HC Deb 31 May 1965 vol 713 cc1380-406
Mr. MacDermot

I beg to move Amendment No. 294, in page 126, line 25, after "value", to insert: of a ground annual or feu duty or". This is a drafting Amendment to meet the requirements of Scottish law.

Amendment agreed to.

Mr. John Hall

I beg to move Amendment 259, in page 128, line 26, after "valuer", to insert "or auctioneer".

This Amendment seeks to remedy what I am sure is an unintentional omission. I am certain that it cannot be intended to leave out "auctioneer" from the various descriptions in paragraph 4 (2), because that would mean that people were to cease to dispose of or acquire their property through auctioneers.

Mr. MacDermot

Strictly, "auctioneer" is covered by "agent", but as this has given rise to some doubts I shall be happy to accept the Amendment so as to make the position clear.

Amendment agreed to.

Amendment proposed: In page 128, line 36, at end insert: (3) (a) In this paragraph the following expressions and symbols shall have the following meanings, namely:—

Expression Meaning
the Deduction The sum allowable as a deduction under paragraph 4 of this Schedule.
the Index The Index of Retail Prices prepared for each month by the Ministry of Labour.
X The Index for the month in which falls the date of the disposal of the asset.
Y The Index for the month in which fall the date on which the expenditure comprising the deduction was made.

Expression Meaning
basis figure The Index which in arriving at any subsequent Index is treated by the Ministry of Labour as the standard by reference to which any change in the Index as between one month and another is measured.
(b) The Deduction shall in every case by multiplied by the factor X/Y

Provided that if in any case X and Y are not arrived at by an arithmetic progression from the same basis figure appropriate adjustment shall be made in the said factor to take account of the adoption of any new basis figure after the date on which the expenditure comprising the deduction was made.—[Mr. Heath.]

Question put, That those words be there inserted:—

The Committee divided: Ayes 174, Noes 181.

Division No. 155.] AYES [1.22 a.m.
Agnew, Commander Sir Peter Foster, Sir John Loveys, Walter H.
Alison, Michael (Barkston Ash) Fraser,Rt.Hn.Hugh(St'fford & Stone) Lubbock, Eric
Allan, Robert (Paddington, S.) Fraser, Ian (Plymouth, Sutton) Lucas, Sir Jocelyn
Allason, James (Hemel Hempstead) Gammans, Lady MacArthur, Ian
Amery, Rt. Hn. Julian Gibson-Watt, David Mackie, George Y. (C'ness & S'land)
Anstruther-Gray, Rt. Hn. Sir W. Gilmour, Ian (Norfolk, Central) McLaren, Martin
Atkins, Humphrey Gilmour, Sir John (East Fife) Maclean, Sir Fitzroy
Baker, W. H. K. Glover, Sir Douglas Macleod, Rt. Hn. Iain
Batsford, Brian Goodhart, Philip Maginnis, John E.
Beamish, Col. Sir Tufton Goodhew, Victor Maude, Angus
Berkeley, Humphry Gower, Raymond Mawby, Ray
Berry, Hn. Anthony Grant, Anthony Maxwell-Hyslop, R. J.
Bessell, Peter Gresham Cooke, R. Meyer, Sir Anthony
Biffen, John Grieve, Percy Mills, Stratton (Belfast, N.)
Biggs-Davison, John Griffiths, Peter (Smethwick) Miscampbell, Norman
Birch, Rt. Hn. Nigel Grimond, Rt. Hn. J. Mitchell, David
Blaker, Peter Gurden, Harold Monro, Hector
Bossom, Hn. Clive Hall, John (Wycombe) More, Jasper
Box, Donald Hall-Davis, A. G. F. Morgan, W. G.
Boyle, Rt. Hn. Sir Edward Harris, Reader (Heston) Morrison, Charles (Devizes)
Braine, Bernard Harrison, Brian (Maidon) Mott-Radclyffe, Sir Charles
Brinton, Sir Tatton Harvey,Sir Arthur Vere (Macclesf'd) Munro-Lucas-Tooth, Sir Hugh
Brown, Sir Edward (Bath) Harvey, John (Walthamstow, E.) Murton, Oscar
Bruce-Gardyne, J. Hastings, Stephen Noble, Rt. Hn. Michael
Bryan, Paul Hawkins, Paul Nugent, Rt. Hn. Sir Richard
Buxton, Ronald Heald, Rt. Hn. Sir Lionel Osborn, John (Hallam)
Campbell, Gordon Heath, Rt. Hn. Edward Page, R. Graham (Crosby)
Carlisle, Mark Higgins, Terence L. Pearson, Sir Frank (Clitheroe)
Carr, Rt. Hn. Robert Hill, J. E. B. (S. Norfolk) Percival, Ian
Chataway, Christopher Hirst, Geoffrey Peyton, John
Clark, William (Nottingham, S.) Hobson, Rt. Hn. Sir John Pickthorn, Rt. Hn. Sir Kenneth
Cole, Norman Hogg, Rt. Hn. Quintin Pitt, Dame Edith
Cooke, Robert Hordern, Peter Powell, Rt. Hn. J. Enoch
Cooper-Key, Sir Neill Hornby, Richard Price, David (Eastleigh)
Corfield, F. V. Hunt, John (Bromley) Quennell, Miss J. M.
Crosthwaite-Eyre, Col. Sir Oliver Irvine, Bryant Godman (Rye) Ramsden, Rt. Hn. James
Curran, Charles Jenkin, Patrick (Woodford) Rawlinson, Rt. Hn. Sir Peter
Dalkeith, Earl of Johnston, Russell (Inverness) Redmayne, Rt. Hn. Sir Martin
Davies, Dr. Wyndham (Perry Barr) Kaberry, Sir Donald Ridsdale, Julian
d'Avigdor-Goldsmid, Sir Henry Kilfedder, James A. Rodgers, Sir John (Sevenoaks)
Dean, Paul Kimball, Marcus Roots, William
Deedes, Rt. Hn. W. F. King, Evelyn (Dorset, S.) Scott-Hopkins, James
Digby, Simon Wlngfield Kirk, Peter Sharples, Richard
Doughty, Charles Lambton, Viscount Sinclair, Sir George
Elliot, Capt. Walter (Carshalton) Lancaster, Col. C. G. Smith, Dudley (Br'ntf'd & Chiswick)
Elliott, R. W.(N'c'tle-upon-Tyne,N.) Langford-Holt, Sir John Spearman, Sir Alexander
Eyre, Reginald Legge-Bourke, Sir Harry Stainton, Keith
Farr, John Lewis, Kenneth (Rutland) Steel, David (Roxburgh)
Fell, Anthony Litchfield, Capt. John Stodart, Anthony
Fletcher-Cooke, Charles (Darwen) Longbottom, Charles Studholme, Sir Henry
Fletcher-Cooke, Sir John (S'pton) Longden, Gilbert Taylor, Edward M. (G'gow,Cathcart)
Taylor, Frank (Moss Side) Tweedsmuir, Lady Wise, A. R.
Teeling, Sir William van Straubenzee, W. R. Wolrige-Gordon, Patrick
Temple, John M. Walker, Peter (Worcester) Wood, Rt. Hn. Richard
Thomas, Sir Leslie (Canterbury) Ward, Dame Irene Wylle, N. R.
Thomas, Rt. Hn. Peter (Conway) Weatherill, Bernard Younger, Hn. George
Thompson, Sir Richard (Croydon,S.) Whitelaw, William
Tilney, John (Wavertree) Williams, Sir Rolf Dudley (Exeter) TELLERS FOR THE AYES:
Turton, Rt. Hn. R. H. Wilson, Geoffrey (Truro) Mr. Pym and Mr. G. Johnson Smith.
Albu, Austen Gregory, Arnold O'Malley, Brian
Alldritt, Walter Grey, Charles Oram, Albert E. (E. Ham, S.)
Allen, Scholefield (Crewe) Griffiths, Will (M'chester, Exchange) Orme, Stanley
Armstrong, Ernest Hamilton, James (Bothwell) Page, Derek (King's Lynn)
Atkinson, Norman Harper, Joseph Paget, R. T.
Bagier, Gordon A. T. Harrison, Walter (Wakefield) Palmer, Arthur
Baxter, William Hazell, Bert Panned, Rt. Hn. Charles
Beaney, Alan Herbison, Rt. Hn. Margaret Pargiter, G. A.
Bence, Cyril Hobden, Dennis (Brighton, K'town.) Park, Trevor (Derbyshire, S.E.)
Benn, Rt. Hn. Anthony Wedgwood Horner, John Parker, John
Bennett, J. (Glasgow, Bridgeton) Houghton, Rt. Hn. Douglas Parkin, B. T.
Binns, John Howarth, Robert L. (Bolton, E.) Pearson, Arthur (Pontypridd)
Bishop, E. S. Hughes, Cledwyn (Anglesey) Peart, Rt. Hn. Fred
Blackburn, F. Hughes, Emrys (S. Ayrshire) Perry, Ernest G.
Blenkinsop, Arthur Hunter, A. E. (Feltham) Popplewell, Ernest
Boardman, H. Hynd, H. (Accrington) Prentice, R. E.
Boyden, James Irving, Sydney (Dartford) Probert, Arthur
Braddock, Mrs. E. M. Jackson, Colin Pursey, Cmdr. Harry
Bradley, Tom Jay, Rt. Hn. Douglas Rees, Merlyn
Brown, Rt. Hn. George (Belper) Jeger,Mrs.Lena(H'b'n&St.P'cras,S.) Rhodes, Geoffrey
Brown, Hugh D. (Glasgow, Provan) Jenkins, Hugh (Putney) Roberts, Albert (Normanton)
Buchanan, Richard Jenkins, Rt. Hn. Roy (Stechford) Robertson, John (Paisley)
Butler, Herbert (Hackney, C.) Johnson, Carol (Lewlsham, S.) Robinson, Rt. Hn.K.(St. Pancras,N.)
Butler, Mrs. Joyce (Wood Green) Johnson,James(K'ston-on-Hull,W.) Rodgers, William (Stockton)
Callaghan, Rt. Hn. James Jones, J. Idwal (Wrexham) Ross, Rt. Hn. William
Carmichael, Neil Jones, T. W. (Merioneth) Sheldon, Robert
Carter-Jones, Lewis Kenyon, Clifford Shore, Peter (Stepney)
Castle, Rt. Hn. Barbara Kerr, Dr. David (W'worth, Central) Short,Rt.Hn.E.(N'c'tle-on-Tyne,C.)
Coleman, Donald Lawson, George Silkin, John (Deptford)
Conlan, Bernard Ledger, Ron Skeffington, Arthur
Cousins, Rt. Hn. Frank Lever, Harold (Cheetham) Slater, Mrs. Harriet (Stoke, N.)
Craddock, George (Bradford, S.) Lewis, Ron (Carlisle) Small, William
Cullen, Mrs. Alice Lomas, Kenneth Solomons, Henry
Dalyell, Tam Loughlin, Charles Stewart, Rt. Hn. Michael
Davies, G. Elfed (Rhondda, E.) Mabon, Dr. J. Dickson Storehouse, John
Davies, Ifor (Gower) McCann, J. Summerskill, Hn. Dr. Shirley
Davies, S. O. (Merthyr) MacColl, James Swain, Thomas
Dempsey, James MacDermot, Niall Thomas, Iorwerth, (Rhondda, W.)
Dodds, Norman McGuire, Michael Thomson, George (Dundee, E.)
Doig, Peter Mclnnes, James Tomney, Frank
Donnelly, Desmond McKay, Mrs. Margaret Urwin, T. W.
Driberg, Tom Mackenzie, Gregor (Ruthergien) Walden, Brian (All Saints)
Duffy, Dr. A. E. P. Mackie, John (Enfield, E.) Wallace, George
Dunn, James A. MacMillan, Malcolm Watkins, Tudor
Dunnett, Jack MacPherson, Malcolm Wells, William (Walsall, N.)
English, Michael Mahon, Peter (Preston, S.) Whitlock, William
Ennals, David Mahon, Simon (Bootle) Wilkins, W. A.
Evans, Albert (Islington, S.W.) Manuel, Archie Willey, Rt. Hn. Frederick
Fernyhough, E. Mapp, Charles Williams, Alan (Swansea, W.)
Fletcher, Sir Eric (Islington, E.) Mason, Roy Williams, Mrs. Shirley (Hitchin)
Fletcher, Raymond (Ilkeston) Millan, Bruce Williams, W. T. (Warrington)
Floud, Bernard Miller, Dr. M. S. Willis, George (Edinburgh, E.)
Foot, Sir Dingle (Ipswich) Milne, Edward (Blyth) Wilson, William (Coventry, S.)
Foot, Michael (Ebbw Vale) Morris, Alfred (Wythenshawe) Winterbottom, R. E.
Ford, Ben Morris, Charles (Openshaw) Woof, Robert
Fraser, Rt. Hn. Tom (Hamilton) Mulley,Rt.Hn.Frederick(SheffieldPk) Wyatt, Woodrow
Freeson, Reginald Murray, Albert Zilliacus, K.
Garrett, W. E. Neal, Harold
Garrow, A. Newens, Stan
Ginsburg, David Noel-Baker, Francis (Swindon) TELLERS FOR THE NOES:
Gourlay, Harry Norwood, Christopher Mr. Howie and Mr. Fitch.
Greenwood, Rt. Hn. Anthony Oakes, Gordon

1.30 p.m.

Mr. MacDermot

I beg to move Amendment No. 483, in page 129, line 31, to leave out sub-paragraph (3) and to insert: (3) If the person making the disposal acquired the asset—

  1. (a) by a transfer by way of sale in relation to which an election under paragraph 4 of Schedule 14 to the Income Tax Act 1952 was made, or
  2. (b) by a transfer to which paragraph 6 or paragraph 7 of Schedule 6 to the Finance Act 1952 applies,
(being enactments under which a transfer is treated for the purposes of capital allowances as being made at written down value), the foregoing provisions of this paragraph shall apply as if any capital allowance made to the transferor in respect of the asset had (except so far as any loss to the transferor was restricted under those provisions) been made to the person making the disposal (that is the transferee); and where the transferor acquired the asset by such a transfer, capital allowances which by virtue of this sub-paragraph can be taken into account in relation to the transferor shall also be taken into account in relation to the transferee (that is the person making the disposal), and so on for any series of transfers before the disposal. The Amendment extends the provisions of subsection (3) to cover two similar situations. The present provision deals with sales of assets between connected persons. It allows the Revenue, in restricting capital losses by reference to capital allowances, to look at the purchaser and seller taken together. The purpose of the Amendment is to apply the same rule where the asset passes between persons on its written down value for capital allowance purposes.

Amendment agreed to.

Further Amendments made: In page 132, line 1, leave out "value" and insert "life".

In page 133, line 26, leave out "the last foregoing paragraph" and insert paragraph 10 of this Schedule".—[Mr. MacDermot.]

Mr. MacDermot

I beg to move Amendment No. 484, in page 135, line 16, after "shall", to insert if the personal representatives so claim".

The Deputy-Chairman

It would, I suggest, be convenient for the Committee to discuss, at the same time, Amendments Nos. 485 and 486.

Mr. MacDermot

That will be convenient, Sir Samuel.

The provision, as amended, will make it absolutely clear that there is an option to the trustees or personal representatives to claim the costs or to pass them on to the persons absolutely entitled, or the legatee, as the case may be. If the costs are passed on, the legatee or the persons absolutely entitled can get an allowance for them. There can be no double deduction. If the trustees or personal representatives themselves claim the costs, they cannot be claimed again by the beneficiary. In addition, the person to whom the property is transferred can, in any event, claim any costs he has himself incurred.

Amendment agreed to.

Further Amendments made: In line 18, leave out from the beginning to "in" in line 19.

In line 22, leave out from "property" to end of line 25 and insert:

  1. (a) any expenditure within paragraph 4 (2) of this Schedule incurred by him in relation to the transfer of the asset to him by the personal representatives or trustees, and
  2. (b) except so far as taken into account under sub-paragraph (1) above, any such expenditure incurred in relation to the transfer of the asset by the personal representatives or trustees,
shall be allowable as a deduction in the computation under this Schedule of the gain accruing to that person on the disposal.

In page 135, line 34, leave out "paragraph 7 (2) of Schedule 23 to "and insert" section 73 (7) of".—[Mr. MacDermot.]

Mr. MacDermot

I beg to move Amendment No. 440, in page 136, line 3, at the end to insert: but so that if the highest part of the said income is taken into account under this paragraph in relation to an assessment to surtax the next highest part shall be taken into account in relation to any other relevant assessment, and so on". Where the shareholder in a closed company has been charged to Surtax in respect of undistributed profits the Surtax is treated as expenditure for the purposes of computing his capital gains and the top-slicing rule applies. This Amendment deals with a case where the notional distributions exceed the top slices of his income. The effect of the Amendment is that the Surtax in question is treated either as the highest part of his income or the highest part that has not already been used up in giving him credit for Surtax in respect of other shares.

Amendment agreed to.

The Deputy-Chairman

The next Amendment is No. 371 and we can discuss with it Amendments Nos. 268 and 269.

Mr. MacDermot

On a point of order. I had meant to consult the Chair on this. There is one other Amendment with this group which has not at the moment been selected. If it is proposed it would be the intention of the Government to recommend its acceptance. In view of that I wonder whether it could be discussed at the same time. It is Amendment No. 451.

The Deputy-Chairman

I think that that would meet the convenience of the Committee.

We can take Amendment No. 268, in page 136, line 12, at end insert: or sold standing for felling. Amendment No. 269, in page 136, line 17, leave out "cost" and insert "value", and Amendment No. 451, in page 136, line 13, at end insert: and, notwithstanding the provisions of subsection 3 of section 21, capital sums received under a policy of insurance in respect of the destruction of or damage or injury to trees by fire or other hazard on such land

Mr. Simon Wingfield Digby (Dorset, West)

I beg to move Amendment No. 371, in page 136, line 20, to leave out sub-paragraph (3).

This Amendment hangs together with the other two Amendments, Nos. 268 and 269. One of them deals with the substitution of the word "value" for "cost" of the growing trees which have been disregarded and the other deals with the case of timber sold standing for fellage.

The Deputy-Chairman

Order. As the Government have announced they would be prepared to accept Amendment No. 451 I think that as it comes on the Notice Paper before No. 371 that it should be moved and that we should discuss the other Amendments with it.

Mr. Wingfield Digby

I beg to move Amendment 451, in page 136, line 13, at the end to insert: and, notwithstanding the provisions of sub-section 3 of section 21, capital sums received under a policy of insurance in respect of the destruction of or damage or injury to trees by fire or other hazard on such land". First, I must declare an interest, as I practise forestry. There is considerable doubt about the Bill as it now stands. One interpretation that has been placed upon it is that between the date of the acquisition and the time of disposal of trees any increment on the growing trees and any new trees planted would be subject to Capital Gains Tax. The purpose of the Amendments is to do away with that and the first argument on which I rely is that trees are a crop, just as much as wheat or barley. Instead of growing in under a year they take a very long time, a minimum of 60 years for conifers; and for oaks—symbolic of Britain—the period is much longer. To plant an oak tree is an act of faith in the future. I am not at all clear about the meaning of sub-paragraph (3), and Amendment No. 371 is an attempt to find it out.

I believe that it would be unjust to apply Capital Gains Tax to a growing crop, and I cannot think of any crop apart from trees to which it applies. It would also be regarded as something of a breach of faith by those who have entered into dedication agreements and approved woodland schemes since the war, and who have gone to considerable expense because they believed that the Government would not introduce new taxes of this kind.

If this tax were to fall on growing trees wherever they were disposed of—by sale or otherwise—it could only result in premature felling. It would be to the advantage of people to fell their trees during their own lifetime, and that would mean that the most profitable tree to grow would be the Christmas Tree. That would be utterly undesirable.

The use of timber for railway wagons and sleepers, and for pit props, is declining, but we have it on the authority of the O.E.E.C. that there will be a timber shortage in Europe during the next 20 years or so. There is, therefore, an economic demand for timber, which will continue, and new uses for it will come in as the old uses go out.

On the question of balance of payments, it is interesting to note that we are at present spending no less than £500 million a year on imported timber. We have about the smallest forest area of any Western European country, and we could assist our balance of payments by growing more timber. I should have thought that this was the very last moment when we should be discouraging people from doing so. It is true that a lot of work is done by the Forestry Commission, but the Commission has its hands full. In addition, the private woodland owner has a great part to play in growing more trees, and thereby saving foreign exchange.

I hope that the Financial Secretary will be able to give a firm assurance that Capital Gains Tax will not fall on the growing timber.

1.45 a.m.

Mr. MacDermot

I think that I can give the Committee the assurance for which I am asked. As hon. Members will know, there are special provisions in Income Tax law for dealing with the taxation of standing timber. In various circumstances, the taxpayer can choose to have the matter dealt with under either Schedule B or Schedule D. They will probably also be aware, as many other people are, that these provisions are open to a certain amount of abuse, but that may be a reason for looking at the provisions to see whether something should be done to tighten them up. That is a matter to which, no doubt, my right hon. Friend will give attention in the future.

But it is clear that it is right, as is suggested, that there should be some sort of special treatment for purposes of Capital Gains Tax as there is for purposes of Income Tax.

I should like to make the position clear on the Amendment that we are discussing—No. 451—which is to cover the position where timber has been burned down and an insurance payment has been made. We are grateful to hon. Members for drawing our attention to the point. It was unintentional that Capital Gains Tax was leviable in these circumstances. We certainly did not intend to produce that effect, and we are happy to accept the Amendment, which will exclude it. We accept the other Amendments in principle. We think that we can perhaps improve their drafting somewhat, so I ask that they should be withdrawn.

As to Amendments No. 371 and No. 269, the effect of paragraph 18 as drafted is broadly to preserve the favourable treatment enjoyed for Income Tax purposes by the owners of woodlands—that is to say, not to take back by way of Capital Gains Tax any relief which woodlands owners may have obtained under the existing tax provisions. As sub-paragraph (3) is drafted, by adopting the measure of the original cost to determine the part of the sale price of the woodlands which is to be cut out of the sale proceeds when the woodlands are sold, the increase in value by reason of the growth of standing timber is in effect brought into charge to Capital Gains Tax when the woodlands are disposed of with the timber standing, whereas there would be no such charge if the owner sold the timber separately. We think that the point raised on this Amendment is quite a good one, and we are glad to accept the Amendment in principle.

The object of Amendment No. 268 is to make it clear that the sums derived from the disposal of trees sold standing for felling by the purchaser are outside the scope of Capital Gains Tax where the amount is assessed under Schedule B. Paragraph 18(1) was intended to have this effect, and would have been so interpreted by the Revenue, but doubts have been raised as to whether the wording achieves this object. We shall be happy to introduce an Amendment making this quite plain. The principle of the Amendment is accepted, but we think that we can improve the wording.

The Earl of Dalkeith (Edinburgh, North)

Before I say anything else—I do not need to say a great deal in view of the way in which the hon. and learned Gentleman has responded—I must declare my interest as one who has been closely associated with and involved in the growing and production of trees ever since the age of about 5. I must say how very glad we are that the hon. and learned Gentleman's heart has not been so hardened by the cries of anguish which have echoed round the Chamber since the start of the Finance Bill that he has been able to look with some sympathy at these very obvious points.

I am also very thankful that the hon. and learned Gentleman has taken trouble personally to try to understand the very complex matters of taxation in respect of woodlands. The fiscal position with regard to woodlands is a matter of crucial concern to the possibility of growing trees in this country. We are also grateful that he has made genuine efforts to rectify what I think we might generously assume was a drafting error in the first place. Nevertheless, it is an error which would have completely reversed the policy of previous Governments, including the post-war Labour Government.

To give credit where credit is due, Sir Stafford Cripps, Mr. Dalton and others certainly rendered a very good service to the nation and to forestry in aiding the recovery of forestry after the devastation of the war. The error would have had serious consequences for the next 100 years had it not been put right. I think that the hon. and learned Gentleman will agree that the wording of paragraph (3) is very obscure, and I hope that when he looks at it from the point of view of redrafting it in the light of our Amendments he will take into account a number of ideas and suggestions.

I should like to ask for clarification—although, naturally, I do not expect answers at this stage of the morning—because I think that the answers will also guide the hon. and learned Gentleman in finding the right wording to effect what is desired. We are very happy to note that trees themselves are not to be taxed as a growing crop—they are quite obviously in the same category as farm crops—but when the Minister comes to redrafting to improve on our drafting, would he ensure that forestry is made no less viable as a result of any fiscal changes? It is already a very marginal industry indeed.

Secondly, I hope that the hon. and learned Gentleman will remember that forestry plays a most significant part in supporting the national economy and the balance of payments, as well as having an important contribution socially in that it helps to arrest the drift or even reverse the drift of population from our outlying districts.

Thirdly, forestry will be affected in a most profound way in the next 100 years by the fiscal incentive which is—or, equally important—is not given now. It should not be forgotten that we are importing no less than 90 per cent. of all our timber requirements at a cost of about £500 million during the past year and that we have a far smaller percentage of our land under growing trees, at 6 per cent., than is the case with the rest of Europe, at 26 per cent. The Food and Agriculture Organisation has forecast a growing shortage of timber in the world, as the readily available supplies from Russia and Canada are used up. Europe has become a net importer of timber for the first time, but almost every other European country has learnt the lesson and embarked on a major expansion except Britain. The Zuckerman Report, 20 years ago, recommended 5 million acres, but we have only achieved 2½ million so far.

Although there will be a 70 per cent. rise in home forestry production in the next decade, this will still only just enable us to keep pace with rapidly rising consumption. Forestry, when carefully harmonised with agriculture, need not mean reduced agricultural output. Sweden, which is a country which supplies us with timber and with which we have to compete for a price, also gives fiscal incentives to its growers and also generous grants, for example, for road making. That is something which we do not enjoy.

From the taxpayers' point of view, it is cheaper to provide trees through the private sector than through the State, although we must have an expansion of both sources. The experience which is borne out in Sweden—although that is a country which suffers from an almost permanent Socialist government—

Mr. W. Baxter

On a point of order, Sir Samuel. We may be interested in this history of growing trees, but the Amendments have been accepted by the Government and what the noble Lord is now saying has nothing whatever to do with the Amendments.

The Deputy-Chairman

The Government, as I understand, are prepared to accept the Amendments with modifications. I understood that the noble Lord is putting forward his reasons for modifications.

Mr. Baxter

That is not the point upon which the noble Lord is addressing the Committee. He is making remarks about aspects of tree growing in Sweden which, he tells, us, is a Socialist State, and which we should follow. I agree with that, but surely he is out of order.

The Deputy-Chairman

The noble Lord is speaking on whether there should be fiscal concessions in this country, and I think that that is in order.

The Earl of Dalkeith

I think that these are relevant points which may help the Financial Secretary in introducing the right phraseology when the time comes.

Sweden is a good example of a country which gives fiscal benefits and recognises that the private sector is the cheapest way from the taxpayers' point of view of producing timber. Sweden has 20 per cent. State forestry and 80 per cent. private sector of the forestry industry whereas in this country, in terms of acreage, it is 61 per cent. State and 39 per cent. private. The private sector is still recoving from the war. The first Labour Government began to aid this recovery, and we must go on with this longer yet.

The first of the Amendments deals with trees felled or cut. It is important that we should have an assurance that the definition includes trees which have been blown down or uprooted by the wind, because clearly they are in exactly the same category.

The Minister raised the question of abuses. I know that it has been in the mind of the Treasury that there are abuses about Schedules B and D and the permissive way in which a woodland owner can switch from one to the other. I assure the Minister that the Forestry Committee of Great Britain, which is the body recognised by the Government as being the spokesman for forestry, has been and always will be pleased to discuss any way in which it can help to catch anybody who is going in for abuses of these provisions. I am sure that it will be pleased to help in the future.

At the same time, when accusations of abuse are made, it is worth remembering that the forestry syndicates who are usually the target are providing the nation with a worth-while reserve of trees at a cost a great deal lower from the taxpayers' point of view than if it were being provided by the State.

I apologise for hurling questions at the Financial Secretary in the early hours of the morning and I accept that it is unreasonable to expect him to answer them straight away. I hope however that he will incorporate some of these ideas in the changes which he is to make.

Mr. Michael Noble (Argyle)

At such an early hour of the morning I should start by declaring that if I have any interest in forestry it is very much diminished since I ceased to be Secretary of State for Scotland.

We are grateful to the Financial Secretary for what he said. Once again, this was one of the occasions in the Bill on which those who read the Schedule thought that they were the target of some animosity on the part of the Chancellor of the Exchequer. Many times over the last days of the debate we have heard about the aims of those on the Treasury Bench, but it has become clear to my right hon. and hon. Friends that their aims and their targets have not always been very well aligned.

We were, therefore, pleased last week at Question Time to hear the Secretary of State for Scotland say that it was still the Government's intention to support private agriculture fully. This, he realises, as I hope his hon. and right hon. Friends realise, is sensible for three main reasons. Private enterprise in forestry has done practically all the research, it has been an example in most cases of good land use and it has been the pioneer of the careful and economic use of timber.

For all those reasons, it is in the interest of the nation that it should be supported. This is the underlying reason why the Financial Secretary has accepted the principle of the Amendment and is hoping to inform private woodland owners that their future in growing trees and in playing their part in the country's timber production is assured.

2.0 a.m.

I echo the warning sounded by my hon. Friend the Member for Edinburgh, North (The Earl of Dalkeith), that it is very easy—I have some experience of this—for the Treasury, when it says that it will give something away with one hand, to try to claw it back with the other. I hope that the Financial Secretary and the Chancellor, when they consider the problem of the Schedule B and Schedule D tax, will carefully consult the people who know the industry and its problems. Although there may often appear to be abuse, I believe that, in fact, there practically never is abuse. This is a most important aspect of the growing of a crop which normally takes 50 or 60 years.

Viscount Lambton (Berwick-upon-Tweed)

Like other speakers from this side of the Committee, I declare an interest in this subject, and I associate myself with the thanks expressed to the Financial Secretary for having considered these Amendments in such a responsive manner. I understand him to say that this elaborate assembly of words which we have here on the Notice Paper will be taken simply to mean that growing timber will not be liable to Capital Gains Tax, but that the land on which it grows will be so liable. If that is so, we have got a quite considerable concession on the actual meaning of the words as printed.

What is to be the position of private woodlands which are owned by discretionary trusts? In the 10-yearly valuation which, I gather, the Government conceive should be taken, will land which has been cleared for replanting be revalued, and will the difference between the land under woodland and after clearance be liable to Capital Gains Tax? The point is obscure at the moment, and I hope that the Financial Secretary will be able to give some guidance on this rather complicated point now or a later stage.

Mr. MacDermot

I have been asked one or two rather technical questions, and those hon. Members who have put them have been kind enough to exonerate me from the need to reply immediately. I should like time to consider them properly and be ready to answer them when I bring forward the Amendments which I have promised for the Report stage.

I shall not seek to reply to the wider debate we have had on the subject of forestry. I have found it interesting and an agreeable relief from the rather tedious technicalities of most of the Amendments I have been moving.

Mr. Wingfield Digby

I thank the Financial Secretary for the assurance he has given on Amendments Nos. 268 and 269, that he will incorporate something on these lines at the next stage. In the circumstances, I should not wish to press Amendment No. 371.

Amendment agreed to.

Mr. MacDermot

I beg to move Amendment No. 159, in page 136, line 22, to leave out "by way of sale".

Just to show that we do not wish to claw back what we have just given, this is another Amendment to assist the owners of woodlands. It is to remove an unintended limitation on the meaning of "disposal" in paragraph 18 (3).

Amendment agreed to.

Further Amendments made: In page 137, line 2, at beginning insert "charged or".

In page 137, line 2, after "profits", insert: taxed or as the case may be".

In page 137, line 11, leave out "paragraph 6 (5), (6)" and insert: sub-paragraphs (4) and (5) of paragraph 6"—[Mr. MacDermot.]

Mr. MacDermot

I beg to move Amendment No. 441, in page 137, line 19, after "elsewhere" to insert: or which have had such quoted market values at any time in the period of six years ending on 6th April 1965". This is an Amendment to enable the shares of companies in liquidation on Budget day to be valued at their Budget day values and not by time apportionment, which could, in some circumstances, work unfairly to the taxpayer.

Amendment agreed to.

Further Amendment made: In page 140, line 39, at beginning insert "by".—[Mr. MacDermot.]

Mr. MacDermot

I beg to move Amendment No. 164, in page 141, line 26, at the end to insert: (3) For the avoidance of doubt it is hereby declared that an election under this paragraph is irrevocable This is substantially a draft Amendment to remove a possible element of doubt.

Amendment agreed to.

Further Amendments made: In page 142, line 2, leave out from "unless" to "a" in line 3 and insert "if dealt with on".

In line 4, leave out "or" and insert "they".

In line 4, leave out from "treated" to "but".

In line 11, leave out "have been" and insert "is".

In line 43, at beginning insert "by".—[Mr. MacDermot.]

Question proposed, That this Schedule, as amended, be the Sixth Schedule to the Bill.

Sir Charles Mott-Radclyffe (Windsor)

I do not think that we can pass this Schedule without a short—I hope short—further discussion to elucidate what is in the mind of the Government about the rather difficult problem of valuation and how the valuation of a capital gain is to be assessed on property when it was let on Budget day but on the date of the next transfer of ownership it is with vacant possession. My hon. Friend the Member for Norfolk, South (Mr. J. E. B. Hill) referred to this on Clause 31, but I was not certain whether the right hon. Gentleman had appreciated the point, and the Amendment in the name of my hon. Friends and myself has not been selected. We were concerned to try to put the point principally in terms of agriculture, though it has wider implications in terms of any other property as well.

The best way of explaining the problem is to take an example of the sort of circumstances which happen year in and year out. Let us suppose that on Budget day, 1965, a farmer owns two farms, A and B each of 300 acres. They are next door to each other, and are of the same value and type. The farmer farms one himself, and he lets the other to a tenant.

Let us suppose that the tenant of farm B is killed in a motor accident in June. Farm B therefore comes in overnight with vacant possession. It could be argued that by reason of the unexpected death of the tenant, farm B suddenly acquires a notional accretion in value of perhaps as much as £100 an acre because of the scarcity value of any farm with vacant possession. This is due to the operation of the 1947 and 1948 Acts which, very properly, gave complete security of tenure to the tenant, thereby creating a scarcity value for any farm with vacant possession.

The asset has not been realised. All that has happened is that the tenant has died. The land is the same as it was the night before he was killed. The buildings are the same as they were the night before he was killed. The ditches and fences are the same. The only difference is that the tenant has died and the farm is theoretically available with vacant possession. This theoretical vacant possession value has not been realised, and will not be realised until there is a change of ownership.

Now let us suppose that the owner dies in December. His two farms will be assessed for payment under the Capital Gains Tax. The farm that he farmed himself will probably not attract the Capital Gains Tax at all, as it is unlikely there will have been much appreciation in value between April and December. But the farm that had been let on Budget day, and which subsequently had vacant possession because of the death of the tenant, will have increased considerably in value.

The farmer might have taken the farm in hand because he wanted to put in his son who was about to obtain an agricultural degree and wanted to farm, and if he let it to another tenant his son would have no chance of getting the farm.

There we have two identical farms next door to each other, one attracting no Capital Gains Tax at all because it was owner occupied on Budget day, and the other attracting a huge Capital Gains Tax because on Budget day it was let, though on the date of death it was in hand. If it was a farm of 300 acres, and if the notional appreciation in value was £100 an acre, Capital Gains Tax would be assessed on about £30,000.

2.15 a.m.

This is a staggering figure in respect of the difference between two identical farms. The unfortunate son, so far from being able to go into the farm, would probably have to sell it. There would be no other way by which he could realise the capital gain on the assessment. If there is to be this rather absurd and anomalous difference in value between a farm with vacant possession and a farm subject to a sitting tenant on Budget day, and a farm with vacant possession and a farm subject to a sitting tenant on the date of death or transfer of ownership at a later date, all that will happen is that farms to rent will not be anything like so easy to come by, because anybody who might have a farm to let will be very unwilling to risk letting it again. I should think that in the long run this is not in the best interests of agriculture either in the short term or the long term. I am not sure about the position in Scotland, but in England and Wales slightly less than 60 per cent. of farms are owner-occupied and slightly over 40 per cent. are rented. This proportion will vary from time to time, but I am certain that the National Farmers' Union would be very unwilling to see the proportion of rented land greatly diminish. I do not think that this is a good plan, when a young man who wants to farm cannot find a farm to rent. It is a very good way to learn to farm when the fixed equipment is the landlord's capital.

If the hon. and learned Gentleman will not accept the principle that the Capital Gains Tax ought to be based upon like with like he must accept the converse. If Capital Gains Tax will accrue on the difference between land subject to a sitting tenant on Budget day and the notional value of land with vacant possession on the date of death of, or transfer by, the owner, he must accept that there will be a claim for capital loss accruing if the farm in question was with vacant possession on Budget day but was let on the date of death of the owner, or the next transfer. That would normally be a depreciation in the value of the farm, and would clearly be accounted for as a capital loss.

The hon. and learned Gentleman cannot have it both ways. I want to know what views he has on this admittedly difficult problem of valuation as between Budget day and the date of the transfer of ownership, whenever it may be, bearing in mind that it might be a very long time ahead. This will have a great impact upon the future of agriculture and the proportion of owner-occupied as compared with rented land.

Mr. More

I support what my hon. Friend the Member for Windsor (Sir C. Mott-Radclyffe) has said on this rather complicated matter. The Financial Secretary is entitled to say that there is an option which the taxpayer can choose in a case of this kind—that is to say, he can either choose the valuation on Budget day, as in the example given by my hon. Friend, or the method of calcu- lation by the line that comes from the date of acquisition up to the date of the ultimate disposal.

In either case the anomaly is still there. To illustrate the sort of thing that can happen if the alternative method is adopted I worked out the case of a 200-acre farm which, let us say, was acquired one year before Budget day, and was disposed of three years after Budget day. Let us take the case of the farm which is valued on acquisition at £100 an acre, which is a reasonable value nowadays for a tenanted farm. My hon. Friend suggested that the effect of vacant possession might be to add another £100 an acre to the value. That would certainly be an under-estimate in my part of the country. This is a steadily increasing gap in values. In my area, there are already cases where the gap is as much as £200 an acre. I have, therefore, taken as an example a case where, within three years after Budget day, this gap has increased to £200 an acre.

Suppose that, in the circumstances suggested by my hon. Friend a disposal takes place three years after Budget day on a farm of this size and value. According to my calculation, the Capital Gains Tax will have to be paid on £30,000. At 30 per cent., that means that a cheque will have to be written for £9,000. The Financial Secretary may say that where there is a question of an actual realisation or sale, that is perhaps something which can be borne, but we are faced all through the Bill with cases of disposals which are not realisations, which are "deemed" to occur. This situation can arise when somebody dies, or when it is desired to transfer the farm.

In a debate which we had on a previous agricultural issue, the Financial Secretary said that he could see no logical ground for making an exception in favour of agriculture. I suggest that the logic here is on our side, that is to say that what we want to do is not to make an exception but to remove an anomaly. What is at fault here in the context of agricultural land is the valuation formula. What has happened is that in the comparison of the two figures, the acquisition and the disposal, the acquisition figure has been artificially reduced by the effect of the 1947 Agriculture Act.

I therefore hope that the Chancellor will see his way to introducing the printo that put by hon. Friends the Memfor Windsor described as "like for like"; bearing in mind that converse cases can arise which could be to the detriment of the Revenue; and bearing in mind also that with the way in which values are now going, the cases sought to be protected by the Amendment which is not selected are likely to be far more than the number of the converse cases—purely on the way in which values are now going. I beg to support my hon. Friend the Member for Windsor in what he has said.

Mr. Graham Page (Crosby)

I should like to put a point which is very similar to that put by hon. Friend the Members for Windsor (Sir C. Mott-Radclyffe) and Ludlow (Mr. More). They put their point in relation to agriculture, but I think that the same point arises, in principle, with regard to controlled dwellings.

The Schedule does not take into account any present statutory depression in the value of certain dwelling-houses. There is no doubt that in London and some other parts of the country there is a considerable difference between the value of a property with a controlled tenant in occupation, and the value of a property of which the owner may have obtained vacant possession.

There may be two identical dwelling-houses side by side, one with a controlled tenant and the other without a controlled tenant. The one without a controlled tenant may have arrived at that state purely fortuitously, through death or the tenant leaving or a reletting of the property. But the difference in value between the two properties may be very substantial.

If, at some future time, the present controlled tenancy comes to an end, and that property is sold, the difference between its value in April, 1965, and the sale price will be far greater than the difference in value of the uncontrolled property in April, 1965, and the price at which that might be sold. In fairness between two taxpayers in that position, this Schedule should take into account that fact that there may be in a certain dwelling-house a controlled tenancy and the value of the dwelling-house will thereby be depressed through no fault of the owner, but by Statute. In fairness between one taxpayer and another the Schedule should give some direction that property subject to a controlled tenancy in April, 1965, should be valued as if it was not subject to a controlled tenancy. That would make for fairness between one taxpayer and another who owned for example, identical houses which were side by side.

Mr. J. E. B. Hill

Before we part with the Schedule I would like to enter a caveat. I am surprised that so few Amendments, other than Government Amendments, have been put down and that so few questions have been asked. This Schedule is one of the most complicated in the Bill and the one which most affects the practitioners of various kinds in trying to implement its provisions. I am sure that the reason is that the weight of legislation in the Bill has blown the fuses of all the professional bodies which usually consider the details of Bills and make representations to us.

There are many questions which it would be wrong for me to raise at this stage. Although I have an interest in some of them I am not sure what will be the extent of the effect of the Bill on those interests. Many questions should be asked at a later stage and I hope that the Government will take steps, between now and then, to have adequate answers ready. There are questions of degree and new records which are required to be kept. There is the problem of valuation in all its practical aspects and the grave problem of the administrative burden that this provision will place on the accounting departments of businesses and the Inland Revenue. A difficulty will arise for small farmers and businesses which do not have accounting departments capable of dealing with the provisions of the Schedule.

I hope that at a later stage we will get answers to the questions which I am sure will come forward.

Mr. MacDermot

The first three hon. Members opposite to speak on this subject raised the issue of the increase in value following the obtaining of vacant possession. They suggested, particularly the hon. Member for Windsor (Sir C. Mott-Radclyffe), that there was something notional in this increase and that one should compare like with like and that it was not fair to tax the increase in value on vacant possession. I entirely disagree when they say that this is not comparing like with like. We are concerned here with land and the owner's interest in that land has to be valued. If there is an unrestricted freehold the interest is far more valuable than if there is a reversion of a tenancy or a reversion of a lease. What happens when vacant possession is acquired in these circumstances is that a restricted interest in the land is converted into a full and unrestricted interest in the land, and this is the clearest possible example of a capital gain.

2.30 a.m.

To take the example cited by the hon. Member for Crosby (Mr. Graham Page), it is well known that some people—and I am not now talking about Rachmans, or anybody like that, but about quite normal and properly advised investors—deliberately invest in properties which are occupied by elderly statutory tenants for the simple reason that the investors have the prospect of making a substantial capital gain when such a tenancy comes to an end. That is the purpose of the investment.

The investors know that they will get only a small income during the few remaining years of the tenancy, but they have the prospect of a substantial capital gain which, up to now, has been tax free. It is precisely to bring that kind of increase in wealth within the tax net that we are introducing the Capital Gains Tax. Therefore, at the outset I cannot accept the idea that there is something wrong with taxing this sort of capital gain. As I said earlier, this is a classic example of a passive capital gain which should be subject to tax.

Mr. Lubbock

Would not the hon. and learned Gentleman accept that at one time there were people who bought houses, which were let at controlled rents, without any thought of capital gain whatsoever? I am thinking particularly of people who have been landlords of controlled property since a date prior to the last war. Does he not think that they have some grievance, considering that they have had statutory tenants in their property for upwards of 30 years and are now to be prevented from realising any gain?

Mr. MacDermot

They will not be prevented from realising any gain on it. All that will happen is that they will be taxed on the gain when they realise it, because it is a substantial increase in wealth of a kind which falls squarely within the ambit of the tax.

The example which was given to lend support to this argument was that of the farmer who had two neighbouring farms, one of which he occupied himself while letting the other to a tenant, the tenant then being killed in a motor accident and the farmer acquiring vacant possession. There is nothing notional about that increase, for by that accident the farmer would have achieved a considerable increase in his capital. There are two possibilities: one is that he relets the farm, in which case he is back in approximately the same situation as before; or he can hand it over to his son, and if he does he is keeping this capital increment within the family. He will not have chosen to realise his gain in cash by selling the farm. In other words, he will have made a present of that capital gain to his son and there is no distinction to be drawn between that and any other case when people make gifts of assets which result in the transference of capital gain. That is an occasion for charge and must be made so if the tax is to be effective.

It was suggested that the effect of this provision would be a deterrent to people to let farms. For the example which the hon. Member for Windsor gave, I should have thought that it would operate the other way, because if the farmer wants to avoid paying the tax, the way to do it is to relet the farm.

Sir C. Mott-Radclyffe

The point I was making was that if someone wants to put his son or son-in-law into a farm or farms, his only chance of doing so is not to relet the farm when it happens to come in with vacant possession. Once he has relet it to a tenant, there is not the remotest chance, during the lifetime of that tenant, of ever getting possession again. Therefore, the only effect of the provision will be that there will be less and less rented land available.

Mr. MacDermot

But that is already the case and results from the security of tenure provision for tenant farmers. I do not know whether the hon. Gentleman is suggesting that we should repeal the Agricultural Holdings Acts, but I imagine not and this state of affairs results from those provisions and is not the effect of the Capital Gains Tax. We are then told that we ought not to try to get it both ways. Certainly not; of course we do not.

The other example he gave was where the assumption was that at the beginning of the given period the farmer had vacant possession and then at the time he died the farm had been let. The result, therefore, would be that there would be a loss. This could be set off against the other capital gains in his possession so the valuation could be carried forward. We certainly intend to apply this logically and fairly.

The wider part of the argument put forward, particularly by the hon. Member for Ludlow (Mr. More) was really raising again the question of death being an occasion of charge. This is a case where, having realised a gain, instead of reletting or selling the farm one assumes that the farmer hands over to his son and dies shortly afterwards; the son is then farming the land and may have difficulty in raising the money to pay the Capital Gains Tax and the death duty. In the particular example, where the man had two farms, he presumably would not be in the same difficulty because he would not be farming both. There is a special death exemption of the first £5,000 of gains and we are considering other aspects, which were raised in our debates, of the case where the farmer gives a farm to his son before death. We are considering whether there should be some element of exemption there.

Another case was where a farmer retires and sells a farm to provide for his retirement. These sorts of special circumstances we have undertaken to look at again. I could not accept the argument that there is something notional in the increase in value that results from obtaining vacant possession and that should be exempted from the charge.

Mr. James Scott-Hopkins (Cornwall, North)

The Financial Secretary will remember that on Clause 31 I did raise the subject of the 1947 Act and its implications. I think that it is possible to argue that someone who has bought land from a farm since 1947, with a tenant sitting in it, does so at a lower price and knows that he is doing so. If the tenant dies then he gets vacant possession and, if there is a capital gain, it is possible to argue that the profit which would accrue might be chargeable to the Capital Gains Tax.

The Financial Secretary made the point earlier that the whole point of the Capital Gains Tax is that the owner has unrestricted interest in the land. But what about before 1947? It was because of the act of the Government in 1947 and 1948 that he lost his unrestricted interest in the land on giving security of tenure to the tenant. I accept that is right and proper.

But before the act of the Government, the owner did have an unrestricted interest. In the case of ownership of land before the Agriculture Act, 1947, where now there is disposal of than land, the valuation should be on a life to life basis. For those people who did have an unrestricted interest before 1947, should disposal occur now with capital gains accruing, then the valuation should be on a life to life basis for that category only. Since the 1947 Act changed the basis of interest in land, the Capital Gains Tax should not apply to dealings before that date.

Mr. MacDermot

I will check on that point. I think that the answer to the example the hon. Gentleman gave is that in such a case, assuming that it is farming land and not development land, the time valuation alternative would be available. It would be measured against the pre-1947 Act value. I believe that that would be the base point.

Mr. Scott-Hopkins

I am grateful to the Financial Secretary for that answer.

Mr. MacDermot

I will have to check on it.

Mr. Scott-Hopkins

I am sure that that must be the answer. I hope that the hon. and learned Gentleman will, however, give an assurance that he will look into the matter and, if necessary, put things right at a later stage if they are not as he described.

Question put and agreed to.

Schedule, as amended, agreed to.