LOAN TO PURCHASE MACHINERY OR PLANT USED BY A PARTNERSHIP (Hansard, 15 July 1969)

§ Mr. Deputy Speaker (Mr. Harry Gourlay)
I suggest that it would be convenient for the House at the same time to discuss the proposed Amendment to the new Clause, in subsection (2) leave out ' three ' and insert 'six'.

§ Mr. Diamond
I beg to move, That the Clause be read a Second time.
The new Clause parallels two provisions to which I will refer briefly. The first is Section 44 of the Capital Allowances Act, 1968, which provides for a partnership to be given capital allowances in circumstances in which individual partners purchase capital assets. The allowance attributable to each partner's property is set off against his share of the profits in arriving at his total income for tax purposes.
The other provision which is being paralleled by the new Clause is Schedule 13(8), which allows relief to an employee for interest on money borrowed to buy a car and so on, which he uses in the course of his duties, and accordingly he is able to claim a capital allowance.
It is with these two provisions in mind that the new Clause proposes that members of a partnership should be able to claim relief for interest on money borrowed to buy cars or other plant and machinery which remains the property of the individual partner. I can think particularly of a car purchased by a doctor who is one of a partnership of doctors or a car purchased by a surveyor who is one of a partnership of surveyors.
There is no earthly reason why the law should insist on the partnership buying 497 the asset so long as the asset is used for business purposes. I trust that, with this short explanation, this proposal will meet with the approval of the House.

§ Mr. Richard Wainwright
I am able to offer a much less qualified welcome to this new Clause than to the two previous ones. It is at least free from extraordinary attempts to define the indefinable and to import into a completely new context old definitions invented for a quite different purpose. It is innocent of the grave faults we have been debating.
I propose to speak to the Amendment, which refers to the duration of the loan. Let it be clearly understood that the new Clause provides this relief for only three years in respect of the money raised to buy plant and machinery. My hon. Friends and I contend that that is too short a period. I concede that motor cars will be one of the most frequent uses to which personal loans will be put in partnerships. If the term "plant and machinery" is intended mainly to cover motor cars there may be a case for only three years, but partnerships require very much more durable plant and machinery than motor cars.
Often the purchase of a particular item of expensive plant is due to the advocacy of a particular partner. For example, a partnership of civil engineers or accountants may require a great deal of calculating. It is usual for one partner to have a particular interest in mechanising some of the processes of their work and the other partners may be acquiescent but not enthusiastic. They say, "You are keen about this. You raise the money and finance the purchase of this partnership asset". It may be a desk computer or some less elaborate calculating machine, or something for work in the field. It will certainly last longer than the three years suggested in the Clause.
In normal circumstances for raising loans I would agree to the three years and say that if the asset is by no means exhausted at the end of three years one could call it a day and try to come to a new arrangement with the bank. That would be perfectly possible if we were living in normal, civilised, well-governed times, but it is part of the whole tragedy of Clause 18 and trying to patch it together with secondhand Elastoplast that 498 this allowance is producml at a time when to go to the bank is the simplest plan for reallocating loans is to invite disaster. The bank managers—who can blame them?—seize upon every request for what would be a normal allocation of credit and say, "This must be a new matter, and I am bound to refuse the application for a loan."
We live in times of such rigidity that to go near a bank for a reallocation is to invite trouble. It seems unfair that for a number of important taxpayers who make a contribution which few others could make at the end of the three years the relief should be withdrawn when the loan could go on for longer if the asset had anything up to 10 or 12 years' life.

§ Mr. Higgins
We are going through a rather remarkable set of Clauses—no fewer than six—amending no more than two Clauses in the Bill. I agree with the hon. Member for Colne Valley (Mr. Richard Wainwright) that this is a Clause to which we can give more enthusiastic support without qualification than to those we have discussed so far today. I share with the hon. Member the point he made about why it is necessary to impose a three-year limit in this case rather than say that we shall work on the basis of the value of the asset until such time as it is written off. That seems a more reasonable basis than the one put forward by the Chief Secretary. Nevertheless, we agree that the right hon. Gentleman is doing everything he can to meet a number of po nts which were raised in Committee. If he can give us a few more words of explanation, we shall be grateful to him.

§ Mr. Diamond
I recognise the point made by the hon. Member for Colne Valley (Mr. Richard Wainwright), who described a partnership which is a little unusual. It is a partnership in which the partners disagree, being partners jointly concerned in a venture to make profit out of their business, as to whether the partnership should act in a certain way or not, but they are prepared to agree if only one partner finances the expenditure. The hon. Member knows better than I that the cost of that expenditure going well or ill will fall on all the partners. The fact that one partner provided it in the first place may be a facility, but no more.
It would be difficult to mention a case where the plant and machinery described 499 by the hon. Member could not at any time be provided by the partnership through the simple expedient of the partner who has the money to finance it lending the money to the partnership, the partnership buying the machine and repaying the purchase price and the partner with the funds creating a new loan in favour of the partnership and, therefore, the interest being allowed, the asset being the property of the partnership. That would appear to be a normal occurrence.
The hon. Member is right in thinking that I was concerned mainly with cars and assets which, like cars, may remain in the ownership of a partner because they are used partly by the partner and partly by the partnership. The hon. Member recognised that for a car a period of three years is reasonable. Six years would be much too long. In the vast majority of cases the asset would be a car. I see no barrier against the partnership acquiring an asset of the kind envisaged by the hon. Member in which the loan would go on as long as was wished if it were made 'to the partnership itself.
I think the way in which the Clause is devised is appropriate. Three years is a reasonable period, but six sears would be difficult. I am grateful to the hon. Member for his welcome to the new Clause and sorry that I cannot reciprocate by recommending the Amendment to make it six years.