FOOT-AND-MOUTH DISEASE (COMPENSATION PAYMENTS) (Hansard, 5 March 1968)

§ Sir Gerald Nabarro (Worcestershire, South)
I rise to deal with the taxation of compensation paid for foot-and-mouth disease, which is a dreadfully complex matter. In the course of my speech I shall be guarding my words very carefully in a fashion not to recommend any new legislation or the amendment of the existing law, which would be out of order on an Adjournment debate.
This is now a massive financial matter, due to the extent and virulence of the epidemic which has raged in various counties of England since last October. A sum in compensation has been assessed at approximately £30 million. There have been 2,339 reported outbreaks of the disease, mostly centred in Worcestershire, Shropshire, Herefordshire, Cheshire, Staffordshire, Flintshire, Warwickshire and Derbyshire. So far, 208,800 cattle have been compulsorily slaughtered, 100,700 sheep and 133,400 pigs, a total of 442,900 beasts slaughtered to this date, since the epidemic commenced on 25th October, 1967, on Bryn Farm, Nantmawr, Oswestry. The extent of the compensation assessed, though not entirely paid yet, of £30 million is about ten times greater than in any previous epidemic.
I have been endeavouring to probe the Treasury as to the taxation treatment of compensation paid. The farming community views with horror the prospect of paying any taxation whatever on compensation for the loss of its stock in trade. My first Question was on 21st December last. I asked the Chancellor of the Exchequer for an assurance that compensation paid to farmers for beasts slaughtered under the foot-and-mouth disease regulations would be free of Corporation Tax, Capital Gains Duty, Income Tax and Surtax. The reply I had from the right hon. Gentleman the Chief Secretary to the Treasury—I 398 am grateful to him for staying up to this late hour to support the Financial Secretary—was in these terms: As regards cases in which Section 23 of the Finance Act, 1953, is applicable, I would refer to my Answers to the hon. Member for Banff (Mr. Baker) on 21st November and the hon. Member for Honiton (Mr. Emery) on 30th November. As regards cases outside the scope of that Section, my officials are in urgent consultation with the Ministry of Agriculture and the National Farmers' Union."—[OFFICIAL REPORT, 21st December, 1967; Vol. 756, c. 487.] I, therefore, repeated my Question just over a month later, in identical terms, and I then had an answer from the Financial Secretary, equally procrastinating and unsatisfactory, in these terms: I am not at present able to add anything to the answer of my right hon. Friend the Chief Secretary to the hon. Member on 21st December."—[OFFICIAL REPORT, 23rd January, 1968; Vol. 757, c. 67.] So, with characteristic pertinacity, I repeated the Question another month later. I received an even more unsatisfactory answer, this time from the Chancellor of the Exchequer. My Question was in identical terms, asking for a statement on the taxation treatment of compensation, and the right hon. Gentleman's reply was two words: Not yet."—[OFFICIAL REPORT, 27th February, 1968; Vol. 759, c. 1210.] In other words, his consultations were not completed.
It is true that, if a farmer is not a corporation in the terms of the fiscal Statutes and he is assessed to Income Tax and Surtax alone, he may elect, having taken the proper statutory steps, to be assessed on a herd basis under the 1953 Act. But that covers only a percentage of the farmers of Britain. If he is assessed on a herd basis, he will probably escape taxation on compensation for foot-and-mouth disease at an early date, but on termination of trading or within the passage of a few years—I shall not go into all the complex calculations which would be necessary—he might, even on a herd basis, find himself with some tax to pay on that compensation. But what the right hon. Gentleman the Chief Secretary has scrupulously 399 avoided telling the House so far is that a very large number of farmers in Britain, quite properly, are not assessed on a herd basis. How many thousands of them there are, we do not know. The Revenue might know, but nobody has ever asked this question. Probably there are thousands of farmers who are not assessed on a herd basis.
In those circumstances, the amount of compensation paid for foot-and-mouth disease would have the effect, in the chargeable accounting period in which the compensation is paid, of inflating trading profits which are subsequently assessed both to Income Tax and to Surtax. If it were a limited company, the company would be assessed for Corporation Tax. In the case of pedigree beasts, Capital Gains Tax might well be attracted.
When I first raised this point about Capital Gains Tax, a farmer from one of the lesser shires than Worcestershire said, "But you cannot have Capital Gains Tax on farm cattle". I said, "You think not? Come to Worcestershire, or Herefordshire, and note the value of a few of our pedigree bulls or cows—

§ Mr. Jasper More (Ludlow)
Or Shropshire.

§ Sir G. Nabarro
Or Shropshire. I am delighted to have my hon. Friend the Member for Ludlow (Mr. More) support me.

§ Mr. John Farr (Harborough)
Or Leicestershire.

§ Sir G. Nabarro
Or Leicestershire. I am delighted to have my hon. Friend the Member for Market Harborough (Mr. Farr) support me.

§ Mr. Grant-Ferris (Nantwich)
Or Cheshire.

§ Sir G. Nabarro
Or Cheshire. I am glad to have the support of my hon. Friend the Member for Nantwich (Mr. Grant-Ferris).

§ Sir Harmar Nicholls (Peterborough)
Or Peterborough.

§ Sir G. Nabarro
Or Peterborough. Glad to have my hon. Friend the Member for Peterborough (Sir Harmar Nicholls) support me. We all have pedigree cattle 400 in our constituencies. A matter of £1,000, which is the commencing point for Capital Gains Tax in the terms of the 1965 Act, is a small sum for a pedigree beast. If one talks in terms of £6,000, or £10,000, or £20,000 for a pedigree Hereford bull, one might be nearer the mark, and I hope that neither the Financial Secretary, nor any other incumbent of the Treasury Bench, will suggest that none of these pedigree beasts, be they Herefords, or Friesians, or Guernseys, or others have been slaughtered due to the foot-and-mouth disease. If the records in the West Midlands are searched, it will be seen that compensation of more than £1,000 has often been paid for one beast slaughtered.
Many of these beasts cost £1,000, that is the historical cost is £1,000, but they have been reared, and looked after for many years, and their contemporary cost may be six, or eight, or ten times that amount. On slaughter, unless we receive assurances to the contrary, the Revenue will come along with a Capital Gains Tax assessment. I am not in any doubt about that, and chartered accountants and the N.F.U. support my view. Of course on an Adjournment debate I would not transgress by pleading for a change in the law. I will defer those observations until the Second Reading of the forthcoming Finance Bill, but I have made my point.
The N.F.U. has been consulted in this matter, and it is extremely anxious and worried about the replacement cost factor for slaughtered animals. It is now well known that when this epidemic started last October the approximate replacement value of the beasts slaughtered was assessed, but, due to shortage, and the virulence of the epidemic, over the ensuing months the costs of replacement beasts has steadily risen. It is fair to say that the Ministry of Agriculture, Fisheries and Food has behaved quite generously, and compensation has tended to rise, but the Ministry has also suggested that much of the land on which the stock was reared may be turned over to arable, and to encourage this it is paying a grant of £10 per acre.
In the case of a farmer paid substantial foot-and-mouth compensation and who subsequently does not replace his slaughtered cattle, sheep or pigs but turns his land to arable and takes the £10 401 per acre grant, all the compensation, less a small sum for ploughing up, goes into his accounts as a profit in the chargeable accounting period concerned, unless it were on a herd basis, when it might be a repayment of capital. There is no assurance from the Inland Revenue that such compensation will be spread over several years ahead so as to minimise the impact—

§ The Financial Secretary to the Treasury (Mr. Harold Lever)
I am not clear about the hon. Gentleman's complaint. So that I can answer it properly—I know his difficulties in an Adjournment debate—would he make it clear? Is he saying that we could give concessions to remedy his grievance within the existing law or that we could not?

§ Sir G. Nabarro
The hon. Gentleman is wily enough a politician to try to tempt me from the rules of order. I will end my speech by telling him what I want him to do and I cannot then be out of order—

§ Mr. Grant-Ferris
Since this is terribly serious for the farmers who have suffered in this epidemic, would my hon. Friend not agree that, unless something can be done to alleviate the tax situation which many of them face, much of the compensation which has been paid out will be lost?

§ Sir G. Nabarro
I am grateful to my hon. Friend, and I hope that the Treasury will consider that.
There are three main types of animals for which compensation has been paid—first, production animals such as dairy herds; second, young stock and followers in a dairy herd; and, third, flying flocks and animals kept for fattening. The compensation for mature production animals can be safeguarded by the farmer electing for the herd basis if he has not already done so. But flying flocks and animals for fattening are normally treated as trading assets and no major injustice would result if they were assessed for tax as part of the herd, because the amount of taxation paid would in any event be infinitesimal.
What I am concerned about, however, is the effects of tax on the compensation for young stock and followers and for animals not assessed on a herd basis. Under the existing Statute these are nor- 402 mally treated as trading assets in a farmer's accounts, but no dairy farmer ever considers young stock and followers as anything but the means of maintaining a fully productive dairy herd. They are kept in specified age groups and brought into the herd either when the farmer is increasing its size or as a replacement when he culls an old cow.
The hon. Gentleman asked me what I wanted. I will be perfectly blunt. I know exactly the condition of the present negotiations among the Treasury, the Ministry of Agriculture and the N.F.U. I did not expect an Adjournment debate within five days of giving notice, which is most unusual in this House, but five weeks, and I then expected those negotiations to be completed. They are not yet completed, however, and the N.F.U. has kept me fully informed of their exact state. I know as much about them and am as well briefed as the hon. Gentleman—

§ Mr. Harold Lever
indicated assent.

§ Sir G. Nabarro
The hon. Gentleman nods, but really he does not know the difference between an old cow and a drum of oil, as he has readily confessed on earlier occasions when dealing with farming matters.
I represent a farming constituency which has been heavily afflicted by foot-and-mouth, including one substantial case of the same farmer on the same farm having all his stock slaughtered twice within 12 weeks. The taxation complications arising from two consecutive compensation payments are indeed extraordinarily complex.
I want a statement from the Treasury, either tonight or during the Budget, that all compensation paid for foot-and-mouth will be absolutely free of Income Tax, Surtax, Corporation Tax and Capital Gains Tax. If I am asked, "Why should we make an exception of the farmers?" I immediately reply, "The Government make an exception with National Health benefits. If an insured person falls sick, his Health benefit is not taxed. The Government make an exception with the dole. Any man who draws unemployment benefit is not assessed for tax on it, and they make an exception with war disability pensions. for they are not assessed for Income Tax". That is why—

§ Mr. Deputy Speaker (Sir Eric Fletcher)
Order. The hon. Gentleman will appreciate the difficulty in which he finds himself. He is obviously now advocating a change in legislation, which he cannot do in an Adjournment debate.

§ Sir G. Nabarro
I recognised that earlier in my speech and I stated that fact. I want all compensation for foot-and-mouth placed on an equal footing with the other cases I have named and freed entirely from any form of taxation. That is the wish of the farming community and—

§ Mr. Deputy Speaker
Order. The hon. Gentleman has obviously not appreciated my intervention. He cannot, on an Adjournment Motion, advocate a change in legislation.

§ Sir G. Nabarro
I accept that and I recognised that fact twice earlier.
Though the Financial Secretary may not be able to give me a satisfactory reply tonight—as he may not, because his negotiations are not yet completed—he will be fully aware of the case which I have adduced, whether or not he likes the way I have adduced it. Certainly he will be pressed from now on by all my hon. Friends who represent agricultural constituencies afflicted by foot-and-mouth for the ideal solution, which is the tax-free form I have indicated tonight.

§ The Financial Secretary to the Treasury (Mr. Harold Lever)
Although it be true, as the hon. Member for Worcestershire, South (Sir G. Nabarro) said, that there is probably not a pedigree cow in my constituency, he was making a considerable exaggeration in saying that it does not contain a blade of grass. However, that is carrying matters over from the last debate.
All hon. Members will believe me when I say that I wish at the outset to express, on behalf of the Government and the House generally, our sincere view that the farmers have suffered a considerable ordeal during this epidemic. Nevertheless, the fact remains that the taxation law applying to farmers is certainly no less generous in respect of disasters than the taxation law applying to anybody else. Indeed, the law in its present state reached that condition in the light of 404 foot-and-mouth epidemics of earlier years, and takes into account the special needs of farmers.
The hon. Gentleman will recognise that I could not yield to his desire for the total and unconditional exemption from tax of foot-and-mouth payments without there being a change in the law. I cannot discuss this on the Adjournment, but I beg him, if he wants to change the law relating to foot-and-mouth compensation so that it accords with the law applying to, say, National Health benefits, to urge that that step be taken at the time of the Finance Bill. He must overcome any diffidence he may feel about troubling the Chancellor of the Exchequer on that occasion, and make known his views on this subject when the Finance Bill is under discussion, at which time he will not suffer from the crippling inhibitions which impede him tonight.

§ Mr. Grant-Ferris
Will the hon. Member give way?

§ Mr. Lever
I have a very important matter to put to the House, having finished these preliminary comments on the speech of the hon. Member for Worcestershire, South. This is not from discourtesy and if I have time, I will give way later.
The hon. Member for Worcestershire, South, is for once out of date in relation to negotiations with the National Farmers' Union. It is possibly because he was so busy preparing his seven interventions in the previous debate that he has not been brought up to date with the state of play with the National Farmers' Union. He will be glad to know that we have concluded this evening with the National Farmers' Union a series of arrangements which we believe are possible for the farming community in relation to foot-and-mouth payments and the taxation situation, yet retaining the existing law. I am glad to be able to announce that it has been found possible within the present law to spread the profit element in compensation payments, that is, the excess of compensation over the book value of the beasts, over three years, if the farmer wishes to do so.
This should relieve the anxieties of those who feared that the crediting of the whole amount in their accounts for one year would make them liable for tax at 405 higher rates than if they had sold the beasts in the normal way. The National Farmers' Union has been told that this is what is proposed, and that it is as far as we are able to go; and the National Farmers' Union has this evening accepted this as satisfactory to them. Admittedly, they would have preferred the herd basis of compensation, but they expressed themselves satisfied with the concessions. They have agreed that this represents a fair solution to the problem.

§ Mr. Grant-Ferris
Coming from the most afflicted constituency, it is not inappropriate that I should be the first to congratulate the hon. Gentleman on the arrangements which have been arrived at. I am sure that they will be of the utmost benefit to farmers. They will be very pleased with what he has announced tonight and I congratulate him.

§ Mr. Lever
I am grateful to the hon. Member who in his usual fairminded way has recognised that we have genuine sympathy for the farming community and that within the present law we have gone as far as possible to help them. But this could not meet the ambitions of the hon. Member for Worcestershire, South.

§ Sir G. Nabarro
The hon. Gentleman has not dealt with Capital Gains Tax. This provision has nothing whatever to do with Capital Gains Tax. If this requires amendment by legislation, will the hon. Gentleman say so, or is it an administrative matter?

§ Mr. Lever
If I were to say so, I would be rebuked as being out of order. I cannot properly discuss changes in legislation in an Adjournment debate.

§ Sir G. Nabarro
I am not asking that.

§ Mr. Lever
The hon. Member must know that it is not in order to discuss new legislation on the Adjournment. Any remedy the hon. Member may seek for this or in relation to any other branch of tax law, the hon. Member must seek in discussion of the Finance Bill. If he feels that it needs adjustment it can be properly and fully explored there within the rules of order.
We have extended to the farming community a very real understanding of their problems and within the taxation law we have made every concession we felt 406 that it was lawful to make. We are happy to know that the National Farmers' Union feels that what we have done is satisfactory and fair treatment.

§ Sir Harmar Nicholls (Peterborough)
The hon. Gentleman has made clear that the Government have gone as far as they can go under existing law. I should like to feel that the way he has announced this tonight does not rule out the possibility when the right occasion arises, perhaps on the next Finance Bill, for the law to be looked at again.

§ Mr. Deputy Speaker
Order. The hon. Member cannot discuss that.

§ Sir Harmar Nicholls
I wonder—

§ Mr. Deputy Speaker
No. Order. We cannot discuss that. Mr. Jasper More.

§ Sir Harmar Nicholls
I had not intended—

§ Mr. Deputy Speaker
No, I cannot allow the hon. Member to discuss that. I have called Mr. Jasper More.

§ Sir Harmar Nicholls
On a point of order.

§ Mr. Deputy Speaker
I have called Mr. Jasper More.

§ Sir Harmar Nicholls
On a point of order. It is quite in order if I have strayed for the Chair to call me to order. I was going to apologise if I have strayed, if that were so ruled, and I still claim that I have the Floor.

§ Mr. Deputy Speaker
The hon. Member cannot go on, as I have called Mr. Jasper More.

§ Sir Harmar Nicholls
On a point of order. I believe that back benchers have rights. I accept your Ruling. I may have strayed on a particular point and I will not pursue that point, but I wish to switch to another which may well be in order and which I think I am entitled to as I have the Floor. I merely wanted to say that I did not think that the Financial Secretary should accept the kindly words uttered by my hon. Friend the Member for Nantwich (Mr. Grant-Ferris) as necessarily representing the reaction that the whole of the farming community will have. I can well understand that the farming community is delighted 407 that it has had sympathy within the law as it stands, but I do not think that it should go on the record that my hon. Friend's very understandable and sympathetic reaction means that those who have been the victims of this great disaster will be completely satisfied.

§ Mr. More
To get the matter quite clear, may I ask the Financial Secretary whether the announcement he was able to make referring to the existing taxation law was limited to Income Tax and Surtax?

§ Mr. Harold Lever
It would affect Corporation Tax as well as Income Tax and Surtax. It would affect any tax based upon income.

§ Mr. More
Those three taxes, but not Capital Gains Tax?

§ Mr. Harold Lever
It would not affect the Capital Gains Tax position, I should suppose.

§ Mr. Farr
If this is a final statement, I welcome it in so far as it goes, but a few days ago the Minister of Agriculture, 408 Fisheries and Food said that he would be making a statement on this subject. I wonder if this is a final statement or whether a further one may be expected.

§ Mr. Harold Lever
No statement is final. I have given the House the latest news of these agreements and, if the House wishes to raise this subject at other appropriate times by way of Question or debate, that is a matter for the House. That is the information I have this evening, when this agreement was concluded. I thought that the House would wish to have it.

§ Mr. Grant-Ferris
May I ask the Financial Secretary, if I am in order—if I am not in order, I shall sit down at once—whether we can expect to hear something about the equalisation of valuation problem as well shortly?

§ Mr. Harold Lever
I am afraid not tonight.