HC Deb 03 August 1966 vol 733 cc634-6

Lords Amendment: In page 15, line 30, after "expenditure" insert other than payments of income tax (including surtax), capital gains tax or corporation tax.

11.25 p.m.

The Minister of Labour (Mr. R. J. Gunter)

I beg to move, That this House doth agree with the Lords in the said Amendment.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

I want to ask one or two questions about this Amendment. Two questions in particular are relevant. If this Amendment is accepted what will be the position, in the case of a forced sale because a licence has been refused, of an employer who is thereby forced to pay Capital Gains Tax? It would seem to me to be rather unfair that an employer who goes out of business and therefore has to sell up might have to pay Capital Gains Tax on the value of his business when it is not voluntarily that he goes out of business but because he has been liquidated by the action of the Government. If this is so, the Amendment would seem to be rather unfair.

Secondly, what would happen in the case of an employer who is refused a licence and who had to pay compensation or redundancy payments to members of his staff or employees on his payroll and would have to pay Surtax or Income Tax on these payments? Does this Amendment mean that the employer would not be able to be compensated for the Income Tax and Surtax he would have to pay on his employees' redundancy payments?

I should be grateful if the right hon. Gentleman would give us some guidance whether I have interpreted the Amendment correctly.

Mr. Gunter

First, I ought to say that, though this Amendment did not result directly from the port employers, they have agreed to what we have said here. The Amendment relates to Clause 13(2) which defines the compensation to which an employer is entitled if he had to wind up his dock business because of the refusal of a licence.

One element of compensation will be reimbursement of any expenditure incurred in winding up his dock business, and that is provided in Clause 13(1,b). Expenditure in winding up the business would cover such items as legal fees for the sale of land and premises, and auctioneers' fees for the sale of equipment and that sort of thing. But I am advised that if the provision stood as it left the House in the first place, it might also be held to cover expenditure which took the form of certain tax payments, as the hon. Gentleman has said.

Perhaps I could give an example relating to Capital Gains Tax, or Corporation Tax in the case of a company. It could happen that an employer who was refused a licence owned the freehold of a piece of land in the docks as part of his business, and that in consequence of the refusal of a licence he was obliged to sell that land. He might, as a result of the sale, make a capital gain on which he would be liable to pay Capital Gains Tax, or Corporation Tax in the case of a company.

11.30 p.m.

As I understand it, as the Clause stood, he could succeed in arguing that the payment of the tax in these circumstances was an expenditure incurred in winding up his dock business which was directly attributable to the refusal of a licence. If such an argument succeeded, he would then be entitled to compensation equal to the amount he had paid in tax and this amount would have to be paid by the surviving employers in the port, who would meet the cost of compensation through the levy. It would be wrong to allow tax payments of this kind to rank for compensation in this way.

In the example I have given, the only reason the employer in question has to pay the tax is because he has made a capital gain and, so far as that particular asset of his business is concerned—the land he has sold—the net result of his being refused a licence is that, far from suffering a loss, he is making a gain. Even after paying tax he will still have made a gain. It would be monstrous in these circumstances for the other employers to have to refund the tax to him as they would be doing through the compensation levy.

The National Association of Port Employers has agreed that tax payments of this kind should not rank for compensation. Accordingly, the Amendment has the effect that, when computing the winding-up expenditure which would be liable for compensation purposes, tax payments of this kind should be disregarded. An employer would not have to pay income tax on redundancy payments. Such payments are a loss and not a profit. He would be eligible for compensation in respect of redundancy payments. He cannot add to them.

Question put and agreed to.

Subsequent Lords Amendments agreed to.