HC Deb 25 January 1967 vol 739 cc1675-82
Mr. Rossi

I beg to move, as an Amendment to the words so restored to the Bill, in page 58, line 19, to leave out from 'chargeable' to the end of line 26 on page 59 and to insert 'on any charity'.

I trust that this Amendment will commend itself to the House if only for the reason that it seeks to replace some 50 lines of print by three words. Any Amendment which does this should commend itself immediately to hon. Members on both sides of the House.

The purpose of the Amendment is clearly to exempt charities from all betterment levy. As the Bill stands, a distinction is drawn between the purposes for which a charity holds land. During the Committee stage the Minister stated that there are three ways in which a charity may hold land. It may hold it for functional purposes—that is, the actual use purposes of the charity. There, we were told, it was exempt from levy because it was quite impossible to calculate the base value of the land that was being used by a charity for its functional purposes, and therefore the Government could conceive no way of being able to charge a charity with levy on its functional land. The inference seemed to be that if they could have found a way they would have done so.

The second way in which a charity may hold land is for the purposes of its endowment. There we were told that it was not the Government's intention to charge the levy, because some compromise had been reached with the charities over that matter.

The third way in which a charity may hold land is for investment purposes. The Government propose, through the 50 lines of print, to charge charities betterment levy when they deal with land they hold for such purposes. That is a complete departure from the Government's traditional attitude on charities and fiscal matters. Right through our Income Tax measures, Capital Gains Tax and other fiscal matters, charities have traditionally been exempt to help them with their work, which has always been considered to be in the social interest.

It is now felt that they must be charged when they dispose of their investment land and convert it, for example, into stocks and shares. Although the interest from those stocks and shares will continue to bring money into the charities to be used for charitable purposes, the Government say, "Before you do that we shall take a cut from you." That is a complete departure from the traditional attitude. It has been argued that this is not a tax. The Government say, "We are not really taxing a charity; we are merely raising a levy on it." But, as was so aptly said earlier this evening, the distinction between a levy and a tax is too fine for the paying party to appreciate.

A charity will have to pay money to the Government by way of fiscal charge, to use a neutral term, whether that is called a levy or a tax. We regret that this departure from the traditions of our approach to charities should be made in that way. We hope that even at this late stage in the Bill's progress the Minister will soften his heart towards charitable purposes and not try to take a cut from the charities, but leave their money where it is so that it continues to be used for good social work.

Mr. Body

It is very sad that the Government cannot give way on this matter. Since time immemorial, charities have been immune from taxation, and for generations they have sought to invest their proceeds in land. One would have thought that that was a right and sensible thing for trustees to do, because land has a certain constancy of value, but the Bill will make charities seek other outlets for their funds. The Government will drive them into investing in the Stock Exchange and elsewhere, where the risks will be greater and where the sensible trustee would be loath to move.

I hope, therefore, that the right hon. Gentleman will reconsider this. It is obviously sensible for the trustees of a charity to put their surplus funds into land, as they have done for generations. They know that that land will always have a certain value and will not just disappear overnight, as an investment on the Stock Exchange or elsewhere might. The effect of the Bill is that trustees will shy off land and will invest elsewhere. I do not believe that that is wise for beneficiaries. It is not good practice, and hardship may result.

I hope that the right hon. Gentleman will not adopt some tortuous division between a levy and a tax. Legalistically, there may be a difference, but a board of trustees considering the best way in which to invest its money will not be influenced by that sort of legalistic difference. It will be a payment out to the Government, and trustees will not heed any nice distinction between the concept of taxation and that of a levy.

I very much regret the Government's decision. It is a departure from a very long and well established tradition. It has been well recognised by the courts for many years. I hope that the right hon. Gentleman will reconsider this, because it will be a bad day for charities if their funds go elsewhere.

Mr. Boyd-Carpenter

I support what has been said about the Government's proposal being a departure from the well established principle that charities do not have direct taxation imposed upon them. The reason for it has been obvious. The State has thought it wrong to abstract from charitable uses into its own coffers funds which otherwise would go to promote the efforts and work of the charity. It has accepted that, if work is charitable, it is in the public interest, and the State should not diminish the funds otherwise available for that purpose.

On an earlier Amendment, I pointed out the difference in the line being taken by the right hon. Gentleman and the line taken by his right hon. Friend the Chancellor of the Exchequer. We had the recent example of the Selective Employment Tax. It is true that, when the Chancellor introduced his Budget, charities would have been liable to pay S.E.T. without refund. When the point was put to the Chancellor, he had the good sense and judgment to withdraw from that position and introduce an Amendment under which S.E.T. is now repaid to the charities which pay it. That seems to be a very good example and precedent for the right hon. Gentleman, and it comes once again from the supposedly hard-faced tax gathering Department which again has shown sensitivity, after an initial mistake, to the needs of charities.

The whole question of whether a charity in a particular case is liable for the levy will obviously be a very difficult one. One has only to look at the 50 lines of the Bill regulating the matter to see what a problem it will be, particularly for the smaller charities with the small patch of land and without, necessarily, high-powered legal advice. That of itself is quite a burden.

Before the right hon. Gentleman replies, I want to put to him in general terms a case in which I have a particular concern. Take the case of a charity in the form of a direct grant school that owns its own site in an urban area, which is a valuable site from the point of view of development. It desires for good educational reasons to move further out into the country, where there is more room, financing the purchase of its new and more spacious site by the sale of its old premises in the town. There must be many similar cases. I am not clear from my study of the Bill, but in a case where such a school sells what has been its functional land, but will be no longer its functional land, to finance the purchase of its new functional land, will it be bound to pay the levy?

That will be of decisive importance to many first-class institutions. I do not pretend to understand the phraseology of the Clause. It may be the case that the Bill exempts that type of land. If that is so, I should be grateful to the right hon. Gentleman for a clear statement giving that assurance. If he cannot, that strengthens the case for the Amendment.

I return to the point that to impose this levy on any aspect of charitable activities seems to be foolish and contrary to well-established custom, and falling far below the standards which, in one respect, I am glad to see that the Treasury has followed.

1.0 a.m.

Mr. Willey

I am obliged to the right hon. Gentleman. He has revealed something which I did not appreciate before, namely, that there is a misunderstanding in the House about the provisions that we are making. I have complained, and will go on complaining, about the misrepresentation outside the House, and the impression that has been deliberately created that the levy applies to all charities. That is not so. By and large, all charities are exempt. The right hon. Gentleman has given me an opportunity of emphasising this, because he has given an illustration of a case where the charity would clearly be exempt from the levy.

I do not want to speak at length because I thought we had a very effective discussion on Report, and there has been subsequent discussion in the Lords. The report of that discussion indicates that no one has been able to say that the charity in which he is interested would be prejudiced by the Bill; most of those who have been critical have said, "We believe that although the charity in which we are concerned will not be affected, other charities may be." One contribution was made about the Cambridge colleges. It was said that the Cambridge colleges had discussed the position and did not think they would be affected, but that some charities might be. I do not want to repeat what I have said previously, because if I had failed to persuade them so far I will not succeed in doing so now.

The levy is not a tax. The levy attaches to land, and taxation is attached to the person. We must realise that the Commission will buy at a net price. We are creating a new price—the Land Commission price—and the levy operates to see that the vendor gets the same whether he sells the land to the Commission or someone else

I admit that I have been illogical, but it is sometimes worth while being illogical. I followed precedent, and said that land used for the purposes of a charity would not be subject to the levy. But I went beyond that and said that I would exempt all permanent endowment land. I did this because one could say that this land attaches to itself the character of the charity.

There remains the question of investment land. That arises where a charity has a surplus income and invests not in stocks and shares but in land, as a sound investment. Current use value is not affected, but a benefit from speculative profit or windfall gain is subject to levy because the land has a development value and has been used as an investment to secure income. I have been accused of using the word "equity" too often, but I will use it once more. We must consider equity. The land has a development value, and it would be wrong to exempt it, whereas it is right, although perhaps illogical, to exempt permanent endowment land.

Mr. Eldon Griffiths

I am glad that the Minister said that, because it helps a little, but I am still rather confused about it. He insists that this is a levy and not a tax, but from the point of view of the charity it does not matter what it is called; it is the amount that they must pay that counts.

I should like to put to him a case which is not hypothetical but is well known to me. As I have not given him notice, I do not expect a detailed reply now. This is an almshouse in East Anglia which, in addition to the land on which the house stands, has a small piece of agricultural land which has yielded what the Minister described as surplus income. It has been a profit-making operation for the benefit of the almshouse and it has enabled some of the elderly people living there to have a somewhat better life than otherwise they would have had. The almshouse charity intends to sell a proportion of that income-bearing property and intends to make a profit and to use the profit for the purpose of building an extension to the almshouse. The charity will be making use of some beneficial land which it owns in order to use the profit for the purpose of the charity, and for no other purpose.

I do not ask the Minister to deal with the case in detail, but could he give me a general answer to this question: if the charity uses surplus yielding land attached to it and makes a profit, will it have to pay the levy if it uses the money obtained from the land for a charitble purpose?

Mr. Bessell

I do not want to detain the House, but I genuinely seek guidance from the Minister. Consider the case of a church in a city area which no longer has a large congregation and which has the good fortune to receive an offer from a speculator or developer. It sells the land on which the church is built at a considerably enhanced price with the express purpose of using the money to build another church in a highly populated area—a transaction that it would not ordinarily undertake. This might enable a church which is dying to serve a new community in quite different circumstances. Would betterment levy be charged and, if so, is not that wholly inequitable?

Mr. Willey

One would have to know the circumstances of the case but, from what has been said—and I make these comments subject to qualification—I would imagine that a question of levy would not arise in the first case. I say no more than that. It would probably not arise because, from the hon. Gentleman's remarks, it would seem to be a case involving permanent endowment land. The same would appear to be the position in the second case. From what both hon. Gentlemen said, I would imagine that no question of levy would arise.

Mr. Graham Page

The Government spokesman in the House of Lords stated —although I do not have the OFFICIAL REPORT of his exact words—that charities were relieved not because they were virtuous but because of the difficulty of assessing them. Is this the principle on which the right hon. Gentleman is proceeding? It is not the principle which I have always thought was recognised in relieving charities from taxation. I thought they have been relieved because they are run for charitable purposes, with any profits and gains being used for such purposes.

Has the Minister chosen to place a levy on land held for investment purposes because it is nice and easy to assess that, and has he disregarded the fact that it is held by a charity, which he would not have relieved had it occurred to him that it was a charity and that whatever gains or profits it makes automatically go to charitable purposes?

There seemed to be something illogical in the right hon. Gentleman's argument. I followed the reason in his mind as to why he had not placed the levy on part of the charity but had placed it on another part. Surely, if there is logic in that, the Chancellor of the Exchequer would have done the same thing with Capital Gains Tax. A charity is relieved of Capital Gains Tax on its investment land. There is no reason why it should not be relieved of the levy. There cannot be any real distinction between the imposition of taxation and the imposition of levy on that investment land held by the charity.

We are, therefore, puzzled as to why the Government should have imposed the levy on any part of charitable property. It is charitable property and any profit or gain is used for charitable purposes. If it is used for any other purpose, then by all means catch it with the levy. But we are talking about a charity that invests its money in land. Whatever gain is made, it goes to charitable purposes and it is wrong that any tax or levy should be imposed on that gain.

Amendment to the words so restored to the Bill negatived.