HC Deb 03 April 1963 vol 675 cc456-8

I begin with a brief description of the Exchequer out-turn last year. The main details are shown in the first three tables of the Blue Paper.

Total revenue last year was £6,794 million; that is, about £4 million below the estimate. Expenditure above the line came out at £6,441 million. £76 million above the Budget estimate. The whole of this increase was in the field of Supply expenditure. The result above the line was a surplus of £353 million, that is, £80 million less than the Budget estimate.

Net payments below the line, at £419 million, were £88 million less than expected. The cost of the additional release of post-war credits was more than offset by a fall in Exchequer lending, mainly to the nationalised industries. Thus the overall deficit was £66 million, a decrease of £8 million on my predecessor's estimate of £74 million.

One element in the financing of this deficit is, of course, borrowing from the public, and the Committee will like to know that £180 million was contributed by National Savings. The total of National Savings remaining invested has increased by £300 million. These figures are considerably higher than for 1961–62. For this most satisfactory achievement I am sure that the Committee will wish to join me in thanking the many voluntary workers in the National Savings movement led by Lord Mackintosh.

The new Defence Bonds are already on sale and the new Savings Certificates will be on sale next month. The gap in the sale of certificates has been unavoidable. It has caused some difficulties for voluntary workers, which I regret. Lord Mackintosh, with whom I have worked closely throughout, joins me in emphasising that the need for large and regular National Savings is as great as ever. We are confident that the new securities will help the National Savings Movement in its valuable work, particularly for the small saver.

My predecessor announced that this year's Finance Bill would contain provisions to bring to an end Schedule A Income Tax on owner-occupiers of residential property, but that it would depend on revenue considerations whether this could be done in one year. I was happy to inherit this undertaking, for I have never believed that Schedule A as a tax on the occupation of houses, rather than on profits drawn from owning them, is justifiable.

I propose now to abolish Schedule A altogether. In the case of owner-occupiers of residential property, I propose that Schedule A shall be brought to an end in one operation this year. They will not be asked to pay again. For this purpose, the term "owner-occupier" will include not only freeholders, but all those, including leaseholders, who at present pay tax on what is called "beneficial occupation". There will, however, have to be special provisions to cover long leaseholders who pay ground rents, those who pay feu duties, employees who enjoy beneficial occupation as an emolument and other marginal cases.

The same rule will apply to all nonresidential owner-occupied property, including business premises, farms, sports-club grounds, and so on.

In the case of properties owned and let for a profit, I propose to substitute for Schedule A a system of direct taxation of rents, including ground rents, and other income arising from property. Due allowance will be made for the actual expenses of maintenance, insurance, management, etc. In simple terms, profits from property ownership will be calculated like other business profits.

This particular reform cannot for practical reasons come into effect this year. For 1963–64, the existing system of a charge under Schedule A on the annual value together with a charge on "excess rents" under Schedule D, will continue to apply to rented property. The legislation dealing with the new system will, however, be included in the Finance Bill, and the new system will come into effect from the year 1964–65.

The new charge will have to cover not only rents but other forms of consideration for the use of property. In particular, there will have to be a specific charge on future premiums for leases graduated on a scale according to the length of the lease, and this charge will operate from 1963–64, as a counterpart to the abolition of Schedule A on rental values in excess of the rent paid.

Where an owner occupied residence formed part of an estate which was managed as a unit in 1962–63, the owner may elect to retain the benefit of the existing practice under which the maintenance expenditure on the residence can be taken into account in fixing the liability on the estate, on condition that the current annual value of the residence is also brought into account. I include this provision to avoid the danger that these taxpayers might be worse off as a result of the abolition of Schedule A. There will be appropriate transitional provisions.

As a corollary to the Schedule A changes, I propose that Schedule B on amenity lands shall be abolished. I shall also be introducing certain provisions relating to the tax treatment of commercial woodlands. Royalties from quarries of sand and gravel, sandpits, gravel pits and brickfields will be subject to deduction of tax at source in the same way as other mineral royalties.

I am also introducing a provision, to take effect this year, for treating members of approved housing co-operative associations in the same way as owner-occupiers.

Owner-occupiers, who at present pay their Schedule A tax direct on 1st January, will cease to pay as from 1st January, 1964, except in some cases as regards tax on feu duties and ground rents. They will have no Schedule A bill on that day. Those whose Schedule A liability is taken into account in their Pay-As-You-Earn coding will see the effect on their P.A.Y.E. deductions on the first pay day after 5th July.

The cost of these changes will be about £35 million in 1963–64 and of the order of £48 million in a full year.

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