HC Deb 30 June 1964 vol 697 cc1229-49

(1) The Income Tax Acts shall apply to feu duties as they apply to yearly interest secured on land in Scotland.

(2) A person entitled to receive feu duties shall not be charged to income tax in respect of them under Case VIII of Schedule D.

(3) No person shall be liable by virtue of this section to pay any more tax than he would have been liable to pay, if this section had not been enacted.—[Mr. Willis.]

Brought up, and read the First time.

8.0 p.m.

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

I beg to move, That the Clause be read a Second time.

We discussed this in Committee and I have no wish to repeat the history of the matter or what I said then about the manner in which feu duties were charged against income prior to 1963. In practice up to 1940 and legally from 1940 to 1963, they were chargeable against income for tax purposes. As a result of the abolition of Schedule A, they have ceased to be chargeable. As a result, very many owner-occupiers in Scotland are worse off. The number runs into tens of thousands.

I have had correspondence with the Financial Secretary about this and he has told me that it was all explained during the passage of the Finance Act, 1963. But whilst, during those proceedings, technical changes were explained, I do not think that anyone in the House at the time realised that, as a result of those changes, tens of thousands of owner-occupiers would be worse off. I received today another letter from my correspondent on this subject, a gentleman whose name is known to the Financial Secretary. My correspondent said: There was no explanation that certain taxpayers in the United Kingdom would be worse off when Schedule A was abolished. The ordinary taxpayer is not interested in technical changes or procedure. He is interested in changes in the amount of tax suffered. People do not necessarily follow these technical analyses and I must say that, having read our debates of last year on the subject, I find them difficult to follow.

During the Committee stage of this Bill, I argued that we should return to the position that always existed in Scotland before 1963. There were very good reasons for not departing from it in the first place. I pointed out that our argument for this rested upon the nature of a feu and a feu duty. My hon. and learned Friend the Member for Kettering (Mr. Mitchison) made a very helpful speech on the technicalities. Talking about rent and lease, he said: But the feu has two peculiarities which have nothing in common with that. One is that it goes on for ever, subject to one thing. It is a security. In other words, if the feu superior is not paid he can irritate the feu and take back the property. I think that irritating a feu is difficult, but I can say nothing about that. As my hon. Friend pointed out, feu duties are simply, on the other hand, a form of investment. I think that as an executor I am the owner of about half-a-dozen small feu duties. They are unmarketable things. They are sold by advertisement in the papers through Writers to the Signet or solicitors. I have never seen the property and never expect to see it. They go on being paid. I have no obligation in respect of the property, nor has a feu superior under Scots law. My hon. and learned Friend went on to point out that, in Scotland, there is no such thing as a mortgage. He said that we had bonds or dispositions in security. Those of us who served on the Committee stage of the Local Government (Development and Finance) (Scotland) Bill will remember lengthy discussions on the fact that there are no mortgages in Scotland. My hon. and learned Friend suggested that the feu duty—and this is my view also— … is far nearer a bond or disposition in security than it is to an English rent."— [OFFICIAL REPORT, 18th June, 1964; Vol. 696, c. 1694–5.] My hon. and learned Friend put a good case regarding exactly what a feu is. Since then I have tried to study the matter further in Green's "Encylo-paedia of Scots Law". I found it most interesting, but mainly unintelligible—at least to me. However, there seemed to be something to be said for my case. I do not know whether the Financial Secretary has also used the interval to study the 30 or 40 pages in the encyclopaedia devoted to the subject. If he has he may have found better answers than he produced last time.

As a result of the Government's misguided, but, unfortunately, injurious policy, the cost of land in Scotland has risen considerably. One practice that has grown up as a result is that builders who buy the land have to devise means of ensuring that they get their money back. They do so, of course, by building more houses per acre, by adding to the price of the houses and by increasing the feu duty. Once they have built more houses to the acre and put the prices of the houses up, they probably still have to find another £200 or £300 per house, and since they do not feel they can further increase the prices they use the feu duty. The builders lay out their money in this way in order to secure upon it interest payments from the feuars. This is a form of interest payment which the feuar has to pay to the builder.

Mr. Green indicated dissent.

Mr. Willis

The hon. Gentleman shakes his head, but I should have thought that that was precisely what it was. The builder cannot get his £300 or £400 back in any other way, so he charges it on the feu.

This also points to the anomaly of the difference in treatment of a mortgage interest payment, which is chargeable against income, and a feu duty which is not so chargeable. The sum which the builder adds to the cost of the house can be covered by a mortgage, the interest payments on which are chargeable against income from the house, but the amount which he charges as a feu duty is not treated in that fashion.

I cannot see the difference. If I have laid out £800 and I get that back by adding £500 to the cost of the house, increasing the feu duty so as to get back the £300, the owner-occupier can charge the interest on the mortgage, which includes the £500, against his income, but not the feu duty. This is a practical example of what is happening in Scotland and shows that feu duties should be treated in the same way as payments of interest and allowed as a charge against income for tax purposes.

I find the difference difficult to justify in the same way that I find it difficult to justify allowing interest on a bank overdraft to be chargeable against income. None of the people in Scotland to whom I have spoken has been able to explain to me why the interest on a bank overdraft should be chargeable against income for tax purposes. There are many other anomalies about what is chargeable and what is not, and it would not be a bad idea if the Government endeavoured to rationalise this business of charges against income. Like Alice, these anomalies have grown up and given rise to practices which are not generally understood.

When the Government abolished Schedule A, did they intend that tens of thousands of people would pay more Income Tax than before Schedule A was abolished? Did they know that that would be the result? If not, they should now reconsider the position and try to do something to remedy this state of affairs. The present situation makes nonsense of their professed desire to assist home ownership. It is not good enough to talk about wishing to encourage home ownership if one then adds to the burdens of the owner-occupier. What makes it even worse is to go to the country and claim to have given generous help to owner-occupiers by having abolished Schedule A, for tens of thousands of people are worse off.

8.15 p.m.

During our last discussion on this point, the Financial Secretary said that the cost of my proposal would be about £1 million. I think that it would be very much less than that, because there are only about 320,000 or 330,000 owner-occupied houses in Scotland and the amount per house is not very large. With the older houses the amount would be very small, because years ago feus were relatively small. They have become much larger in the last few years, which is another benefit of Tory rule. The hon. Gentleman was probably overstating the cost when he suggested that it would be about £1 million. That is an additional reason for regarding the new Clause favourably.

Previously, we suggested that the hon. Gentleman should consult Scottish legal opinion. I know that he has consulted some, but I do not think that he has read Green's "Encyclopaedia", or Gloag and Henderson.

Mr. William Ross (Kilmarnock)

Or Walter Ross.

Mr. Willis

I hope that as a result of his studies he has come rather more to our point of view and that tonight he will say that as a result of our eloquence on the previous occasion, the strength of our arguments, the result of his studies of Scottish law and practice and his consultations with Scottish legal opinion, he will be able to accept the Clause.

Mr. Ross

My hon. Friend the Member for Edinburgh, East (Mr. Willis) has put the case so well and so persuasively that there is not much to add. The Financial Secretary should appreciate the simplicity of the new Clause. It is comprehensible and its drafting is perfect.

Mr. Willis

I intended to say, during my speech, that I had had a little assistance with the new Clause and that I wanted to express my gratitude.

Mr. Ross

I thought that my hon. Friend was about to say that he had had some assistance from the Lord Advocate, and I was about to read the Clause again to find out what was wrong with it. But it is very simple. It does what it says it proposes to do. It says: The Income Tax Acts shall apply to feu duties as they apply to the yearly interest secured on land in Scotland. I do not want to make a long speech on this subject, although I could do so. The yearly interest secured on land in Scotland has a long history. The story goes back to pre-1537, the year in which there was the abrogation of the law against usury in Scotland. But even within that time people had found a way round the law, and I think that this is relevant to the whole situation. Land would be "wadset", which really meant that a person who wanted to borrow money would give the rent on his land in exchange for a sum of money, and, of course, the rent was related to what the interest would be on that money. In other words, it was a wangle, but it was a reasonable way of doing things. That really was the start of yearly interest secured on land in Scotland.

What is the difference between that and a feu? I think that my hon. Friend has put the matter into its proper perspective. Nobody owns land in Scotland. It is all nationalised. The ultimate owner of all the land in Scotland is the Crown. There are, of course, one or two exceptions, but I am sure that the hon. Gentleman does not want me to go into the burgage tenure, blench farm. Let us stick to the feu-farm tenure.

The ultimate interest in the land lies in the Crown. It would be very simple for the Crown to reassert its rights. The land was held by a vassal on the condition that he would assist the Crown in times of war in the defence of the country. It would not be a bad idea if we transferred the cost of armaments today to the landowners. We would certainly have some squeals perhaps from someone who owns a lot of land on the borders, as well as another 60 farms in Lanarkshire. He may hold much of this land as a result of what his family was able to grab at the time of the Reformation; land which originally belonged to the abbey at Jedburgh, or even Kelso. There are many interesting facets to this question, but I think that we had better get back to the point at issue.

The fact is that this feudal duty has been translated in respect of the lower echelons on this holding on the vertical line from the Crown to occupying owner into money payments—feu duty. My hon. Friend asked why it was not treated in the same way as interest on a bank overdraft. When we think of the cost of this, if we think in terms of feu duties on ancient tenements, we find that it is practically nominal. The feu duty on houses built before the war was 5s. or 30s. a year—little or nothing. This sum was paid in perpetuity.

The position today is very different. Land in Scotland is changing hands at tremendous prices as a result of the Town and Country Planning Act, 1957, even though at that time we were told by the Minister who is now in another place, Niall MacPherson as we knew him, that the Measure was purely theoretic from the Scottish point of view. I could show the Minister land in Ayr, on the Roselle Estate, which is now being used for building purposes. At one time three houses per acre were built on that estate. Now, as a result of the land prices when a piece of land changes hands and is bought by a speculative builder, the density of the houses built is not merely doubled but increased to an even greater extent.

The cost of the house bears a direct relationship to the cost of the land. A builder has to get a return on his purchase of the land. He has feued a piece of land from the next upper land superior. He pays his feu duty to that person. He therefore has to sub-feu it to other people, and he includes the price that he paid for the land in these new feus.

My house was built about 10 years ago, and my feu duty was £15 a year. I thought that it was high, but it is not high when compared with what people pay today for smaller properties. The increase in the feu duty bears a direct relationship to the increase in the cost of land. Part of the cost of the land goes into the capital cost of the house, and the rest of it goes into the feu duty.

The person who buys a house can offset the portion of the land cost included in the capital cost against income, but the Government say that that cannot be done in respect of the feu duty element of the cost of the land. Feu duty is a direct interest payment in relation to the cost of the land, and, indeed, to the cost of the house. The hon. Gentleman apparently does not believe me. One of the first Acts of Parliament passed by the Tory Party was the Long Leases (Scotland) Act, 1952. That Measure was based on the report of a committee which was set up to deal with a problem which we thought was arising only in Lanarkshire, particularly in Stonehouse, and some other small villages where 100 years ago, in order to get round the law of entail which barred feuing of the land, landlords granted long leases.

We did not think that there were many, but we found that in Lanarkshire there were more than 4,000, in Wigtown there were 400, in Kirkcudbright there were 780, and that the total number ran into thousands. We found that in the Ardrossen-Saltcoats area there was a long lease for 9,999 years. There is an element of pertpetuity about that one. It was done to get round the law of the land, which precluded the alienation of the property from the family. Many other properties which had been leased for 99 years were falling in, and if nothing was done not only the land but the houses as well would revert to the landowners.

8.30 p.m.

So the Labour Government set up a Committee, of which I was privileged to be a member. Lord Guthrie was its distinguished chairman, and there was a gentleman on it who later became a Tory Lord Advocate. He now graces with distinction and honour the Scottish Bench—Lord Clyde. The Committee produced a Report which was accepted by the Government. To put the matter right, and to translate a lease into a feu, we imagined that no matter how long the ish had to go—the ish being the tail end of a Scottish lease—we gave it 30 years, took the capital value of the property in the land, and related to it the sum of money which, at 5 per cent., would reach that value over 30 years.

If the value is £1,000 the sum necessary to attain £1,000 at compound interest of 5 per cent. over 30 years, believe it or not, is £231. The Act of Parliament sought to translate that £231 into two items, one of which was to be a feu duty and the other a capital payment. Nothing was laid down as to how it should be divided. It could all be feu duty or all capital payment. The people of Scotland had the right, for five years, to elect to do this, and many Welsh people wish that they had had a similar provision which would have enabled them to get rid of leasehold in Wales. We made it practicable in Scotland. At times we may be a little long-winded, but we get things done in the end.

In the Report we showed how the sum should be divided into two portions, the grassum of £102 10s. and the sum of £115 10s. to be translated into a feu duty. They became the Government's own proposals, presented to and accepted by the House. That proves the case. It shows that the feu duty is equivalent to a yearly interest rate. After these few preliminary remarks on the Amendment, the Minister will see the importance and relevance of the matter.

This is happening more and more in respect of feu duties at present. The Government are going all out for home ownership in Scotland. Last week, the Secretary of State told us that the Government hope to build 7,000 houses this year. That is an improvement of about 1,000 on last year, but it is less than the year before. The Government must consider to what extent this feu duty element—which is an evidence of the high cost of land—will be a bar to home ownership in Scotland. The Clause provides one way in which they could offset it. They could make it chargeable against income for tax purposes, just as the rest of it may be offset on the mortgage in respect of the cost of a house which includes part of the cost of the land. It is just another element in the same thing, that is being treated in a different way.

I hope that the Government will accept the Clause. It will be a tremendous disappointment to the people of Scotland when they discover, as I have discovered, that the abolition of Schedule A will mean absolutely nothing. I have discovered that I must pay just as much Income Tat in respect of my property as I paid before.

Mr. Bruce Millan (Glasgow, Craigton)

It may be more.

Mr. Ross

It may be more, I am told. My hon. Friend can tell me, but he must not tell my wife. She is sufficiently worried about the expenses involved in property owning at present.

By accepting the Clause the Government can do something towards reaching the target that they are always telling us they have before them. There is still not a ready acceptance of home ownership. We used to be told that it was a question of the rating system, and that if we changed it all would be well. Well, we changed it in 1956, and it still lacks. Now the Government are trying to create a new reason; they say that it is something to do with the rents paid in council houses. In fact, it is probably related to the instability of employment and the low wages paid in Scotland.

Here is something that the Government can do to help, and I hope that the Minister will take this chance and accept the new Clause. Its language is impeccable, and it has been moved in an impeccable manner by my hon. Friend the Member for Edinburgh, East.

Mr. Green

I am glad to have been able to have a talk with the hon. Member for Edinburgh, East (Mr. Willis). I hope that, in technical terms at least, that talk was helpful to him. It is certainly not on the basis of the language of the new Clause that I want to reply. When one drafts these Clauses one feels as if one is going through a minefield. One is never quite sure whether one has spotted all the mines.

Fortunately for me, anyway, no point of Scottish law arises in connection with the feu. Section 15(1,b) of the Finance Act, 1963, specifically and by name brings within the charge to tax under Case VIII of Schedule D rent charges, ground annuals and feu duties, and any other annual payments reserved in respect of, or charged on or issuing out of, such land. It is clear beyond any doubt that as the law stands feu duties will in future be payable in full, without deduction of tax.

I must also point out that a feu duty is a perpetual rent.

Mr. Ross

Whatever else it is, it is not rent.

Mr. Green

I am very sorry, but if the hon. Member for Kilmarnock (Mr. Ross) wishes to challenge this question of law he must take his challenge to the right place. It is quite indistinguishable from the ground rent under a long lease, and it is for this reason that it was named in Section 15 of the 1963 Act.

Hon. Members opposite may well be concerned with other matters under Scottish law, but what we are concerned with in the Clause is the question whether it is right to exempt from the provisions of Section 15 of the 1963 Act feu duty, in particular when it has been classed with ground rent, from which, for all practical purposes, it is indistinguishable. It has in fact been classed as a ground rent—[HON. MEMBERS: "No."] That is the situation. It is all very well for hon. Members opposite to shake their heads and say "No", but this, I am afraid, is what is exactly and expressly laid down.

Mr. Millan

Surely the argument is about whether the Finance Act, 1963, is wrong. That is what we are challenging. There is no point in the hon. Gentleman starting off as if the Finance Act, 1963, were something which we all accept. The basic assumption of the argument is that we do not.

Mr. Green

That is very nice, but it seems to me a great pity that during the passage of the Finance Act no Scottish interest or, apparently, no Scots lawyer, spotted this basic Scottish misconception. That is apparently what happened last year—

Mr. Ross rose

Mr. Green

May I finish the point?

Mr. Ross

It is Scottish law.

Mr. Green

That has nothing to do with the argument. No point of law arises for me on this—

Mr. John Rankin (Glasgow, Govan)

On a point of order, Mr. Deputy-Speaker. I wonder whether the Financial Secretary can tell me whether he said in his reply that this matter arose from a Scottish misconception last year?

Mr. Deputy-Speaker (Sir R. Grimston)

Order. That is not a point of order and the hon. Gentleman must know it.

Mr. Green

What we are discussing here is clear from the wording of the Clause. It is the specific exemption of feu duty. Only to that can I address myself, and that it what I am trying to do. I should be wildly out of order if I failed to do so.

Mr. Ross

We are getting into rather a legal tangle, because the whole thing impinges on a definition of what it is we are discussing. We cannot discriminate against other things in the 1963 Act. Should I be in order in asking that the House stand adjourned until such time as we have a Scottish Law Officer present?

Mr. Deputy-Speaker


Mr. Green

I am grateful, Mr. Deputy-Speaker. The point which I think we had reached—[Interruption.]—it seems necessary occasionally to bring hon. Gentlemen back to what we started to discuss—was that a special and specific exemption should be made for feu duty. I am seeking to speak to that, if I am allowed to do so, and if we can avoid—

Mr. Willis rose

Mr. Deputy-Speaker

Order. This is not the Committee stage, but the hon. Member for Edinburgh, East (Mr. Willis) has the right to speak more than once and it is not necessary for him to intervene.

Mr. Willis

The point I wanted to make is this. We are trying to suggest that the inclusion of this in the Finance Act last year was wrong.

Mr. Green

I appreciate that, but I have to contest it. It does not seem to me to be wrong to say that it is, in fact, a perpetual rent, as has been accepted so far in this House and elsewhere, and was accepted by Scottish Members of Parliament last year. They may not have noticed it, or something—I do not know. I do not want to make a great argument of it. All I am saying is that they accepted it, and it is written into the Finance Act, 1963. Now a claim is being made that a feu is not a perpetual rent, or is not rent. The feu is connected with the right of the owner, the occupier, to go on occupying the land. If he does not pay the feu, he can be dispossessed. So there is a clear connection between the feu duty which he has to pay and his right of occupancy.

I say, as I said during the Committee stage discussions, that although there are technical differences between a feu and a ground rent—they go back a long way, I understand, and who am I to disentangle them—both of them differ from interest charges.

8.45 p.m.

I come to one or two specific points made by the hon. Member for Edinburgh, East. He said, quite rightly, that some owner-occupiers, because of the abolition of Schedule A, would be paying more than they paid before. I accept what he said in Committee and there is hardly necessity for me to repeat it. I also gave him reason why that was so. Perhaps as he has reminded the House of that fact, I can remind the House of why it should happen. Schedule A was a tax on the notional value. The notional value naturally remained unchanged through the war. The Labour Government in 1945 did not revitalise, or remake, or put back into operation, machinery for revaluing Schedule A.

I do not quarrel about that, but it is a fact. As a result Schedule A values on which the notional tax was charged were completely out of date very quickly after the end of the war, and have become progressively more out of date ever since. Payers of Schedule A tax—this covers those who pay feu duty in Scotland and ground rent in England—were benefiting very substantially from the fact that they were being notionally taxed on an increasingly falsely low value. The alternative to abolishing Schedule A was to revalue for Schedule A purposes all properties, including those in Scotland. I do not think the constituents of the hon. Member would have wished that to be done.

He knows why the problem did not arise in Scotland—because it was so small at that time—but to revalue the properties and modernise the notional value would have meant a very much greater Schedule A payment. Although I cannot give the exact numbers, tens of thousands are suffering a small additional charge, but many more than tens of thousands are getting a benefit from the abolition of Schedule A. I must put that into the scale as well. It is unquestionably true.

The Revenue gave up a substantial sum in tax collected when Schedule A was abolished. Abolishing Schedule A has not increased revenue. We cannot push that argument too far, and I do not think that the hon. Member, to do him justicee, wishes to do so. He has properly drawn attention to certain grievances because of the abolition of Schedule A. It is difficult to convince taxpayers that the alternative would have hurt them very gravely. The third choice would not be exemption of feu duty alone, not the ability to charge feu duty alone against general income, but ground rent as well, because the two for tax purposes are indistinguishable.

I asked the hon. Member for Cardiff, South-East (Mr. Callaghan) if he would care to put down a new Clause to debate the whole idea of exempting ground rent and not just one form of ground rent, feu duty. I notice that that new Clause has not been put down, and I think very wisely, because if we exempt one form of rent, we have to exempt all forms of rent, and I do not believe that either party, when in Government, would wish to do that, partly on grounds of cost and partly for other reasons.

It could not stop at rents. If rents, why not food, why not clothes, why not all the other normal necessary expenses to which human beings are subjected? Why not all these things? The more one thinks about it the more it seems wrong to create yet another anomaly in this body of law by specifically exempting feu duties, which are indistinguishable for the purpose of Income Tax from ground rent

On those grounds of principle and on grounds of equity, I invite the House to reject the Clause.

Mr. Millan

I do not think that all hon. Members found that a very convincing reply to the arguments put up by my hon. Friends, and I should like to take up a number of points which the Financial Secretary made.

The first is whether we wish to make only feu duties a general charge on income and not to deal with ground rents and all the other possible charges on land. The Clause is concerned only with feu duties, and there are other arguments which can be put about the other items, but it is not a very good reason for turning down this new Clause on feu duties to say that it might open the door to concessions for other forms of payment. One of the arguments which we have made is that the feu duty is not simply another kind of ground rent but that there are certain distinctive characteristics of it which mean that it should be treated in a distinctive way.

The other preliminary point which I will mention concerns the Financial Secretary's statement that no one noticed this last year. It has been pointed out that we did not have a Scottish Law Officer in the House last year—and, indeed, we do not have a Scottish Law Officer in the House now.

Mr. Green

I do not want the hon. Member to argue on a false point. I stated that no point of Scottish law arises here.

Mr. Millan

That is begging the question. The hon. Gentleman advanced absolutely no evidence to substantiate that point of view. All he did was refer us to the 1963 Act. But our whole argument this evening is that the 1963 Act was wrong. It is no use appealing to us to accept that Act as settling the matter because it is precisely that Act which we question.

Furthermore, it is notorious that the 1963 Schedule A legislation was extremely difficult and obscure. I think that I am right in saying that all the professional organisations—the accountants of England and Wales and the incorporated accountants, for example—have protested to the Government about what they call the shoddy legislation which we had in the 1963 Act concerning the abolition of Schedule A. I see a qualified accountant on the opposite benches—the hon. Member for Nottingham, South (Mr. W. Clark); and he will confirm that representations were made to the Government last year that the 1963 legislation was extremely difficult and obscure. I do not think that it is a good argument to complain that hon. Members who are not qualified lawyers did not appreciate in 1963 all the implications of that legislation from the point of view of Scottish feu duties. We had a number of other things to discuss last year apart from this point.

I want to ask the Financial Secretary a question which he did not answer in Committee and which he has not answered this evening. He has admitted in correspondence to my hon. Friend, and he also admitted in Committee in the House, that in 1940 there was a specific provision in the Finance Act to make feu duty a general charge on income. The original line of the argument was that that happened in 1940, that there was a change in the law for technical reasons, and accidentally feu duty became a general charge on income. The Government have also admitted that, even prior to 1940, feu duty was admitted in practice, though not in law according to the Income Tax Acts, as a general charge in income.

It is a rather extraordinary situation that prior to 1940 feu duty was admitted as a general charge on income. By a technical defect, according to the Government, in the Finance Act, 1940, feu duty became legally a general charge on income. Yet it took the Government 23 years to 1963 to put that so-called anomaly right. The existence of the practice of treating feu duty as a general charge on income, legally since 1940 and a good deal before that in practice, raises a presumption that the Government have all along intended that feu duty should be a general charge on income, because even Conservative Governments do not usually take 23 years and more to put right an anomaly in the Income Tax Acts.

Mr. Ross

They usually take longer.

Mr. Millan

There is a case to answer on this point. The Financial Secretary has not answered it, either in Committee or in his speech this evening.

Mr. William Clark (Nottingham, South)

I am following the hon. Gentleman's argument with interest. He keeps saying that it took the Government 23 years. What was his party doing between 1945 and 1951?

Mr. Millan

Even Homer nodded, and Labour Chancellors must have nodded between 1945 and 1951. Alternatively, Labour Chancellors very sensibly adopted the attitude that there was not, in fact, an anomaly, that it was perfectly right that feu duty should be treated as a general charge on income, which is our point this evening.

I come to the main point whether feu duty should be treated as analogous to interest. Apart from a rather vague appeal to authority dating only from the Finance Act, 1963, the Financial Secretary did not answer this point. As my hon. Friend the Member for Kilmarnock (Mr. Ross) said, there are certain peculiarities about feu duties. My hon. Friend's description of what happened on the 1952 Act seemed to me to add a great deal of weight to the admission that a feu duty can be treated as analogous to an interest payment. The Financial Secretary, in reply, said that that was not so, because feu duty is a form of rent and, if an owner-occupier does not pay feu duty, he can be dispossessed.

Exactly the same is true of non-payment of bond interest in Scotland. It has been pointed out already that there is no such thing as a mortgage in Scotland. There is a loan by bond in disposition of security. A disposition is an ex facie absolute disposition. In other words, the property is actually transferred to the lender. Any nonpayment of bond interest in Scotland gives an absolute right to dispossession without any other kind of legal proceedings. Therefore, in the matter of dispossession a feu payment is not different from the payment of bond interest. If the hon. Gentleman's argument were taken to its logical conclusion, we should not allow bond interest as a general charge on income in Scotland. Considering all these charges, it is obvious that there is no principle that one can say applies with absolute validity throughout our Income Tax legislation. The whole business of charges is a muddle.

9.0 p.m.

As has been pointed out, the interest on a bank overdraft is allowed as a charge on income, while hire-purchase interest is not. Mortgage interest is allowed as a charge on income, although the hypothetical taxation of owner-occupied property through Schedule A has now disappeared. There is no principle involved and, both in practice and legally, since 1940 feu duties have been allowed as a general charge on income in Scotland. That being so, and there being no argument in principle or practice which validly contradicts the Tightness of what has happened, at least since 1940, my hon. Friends and I see no reason why the concession should not continue to be applied, despite the abolition of Schedule A. There appears to be no danger of any substantial loss of revenue if this concession is continued.

The Financial Secretary admitted that the sum involved would not be more than about £1 million. So far as I can see, there is not even any danger, by various tax avoidance measures, of evasion in respect of feu duties, bearing in mind the fact that mortgage interest is already allowed as a charge on income. There is no reason why the Government could not adequately cover, by some kind of suitable provision, any objections they might have. In theory and practice it is obvious that there is no reason why the Financial Secretary should object to this concession being continued, and unless he is willing to

change his mind I urge my hon. Friends to take the matter to a Division.

Question put, That the Clause be read a Second time:—

The House divided: Ayes 156, Noes 204.

Division No. 125.] AYES [9.2 p.m.
Ainsley, William Grey, Charles O'Malley, B. K.
Alldritt, W. H. Griffiths, David (Rother Valley) Oram, A. E.
Allaun, Frank (Salford, E.) Grimston, Sir Robert Padley, W. E.
Allen, Scholefield (Crewe) Gunter, Ray Paton, John
Beaney, Alan Hale, Leslie (Oldham, W.) Pavitt, Laurence
Bence, Cyril Hamilton, William (West Fife) Pearson, Arthur (Pontypridd)
Benn, Anthony Wedgwood Hannan, William Peart, Frederick
Benson, Sir George Harper, Joseph Pentland, Norman
Blackburn, F. Hayman, F. H. Prentice, R. E.
Blyton, William Henderson, Rt. Hn. Arthur (Rwly Regis) Price, J. T. (Westhoughton)
Boardman, H. Herbison, Miss Margaret Probert, Arthur
Boston, T. G. Hill, J. (Midlothian) Rankin, John
Bottomley, Rt. Hon. A. G. Hilton, A. V. Redhead, E. C.
Bowden, Rt. Hn. H. W. (Leics, S. W.) Holman, Percy Rees, Merlyn (Leeds, S.)
Bowen, Roderic (Cardigan) Holt, Arthur Rhodes, H.
Braddock, Mrs. E. M. Houghton, Douglas Roberts, Albert (Normanton)
Bradley, Tom Howell, Denis (Small Heath) Roberts, Goronwy (Caernarvon)
Brockway, A. Fenner Hoy, James H. Robertson, John (Paisley)
Broughton, Dr. A. D. D. Hughes, Cledwyn (Anglesey) Rodgers, W. T. (Stockton)
Butler, Herbert (Hackney, C.) Hughes, Hector (Aberdeen, N.) Ross, William
Carmichael, Neil Hunter, A. E. Short, Edward
Castle, Mrs. Barbara Hynd, H. (Accrington) Silkin, John
Collick, Percy Hynd, John (Attercliffe) Slater, Joseph (Sedgefield)
Craddock, George (Bradford, S.) Irvine, A. J. (Edge Hill) Small, William
Cronin, John Johnson, Carol (Lewisham, S.) Smith, Ellis (Stoke, S.)
Crosland, Anthony Jones, Elwyn (West Ham, S.) Sorensen, R. W.
Cullen, Mrs. Alice Jones, T. W. (Merioneth) Steele, Thomas
Dalyell, Tam Kenyon, Clifford Stones, William
Davies, Ifor (Gower) King, Dr. Horace Stross, Sir Barnett (Stoke-on-Trent, C.)
Davies, S. O. (Merthyr) Lee, Frederick (Newton) Swingler, Stephen
Deer, George Lever, L. M. (Ardwick) Symonds, J. B.
Delargy, Hugh Lewis, Arthur (West Ham, N.) Taylor, Bernard (Mansfield)
Dempsey, James Loughlin, Charles Thornton, Ernest
Diamond, John Lubbock, Eric Timmons, John
Dodds, Norman Mabon, Dr. J. Dickson Tomney, Frank
Doig, Peter McBride, N. Wade, Donald
Driberg, Tom MacColl, James Wainwright, Edwin
Duffy, A. E. P. (Colne Valley) McInnes, James Warbey, William
Edwards, Rt. Hon. Ness (Caerphilly) McKay, John (Wallsend) Watkins, Tudor
Edwards, Robert (Bilston) Mallalieu, E. L. (Brigg) Weitzman, David
Finch, Harold Manuel, Archie White, Mrs. Eirene
Fletcher, Eric Mapp, Charles Whitlock, William
Foley, Maurice Mason, Roy Wilkins, W. A.
Foot, Dingle (Ipswich) Mayhew, Christopher Willey, Frederick
Foot, Michael (Ebbw Vale) Mendelson, J. J. Williams, W. T. (Warrington)
Forman, J. C. Millan, Bruce Willis, E. G. (Edinburgh, E.)
Fraser, Thomas (Hamilton) Milne, Edward Winterbottom, R. E.
Galpern, Sir Myer Mitchison, G. R. Woodburn, Rt. Hon. A.
George, Lady Megan Lloyd (Crmrthn) Monslow, Walter Woof, Robert
Ginsburg, David Morris, Charles (Openshaw) Yates, Victor (Ladywood)
Gordon Walker, Rt. Hon. P. C. Morris, John (Aberavon)
Gourlay, Harry Noel-Baker, Francis (Swindon) TELLERS FOR THE AYES:
Greenwood, Anthony Noel-Baker, Rt. Hn. Philip (Derby, S.) Mr. Lawson and Mr. C. Howell.
Agnew, Sir Peter Bourne-Arton, A. Cleaver, Leonard
Allason, James Box, Donald Cols, Norman
Anderson, D. C. Boyd-Carpenter, Rt. Hon. John Cooper, A. E.
Arbuthnot, Sir John Braine, Bernard Cooper-Key, Sir Neill
Atkins, Humphrey Brown, Alan (Tottenham) Cordeaux, Lt.-Col. J. K.
Awdry, Daniel (Chippenham) Bryan, Paul Corfield, F. V.
Barber, Rt. Hon. Anthony Buck, Antony Costain, A. P.
Barter, John Bullard, Denys Courtney, Cdr. Anthony
Batsford, Brian Bullus, Wing Commander Eric Craddock, Sir Beresford (Spelthorne)
Beamish, Col. Sir Tufon Campbell, Gordon Critchley, Julian
Bennett, F. M. (Torquay) Carr, Compton (Barons Court) Curran, Charles
Bidgood, John C. Carr, Rt. Hon. Robert (Mitcham) Currle, G. B. H.
Biggs-Davison, John Chataway, Christopher Dance, James
Bingham, R. M. Chichester-Clark, R. d'Avigdor-Goldsmid, Sir Henry
Bishop, Sir Patrick Clark, William (Nottingham, S.) Deedes, Rt. Hon. W. F.
Donaldson, Cmdr. C. E. M. Hutchison, Michael Clark Proudfoot, Wilfred
Doughty, Charles Irvine, Bryant Godman (Rye) Pym, Francis
Douglas-Home, Rt. Hon. Sir Alec James, David Ramsden, Rt. Hon. James
Drayson, G. B. Jennings, J. C. Rawlinson, Rt. Hon, Sir Peter
du Cann, Edward Johnson, Eric (Blackley) Redmayne, Rt. Hon. Martin
Duncan, Sir James Johnson Smith, Geoffrey Ridley, Hon. Nicholas
Eden, Sir John Jones, Rt. Hon. Aubrey (Hall Green) Ridsdale, Julian
Elliot, Capt. Walter (Carshalton) Kaberry, Sir Donald Roots, William
Elliott, R. W. (Newc'tle-upon-Tyne, N.) Kerans, Cdr. J. S. Ropner, Col. Sir Leonard
Emery, Peter Kerby, Capt. Henry Russell, Sir Ronald
Emmet, Hon. Mrs. Evelyn Kerr, Sir Hamilton Scott-Hopkins, James
Errington, Sir Eric Kershaw, Anthony Sharples, Richard
Farey-Jones, F. W. Kirk, Peter Shaw, M.
Farr, John Lancaster, Col. C. G. Smith, Dudley (Br'ntf'd & Chiswick)
Fell, Anthony Legge-Bourke, Sir Harry Spearman, Sir Alexander
Finlay, Graeme Lewis, Kenneth (Rutland) Stainton, Keith
Fisher, Nigel Lilley, F. J. P. Steward, Harold (Stockport, S.)
Fletcher-Cooke, Charles Lucas, Sir Jocelyn Stoddart-Scott, Col. Sir Malcolm
Fraser, Ian (Plymouth, Sutton) Lucas-Tooth, Sir Hugh Storey, Sir Samuel
Freeth, Denzil McAdden, Sir Stephen Studholme, Sir Henry
Galbraith, Hon. T. G. D. MacArthur, Ian Taylor, Edwin (Bolton, E.)
Gammans, Lady McLaren, Martin Taylor, Frank (M'ch'st'r, Moss Side)
Gardner, Edward Maclean, Sir Fitzroy (Bute&N. Ayrs.) Teeling, Sir William
Gibson-Watt, David McMaster, Stanley R. Thomas, Sir Leslie (Canterbury)
Giles, Rear-Admiral Morgan Macmillan, Maurice (Halifax) Thompson, Sir Kenneth (Walton)
Gilmour, Ian (Norfolk, Central) Maginnis, John E. Thompson, Sir Richard (Croydon, S.)
Glyn, Dr. Alan (Clapham) Maitland, Sir John Thornton-Kemsley, Sir Colin
Goodhart, Philip Markham, Major Sir Frank Tiley, Arthur (Bradford, W.)
Goodhew, Victor Marshall, Sir Douglas Touche, Rt. Hon. Sir Gordon
Grant-Ferris, R. Marten, Neil Turner, Colin
Green, Alan Matthews, Gordon (Meriden) Turton, Rt. Hon. R. H.
Gresham Cooke, R. Maude, Angus (Stratford-on-Avon) Tweedsmuir, Lady
Griffiths, Eldon (Bury St. Edmunds) Maudling, Rt. Hon. Reginald van Straubenzee, W. R.
Grosvenor, Lord Robert Mawby, Ray Vaughan-Morgan, Rt. Hon. Sir John
Gurden, Harold Maxwell-Hyslop, R. J. Vaughan-Morgan, Rt. Hon. Sir John
Hall, John (Wycombe) Maydon, Lt.-Cmdr. S. L. C. Walder, David
Hamilton, Michael (Wellingborough) Miscampbell, Norman Walker, Peter
Harris, Frederic (Croydon, N. W.) Montgomery, Fergus Walker-Smith, Rt. Hon. Sir Derek
Harris, Reader (Heston) More, Jasper (Ludlow) Ward, Dame Irene
Harrison, Brian (Maldon) Morrison, Charles (Devizes) Webster, David
Harvie Anderson, Miss Morrison, John (Salisbury) Wells, John (Maidstone)
Hastings, Stephen Neave, Airey Whitelaw, William
Heald, Rt. Hon. Sir Lionel Oakshott, Sir Hendrie Williams, Sir Rolf Dudley (Exeter)
Henderson, Sir John (Cathcart) Orr, Capt. L. P. S. Wills, Sir Gerrald (Bridgewater)
Hendry, Forbes Osborn, John (Hallam) Wilson, Geoffrey (Truro)
Hiley, Joseph Page, John (Harrow, West) Wise, A. R.
Hill, Mrs. Eveline (Wythenshawe) Pannell, Norman (Kirkdale) Wolrige-Gordon, Patrick
Hill, J. E. B. (S. Norfolk) Pearson, Frank (Clitheroe) Woodhouse, Hon. Christopher
Hirst, Geoffrey Percival, Ian Woodnutt, Mark
Holland, Philip Pickthorn, Sir Kenneth Woollam, John
Hollingworth, John Pitt, Dame Edith Worsley, Marcus
Hughes Hallen, Vice-Admiral John Powell, Rt. Hon. J. Enoch Yates, William (The Wrekin)
Hughes-Young, Michael Price, David (Eastleigh)
Hulbert, Sir Norman Prior, J. M. L. TELLERS FOR THE NOES:
Mr. Peel and Mr. H. Rees.