to one particular form of expenditure, and, even when it is reasonably justifiable, it is penalised and rejected, whereas the vast and significant expenditure is completely untouched. I do not like to see this partial and unprincipled method of doing things, especially as it has been argued that it might cause industrial damage. There should be a general principle applicable to all forms of expenditure, and not merely to expenditure relating to the purchase of motor cars.

A good deal of expenditure on motor oars at any level is often unjustified. It may be that a £1,000 car is not a reasonable expenditure, but a £5,000 car in another case may be a very reasonable trade expenditure. I should like to know why the Government feel able to press upon the Committee this partial and illogical form of a curb on expenditure, unless it is to divert attention from the case for a more logical approach to trade expenses generally. I register my dissatisfaction with the approach of the Government, even though in some sense welcoming the fact that luxurious expenditure, not directly attributable to trade, is caught by this Clause. The way in which this is achieved is one that cannot be defended, because it is demogogic in origin and relies more upon envy than upon logic. I feel that the Government could have done a great deal better if they had made a more general and logical approach to the problem.

Mr. Mitchison

We had a very interesting discussion on the question of expenses generally under Clause 11, and this is not the hour or the occasion to revert to it. We are now discussing the supplementary provisions relating to the three foregoing Clauses, and I have risen to ask the Government to pay serious attention to the question raised by my hon. Friend the Member for Gloucester (Mr. Diamond). It arises here under subsection (3) and it is in that connection that I am talking about it, but similar questions arise from time to time in connection with other provisions of this sort, and in all cases, as in this one, the Government have to make up their mind where they will draw the line and for what reasons. In this case they have excluded from the three foregoing Clauses, first, all expenditure incurred before 17th April and, secondly, expenditure incurred at any time under a contract entered into before that date.

That last provision seems to me to be a loose one, which is wrong in principle. As I understand it, we reckon a man's income to be the income he receives during a given year, and for the purpose of arriving at that income and making deductions from it we deal with the actual expenditure during the year. At any rate, we do so in principle. It is possible to search curiously through the provisions of the Income Tax Acts and among the many odd things that can be found there there may be some exceptions, but there is no doubt that the governing principle is the expenditure and not the contract. In those circumstances, to couple the two things and to proceed on the basis of what I would call the exceptions, if not the loopholes to what we are trying to do, seems profoundly illogical and quite wrong. I regard expenditure as the right test.

If we simply have the words "a contract" we are dealing with various possibilities. There may be all kinds of contracts—and there are—relating to just the question of the provision of motor cars for what is called trade use. There are long-term arrangements and there are short-term arrangments; there are hirings and purchases, and almost everything else between. It has required three full Clauses to deal, even within the limits of the Bill, with all the possibilities.

I do not think that the Government would be wise to say that they had exhausted the whole story, and if they leave in this provision about a contract they will find themselves supporting expenditure, to the extent that they do not apply this provision to it, which may or may not be meritorious. The right thing to do in a case of this kind is to draw the line quite firmly at the expenditure itself and the date at which that expenditure was incurred, and not get involved in questions of previous contracts. It is not that I am strongly against retrospective legislation on this issue, but on the whole it is right that we should go by the date of the expenditure and not import general provisions about contracts into the kind of case which is capable of so many varieties of contracts, with or without particular merit, in the circumstances of the case.

I earnestly hope that the hon. Member will tell us that his right hon. and learned Friend will give serious consideration to this point and introduce some sort of provision on Report, preferably eliminating references to contracts. If the reference is to be kept in, there clearly ought to be a specific definition of the kind of contract and the circumstances under which it was made.

Sir E. Boyle

It has been nice to welcome the hon. Member for Manchester, Cheetham (Mr. H. Lever), but I should like to explain to him that Clauses 20 to 23 are not concerned with expenses, but with capital allowances, and the Clause we are now discussing relates only to the interpretation of Clauses 21 to 22 which contain supplementary provisions.

Mr. H. Lever

I do not want to unnecessarily interrupt the hon. Gentleman so early in his speech, but in referring to a trading expense I was using popular language to explain the effect of it. The fact that this capital allowance is disallowed reduces the amount of the expenditure which can be charged against trading profits. The second point is that the Clause defines the area of operation of the three preceding Clauses.

Sir E. Boyle

I recognise that, but I was concerned to point out the scope of the Clause.

The hon. Member for Gloucester (Mr. Diamond) raised an important point. He gave, as it were, notice of the point by tabling an Amendment which was not selected. My right hon. and learned Friend will look at this point before the next stage of the Bill, but I think that there are two things which the hon. Gentleman ought to bear in mind.

First, in the past, when we have suspended a capital allowance, we have always borne in mind this point about contracts. For instance, when the right hon. Gentleman the Leader of the Opposition, in 1951, gave a year's notice of the suspension of the initial allowance, he put forward—I remember that we discussed it late at night—a Government Amendment which retained the initial allowance for ships under construction or contract on 10th April, 1951. Again, the present Prime Minister when he suspended the investment allowance in 1956 made a saving for expenditure payable under a contract made on or before 17th February, 1956. There, is therefore, good precedent for the way we propose to act.

I think that there is a practical point which one ought to remember. Whether the expenditure on a car is on hire or on purchase, it would surely be unreasonable at first sight to impose the new limitation on someone who contracted to incur the outlay when no one could have foreseen that these Clauses would be introduced, and who may render himself liable to pay damages for breach of contract if he avoids the expenditure.

I think that it is unlikely that my right hon. and learned Friend will feel that he should make no reference to "contract" in this Clause, but I give the hon. Gentleman an undertaking, without any commitment to the future, that we will look at the wording of this to see whether in any way an alteration should be made. I think that it is unlikely that my right hon. and learned Friend will agree not to make any reference to contract, but we will look at the wording of the subsection.

My hon. Friend the Member for Buckinghamshire, South (Mr. Ronald Bell) asked about the case of a subsidiary company. For the purpose of this Clause, a subsidiary company is in the same position as any person outside. Everyone is in the same position with regard to the impact of the Clause.

Mr. Ronald Bell

Rolls-Royce will be under this disability if it uses its own motor cars and tries to charge that as management expenses. It must buy a cheap car to do it. Is that the position?

Sir E. Boyle

These Clauses make their impact on everybody equally. So far as I can understand my hon. Friend's interpretation of this Clause, it is correct.

10.30 p.m.

Mr. Millan

May I put a point briefly to the Financial Secretary? This is not necessarily just a question of including the words as they are at the moment, or excluding references to contract altogether. There is really a compromise solution whereby contracts are excluded, but only as regards expenditure under these contracts up to a certain date. In this provision it might be reasonable, in connection with the purchase of a car, if we were to say that a contract entered into before 17th April was excluded provided that the expenditure was made within six months after 17th April. It does not have to be an absolute prohibition.

I take the point that there may be questions of breach of contract and unfairness between one firm and another, but it is possible to get a compromise whereby there is a reference to contract but it is not a complete let-out regardless of when the expenditure takes place, even supposing that it may be over a continuing period of years. I know that this is a very real practical problem, and it seemed to me that the Government were being generous when they used a similar wording to this on the question of investment allowances. Some sort of compromise ought to be considered.

Mr. Mitchison

I do not wish to take up the time of the Committee arguing this matter on the merits, particularly in view of the courtesy—a somewhat unpromising courtesy, but, nevertheless, courtesy—with which the Financial Secretary received what I had to say.

I want to say two things to the hon. Gentleman. I think that there are distinctions between this case and the case of investment allowances, and the other case that he mentioned, dependent partly, but not entirely, on the reasons for the provisions in each case.

The second thing I want to say is that when we reach a later stage of the Bill we shall put on the Notice Paper the Amendment which was put down a little late on this occasion, and we shall do so in the hope that we may be able to discuss the matter at that stage if we are fortunate enough to have it selected, after the right hon. and learned Gentleman has had time to consider what my hon. Friends have said on the matter.

Mr. Ronald Bell

I originally put the point about the company to my hon. Friend interrogatively and he told me that what I had suggested was so. I ask him to request the Chancellor to consider this point before Report, which is the last occasion on a Money Bill when a change can be made. It seems to be monstrously unjust that Rolls-Royce should not be allowed to use its own motor cars and charge full depreciation for them. It is almost equally so in the case of subsidiaries. Any company which manufactures motor cars costing more than £2,000 should not be forced to discontinue to use its own cars unless it is willing to incur this very severe penalty.

Mr. H. Lever

I want to make one or two comments which perhaps the Financial Secretary will bear in mind when he is giving cool consideration to the question of contract.

The first point I want to make follows on what the hon. Member for Buckinghamshire, South (Mr. Ronald Bell) has said. It seems somewhat extraordinary that a company should be penalised financially—I am not talking about trading expenses—if it uses its own products to drive its directors about. It is extraordinary that a Conservative Government should bring in legislation of this character. Hon. Members opposite ought to consider whether the price they have to pay for these more reactionary aspects of the Budget is worth paying when it involves such an infringement of ordinary common sense and principle.

Hon. Members ought to be pondering seriously whether this price in terms of demagogy is worth paying. It does not concern my hon. Friends, because we welcome any such sign on the part of the Government. I do not approve of anomalous, piecemeal and unprincipled legislation, even though it has a squalid popular appeal. It is easy to pick on a small number of people who, for one reason or another, excite envy and feelings of inferiority, even in the breasts of chairmen of local Conservative associations, and teach this small group not to drive Rolls-Royces. I am sure that that goes down very well in local Conservative associations.

We do not worry about it unduly in the Labour Party. I have been a member of the Labour Party since I was a schoolboy. In the various blueprints for the new Jerusalem which we hope to usher in I have never seen any suggestion by any of my colleagues that the elimination of Rolls-Royces from our roads is a necessary prerequisite to the inauguration of a Socialist Utopia. Perhaps it has been taken for granted.

Mr. Ronald Bell

The hon. Member has arrived in the debate rather too late.

Mr. Lever

I did not expect that my hon. Friends, in their very fair-minded co-operative attitude, would have advanced so far by this time of the evening. Had I so supposed, I should have been here earlier to make my views a little plainer.

There is one little matter which I cannot resist bringing to the attention of the Financial Secretary. Normally, I should be sympathetic to the plea that, where a firm has contracted to buy, a car, justice requires that it should not be penalised by a Finance Bill which will come into operation after the date of the contract. That would normally have a very strong appeal. The Clause is a denial of justice and principle. It does not purport or pretend to operate on any principle of equity. The whole point of the Clause is that it lays down, in a rough and ready way, that, if a company spends more than £2,000 on a car, it shall not be allowed the capital allowance. There is no pretence that this is justice. The fact is that a company cannot charge against its profits the depreciation on a car costing more than £2,000.

However, a company can charge against its profits the most luxurious office accommodation—walnut panelling, cocktail cabinets, etc. The Government make no attempt to lay down any principle.

Mr. Millan

On a matter of pure fact, capital allowances are not given for office accommodation.

Mr. Lever

My hon. Friend the Member for Glasgow, Craigton (Mr. Millan) is assisting the Minister to confuse the issue. The commonsense issue is this. What expenditure can a firm incur which reduces the tax on its profits? It does not matter whether it reduces the firm's tax liability by means of capital allowances or by means of an expense allowance. It amounts to the same thing. In the end, it comes to this. Under this provision a firm can no longer charge against its trading profits the depreciation upon a car costing more than £2,000, whereas it can charge against its trading profits the most luxurious office accommodation.

If a firm wants to have what is now called prestige office accommodation, it can spend liberally to achieve it. Any sort of rent can be paid for it, to provide a satisfactory outlook over the park and suitable prestige for the directors or the firm. The Inland Revenue suffers, because tax is relieved to that extent. There is no principle behind the Clause. There is no pretence of justice. The Government have singled out a particular form of expense to deny chargeability against profits.

There is a case for it. The case is one of rough justice, which always means injustice in its application. There is no logic behind it. The Government cannot pretend that they are saying that it is reasonable to have a car costing up to £2,000 and charge its depreciation against trading profits. They do not say anything of the kind. If a firm buys a Jaguar, or any other make of car, for £2,000 when it does not need it for the purpose of its trade, it can charge the whole of that sum to depreciation and get the initial allowance on it. This is so whether the car is needed for the business or not. All that may be needed for the business is a moped or scooter, but the firm has no difficulty about charging the depreciation on the whole £2,000 against trading profits.

On the other hand, even where a firm really needs a car costing more than £2,000, even where common sense and ordinary necessity dictate the use of a car costing more than £2,000—as, for example, with the Rolls-Royce Company itself—it is not allowed to charge that for purposes of depreciation. I am quite willing to yield if anyone thinks that I have misstated the position.

The Government say to the Rolls-Royce Company, as was pointed out by the hon. Member for Buckinghamshire, South, "If you use your own cars for driving your directors about you will be penalised in the amount allowed for depreciation purposes," reasonable though it must be for the Rolls-Royce Company not to use any other kind of cars but its own for driving about its directors. There is no pretence of reason or justice.

What the Minister says makes sense if the Clause itself were based on reason, logic and justice. In that case he would be right in saying, "I am going to show meticulous care. I will not make it retrospective, because it would be unfair to the few who have contracted for a Rolls-Royce car." But one cannot say that of a Clause which says, "This will be unfair to everyone who possesses a Rolls-Royce." This is finicky when the whole Clause has no logical justification and makes no pretence that it is doing justice between one kind of expenditure and another. Why go through the elaborate charade that one is afraid to penalise through retrospective effect those who contracted to buy a car before the terms of the Bill were known? It needs an elaborate verbal quibble to justify such nicety of conduct.

I think that the Minister owes it to us that, having swallowed the whale, he ought publicly now to swallow the gnat. He ought not to strain at this little matter of the contract. I hope that he will listen to what my hon. Friend said. There is no justification at all for leaving in this piece about the contract having regard to the nature of the Clause itself.

Sir E. Boyle

I seem to remember someone suggesting recently that a suitable motto for the hon. Member for Bosworth (Mr. Wyatt) would be simper pedem pono—"I always put my foot in it." Listening to the hon. Member for Manchester, Cheetham (Mr. H. Lever), I do not know what the Latin is for "better late than never." However, I congratulate the hon. Gentleman on his contributions to the last four Clauses.

For the reasons I explained, and for the reasons which I gave to the hon. Member for Glasgow, Craigton (Mr. Millan), the Government could not possibly accept the Amendment put down by the hon. Member for Craigton and the hon. Member for Gloucester (Mr. Diamond) to Clause 23, page 18, line 32, as it stood. I can, however, give the Committee an undertaking that I will consider carefully the suggestion made by the hon. Member for Craigton this evening. I think that it is a point well worth consideration before the next stage of the Bill.

In answer to my hon. Friend the Member for Buckinghamshire, South (Mr. Ronald Bell), I can only repeat what I said to the Committee before. Anyone—the firm itself, a subsidiary or someone outside—is in exactly the same position with regard to the provisions of the Clauses which we have been discussing. I will consider the points made by my hon. Friend, but I think it would be difficult to make any change without altering the whole purport of these proposals. Though I will consider what my hon. Friend has said, I would leave the Committee in no doubt as to what is the purport of the Clauses as they now stand.

Question put and agreed to.

Clause ordered to stand part of the Bill.