LOANS FOR PURCHASE OR IMPROVEMENT OF LAND

HC Deb 16 July 1969 vol 787 cc776-836

11.45 p.m.

Mr. Graham Page (Crosby)

I beg to move Amendment No. 266, in page 21, line 37, after 'interest' insert: '(including in addition to the purchase money any premium under a mortgage guarantee policy or under a policy of indemnity against defects in the title to the property or against past breaches of obligations to which the property is subject or against unapportioned ground rents, rentcharges of chief rents to which the property is subject; and including also survey fees, woodwork or drainage specialists' fees for reports and guarantees, charges by associations of builders for certificates and guarantees, architects' fees, legal costs and disbursements and stamp duties.)' The House will be pleased to observe that we have skipped rapidly from Clause 10 to Clause 19, subsection (2) of which provides that interest is eligible for relief under this section if it is paid by a person for the time being owning an estate or interest in land in the United Kingdom on a loan to defray money applied— (a) in purchasing the estate or interest, or one absorbed into, or given up to obtain, the estate or interest". The Amendment is concerned with the interpretation of the words money applied in purchasing the estate or interest". This could mean the purchase money of the property solely and simply, and nothing more. Or it could mean that money expended in connection with, or in any way part of, the transaction of purchasing the property. If it means only the purchase money and nothing more, it will give rise to many niggling problems about apportionment of interest as between that which is given relief and that which is refused relief.

I understand the purpose of paragraph (a) to be that the Government do not want to deter purchasers of property by refusing them relief on the interest on a loan which they take to purchase that property. I believe, in particular, that the Government do not want to deter the owner occupier who buys his home with the assistance of a loan. After all, the Government have done enough by allowing the increase in interest rates to deter the purchase of homes by owner-occupiers and it would be intolerable if the interest on loans used in the purchase of houses were denied relief under the Clause.

Subsection (2)(a) provides that the interest on money borrowed for the payment of purchase price is to be an allowable deduction against taxable income. The term "purchase price" is not used in the paragraph. The words are— money applied in purchasing the estate or interest". As I have said, this phrase might mean merely the purchase price, or it might mean any money expended in the course of the transaction. I hope that it means the latter, but the Amendment seeks to make that certain.

I remind the House of the sorts of payments which a purchaser is obliged to make when he is buying his home with the assistance, say, of a building society mortgage. The building society may be prepared to advance 75 per cent. The borrower wants 90 per cent. So the building society will arrange with an insurance company a mortgage guarantee policy to guarantee the payment of the margin of 15 per cent. Normally, it will add the once-for-all premium on that policy to the loan. It is not clear whether that item is money disbursed in the purchase of the property. It is certainly money disbursed in order to obtain the loan.

Investigation of title may reveal that there is a flaw in the title, for instance, a restrictive covenant providing that the property shall be used only as a single dwelling house, though in the course of years it has been turned into flats. The building society says that it cannot run the risk of someone trying to enforce the restrictive covenant and it wants an indemnity policy of insurance. Again, the once-for-all premium paid for that policy may be added to the loan.

When he applies to the building society for his advance, the borrower will pay a survey fee. Perhaps the report of the surveyor is that there is dry rot in the house and the drains seems to be defective. The building society requires expert reports on those matters, and they must be paid for. We try to encourage people to buy the older houses, and the building societies make advances on them, but there are frequently expenses outside the purchase price in order to put the transaction through.

Many building societies refuse to advance money on new property unless it has been built by a builder who is a member of the National House-Builders Registration Council and there is a certificate guaranteeing the property for ten years. That certificate has to be paid for.

Finally, without necessarily declaring an interest, I mention the legal costs and disbursements and stamp duty.

Mr. Arthur Lewis

Largest of all.

Mr. Page

No, not largest of all. The estate agent's commission is the largest of all. The legal costs are a small proportion of what the purchaser has to pay out.

Mr. Lewis

The vendor, not the purchaser, pays the estate agent's fees.

Mr. Page

The vendor takes that into account in the price which he charges for the property. But that is a diversion, and I return to the fact that the purchaser finds that his bill for buying the property is much more than the purchase price. He has paid the money out. He has borrowed to pay not only the purchase price but also some of these other expenses, and the building society has added on to his total loan the premiums paid on the insurance policies. If he is not to have relief in respect of £30, £60 or £100 of the loan, though he has relief in respect of the rest, it will be a most complicated business.

I hope that the Chief Secretary will tell me, as he has on other occasions, that my Amendment is unnecessary and it is all in the Bill. But the wording is not clear. If the right hon. Gentleman gives some assurance, one hopes that the Revenue will follow up what he says. The courts are under no obligation to do so, but at least the Revenue has some obligation to obey Treasury Ministers. I hope that there will not be a niggling apportionment of the interest, some subject to relief and some not.

Mr. John Smith

The general effect of this part of the Bill is to introduce differential rates of interest. There are to be certain purposes for which individuals may borrow money at one rate and certain purposes for which they may borrow at another rate. The provisions to which the Amendment relates will enable individuals to borrow money to buy land and property more cheaply than they can borrow it to buy other things. Therefore, it will put up the price of land and property because that will be almost the only asset that an individual can buy on borrowed money and get the interest allowed. When considering the Amendment, that is an important point.

Indeed one could, if one felt hostile and hypercritical, say that the Government are putting money into the pockets of property speculators. Furthermore, this shift in the nature of things which the individual will hold against borrowed money, from liquid assets to non-liquid assets such as land and property, will make it harder in future to make credit squeezes work. That is another point to consider.

But if we are to have this irrational distinction between different types of borrowing, clearly we must have the Amendment with it. I support the Amendment in general, but I am sorry to see that after mentioning wood work, drainage and legal costs it includes stamp duty as one of the things which one can borrow money to pay and get the interest allowed for tax purposes. I am sorry to see my hon. Friend the Member for Crosby (Mr. Graham Page) aiding and abetting the Chancellor in preserving this wasteful tax, which is particularly tiresome when it comes to house purchase, because most people who borrow money to buy a house pay four sets of stamp duty—on the house purchase, on the mortgage, on the insurance policy which they probably take out to secure the mortgage, and on the mortgage guarantee policy. Thus, there are four fiddling kinds of duty which should, as I said earlier, have been long since abolished. Although I support the Amendment, I am sorry to see the words "stamp duty" in it.

Mr. Diamond

Both the hon. Member for Crosby (Mr. Graham Page) and the hon. Member for the Cities of London and Westminster (Mr. John Smith) have contemplated in their speeches borrow- ing on a mortgage to acquire property, and in these circumstances, of course, it would be not only rare but would not be the case that the amount of the loan would be greater than the total purchase price, because normally there is either a 10 per cent. or an even greater percentage difference. So, in spite of all these cases, the hon. Member for Crosby need not ask me for any help at all, because the whole of the loan could be said to be devoted to the purchase of the property.

But let us pursue the matter further, because I want to deal helpfully with the hon. Gentleman, and assume the unheard of case of the loan being fully equal to the whole of the purchase price and in addition covering the variety of incidental expenses to which he referred. I can say with the authority of a Treasury Minister within the Revenue—though, of course, I have none over the courts—that if ever such a ease came along the incidental expenses would be interpreted by the Revenue as being part of the cost of the property. Although I hate using words which he invited me to use, it is correct to say that this Amendment would be an unnecessary refinement.

12 m.

Mr. Graham Page

I am very glad to hear those words. The Chief Secretary has cleared up the doubt, but he must admit that there is doubt in the wording. Perhaps a better choice of words could have been made. With that assurance, and with the assurance that the Treasury will construe the Clause in that way, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. J. B. Godber (Grantham)

I beg to move Amendment No. 153, in page 21, line 39, at end insert: (c) in the day-to-day management of an estate in respect of which rents are received quarterly or half-yearly in arrear, but not on any part of such loan which exceeds the amount of such quarterly or half-yearly rents receivable (provided that where any part of such rent is waived, relief under this section may continue to the extent reasonable in the circumstances) or.

Mr. Deputy Speaker

With this Amendment we will take Amendment No. 155, in page 21, line 39, at end insert: (c) in the case of property let, to the fulfilment of statutory obligations in the matter of estate management, or.

Mr. Godber

As my hon. Friend reminded the House on the last Amendment, Clause 19 deals specifically with loans for the purchase or improvement of land. Subsection (2), with which these two Amendments are concerned, deals specifically with land ownership. Paragraph (a) gives relief to the purchase of an estate, and paragraph (b) gives relief to the improving or developing of such an estate. In Committee we sought to add maintenance, and this is the point at issue.

I want to address myself largely to rural estates and the problems that will arise for the estate owner if a change is not made here. I have carefully studied the arguments on this subject in Committee, in particular the comments of the Chief Secretary. I recognise that he was trying to draw a distinction, and at one stage I even thought that he was indicating that if a distinction could be drawn he would be able to look more favourably at the Amendments proposed by my hon. Friends in Committee which he could not at that time accept. The Chief Secretary said this: I cannot, for the masons I have mentioned earlier, possibly contemplate giving this treatment to urban property. I gather that this was because of the size of the problem. He went on to say: I cannot see the distinction between urban property and agricultural property, and I conclude, therefore, that I cannot, with regret, recommend to the Committee that the Amendment should be accepted."—[OFFICIAL REPORT, Standing Committee F, 18th June, 1969; c. 474.] That appeared to be his argument in rejecting Amendments which sought to add maintenance to purchase and development.

The Amendments are specifically designed to meet the Chief Secretary's anxiety. Amendment No. 153 is drawn in such a way as to try to differentiate between two different types of maintenance. The Amendment does not relate specifically to agriculture, but refers to the practice, which is almost universal in agriculture but which applies to few other cases, of rents being paid quarterly or half-yearly in arrears. This is where a distinction can be drawn, if the Chief Secretary is seeking to draw a distinction.

The fact that rents are being paid in arrears reinforces the need for a concession and means that in the majority of cases landlords will wish to carry out the maintenance and to reimburse themselves from the rent properly applicable to the period concerned. There is absolute justice in saying that where the rent is paid in arrears any loan that is undertaken for maintenance at the appropriate time should qualify for relief. The wording of Amendment No. 153 in itself brings a clear justification.

In drawing attention to the fact that we have tried to meet the Chief Secretary, I make it abundantly clear that I disagree fundamentally with his claim that it is impossible to say that there is a distinction between agricultural estate ownership and urban estate ownership. If there were no special factors affecting agricultural estate ownership, why did a previous Labour Government refer specifically to the rights of capital invested in the agriculture industry as they did in Section 1 of the 1947 Agriculture Act? Why did they also pass the 1948 Agricultural Holdings Act which laid down specific responsibilities of land ownership?

The Chief Secretary argued in Committee that these responsibilities were no greater than those imposed on urban estate ownership. I would point out that those responsibilities go very much further. If he studies the 1948 Act in its entirety he will see that there is a large volume of responsibility. There is no doubt whatever that that Act shows clearly the wide statutory responsibilities placed on the agricultural landowner.

Agricultural estate ownership, although it now represents probably only just under a half of all agricultural holdings, continues to play an important part in providing capital for an industry which this Government are denuding of capital in many other ways. It is incumbent on the Government to encourage them in these provisions rather than to discourage them. It is wholly wrong that it should be singled out in this unfair way simply because it does not appear to fit into the tidy definitions of "business" or "private" which the Chief Secretary sought to lay down in Committee.

Having listened to him yesterday, I feel that his tidy definition got very blurred by some of the concessions he then made. This encourages me to think that be will allow it to be blurred even further in regard to this Amendment.

It seemed to me that yesterday he widened his attitude very considerably in one or two of the new Clauses.

On this particular issue one has to look a little further to understand what the Government are getting at. The Chief Secretary made one statement that irritated me very much when I read it. Admittedly he made it at 3 o'clock in the morning and he may not have been feeling at his best, but in answering a debate about the needs of agriculture he said: The argument is that agriculture is helped in many ways, by the State, by the Treasury, as I know well, and that therefore it should continue to be helped in other ways, too."—[OFFICIAL REPORT, Standing Committee F, 18th June 1969; c. 472.] That comment is pure prejudice and nothing else. In my view, the Chief Secretary was seeking to distort the whole argument put forward by my hon. Friends. There was no justification for that comment in their speeches.

These Amendments have been concerned with people who own agricultural property and who let it instead of farming it themselves. There is nothing wicked about anybody letting out land to farmers. In many cases it represents a real sacrifice because a much better income could be obtained by selling and investing elsewhere. Traditionally the return on estate ownership is one of the lowest in the land. But the help which the Chief Secretary talks of as coming from the Treasury to agriculture is not in the main directed to estate ownership at all but to the farmer, the man who actually farms the land, the tenant farmer in the case of an estate, or the owner occupier. Those are the people who receive the benefits about which the Chief Secretary was talking, although those benefits are steadily being reduced by the present Government. But that is outside the terms of the Amendment, and I say it in passing.

If agriculture is being helped at all, it is the farmer who is being helped. But it is the farmer, whether a tenant or an owner-occupier, who is safeguarded, because he comes within the Chief Secretary's definition of "business" and has no need to worry about offsetting interest on loans.

It is the estate owner alone who is involved here. If an estate owner sold off his estate to his tenants, each of them would qualify immediately for the interest on his loans for maintenance to be set off, because each of them would be a business. Therefore, it is manifestly unjust to deny the same relief to an estate owner.

If, by the intervention to which I have referred, the Chief Secretary indicated that he wanted a chance to hit back at farmers, which seemed to be his intention, his refusal to accept the Amendment moved in Committee was a singularly inappropriate way of doing it. Every farmer in the country already comes within his definition of "business". We think that that is right, but we also think that the estate owner is equally entitled to expect his interest on loans for maintenance to qualify.

We put forward a straightforward Amendment in Committee, but it was rejected. Now we suggest an alternative method which would embrace agricultural estate ownership in virtually every case and might also include some other peripheral categories, but which is distinct from the generality of urban property ownership. We have therefore met the Chief Secretary's requirement for a distinction, and I hope that I have demonstrated the justice of the case.

I come now to two specific points on Amendment 153. First, although it has not been restricted to agricultural property but has been drawn quite generally, it is worth pointing out that, in relation to urban property, there are two large sectors to which it will have no relevance. They are property owned by companies, in respect of which interest is allowable, and owner-occupied property, to which the Amendment is irrelevant. In other words, the effect of the Amendment is preponderantly agricultural and can be distinguished in that way.

Secondly, although farm rents are by universal practice payable six months in arrear, many farm tenancy agreements contain the provision, which is deliberately not put into practice, that the rent is payable half-yearly in advance. It has been customary for land owners to borrow for day to day management sufficient to bridge the six-month lag in the receipt of rents. If owners are to be denied tax relief on the interest on such borrowings, it is logical to consider in contrast the position of a farm tenant. If he borrowed to pay his rent, he would be allowed tax relief on the interest. But this is where the bite comes, because in general he does not possess the additional borrowing ability, and the Government's attitude to credit is such that it would be impossible for him to get them.

Following the passing of the Government's proposals, if an owner implemented the strict terms of such a tenancy agreement in requiring his rent to be paid half-yearly in advance, his farm tenants would have to find a full year's rent in one day. There would be the half-yearly rent traditionally payable in arrear, and the half-yearly rent for the ensuing half-year payable for the first time in advance. There will be no difficulty in imagining the chaos, ill feeling and perhaps worse that would be caused by such a course of action. It would be well nigh impossible for tenants to respond to such requests at the present time, in view of the Government's policy on agricultural credit. However, I do not seek to widen the debate into that subject, although there is strong feeling on this side of the House about it.

12.15 a.m.

I instance this as showing the absurdity, as well as the injustice, of the proposals as they now are. The Chief Secretary must surely concede that something must be done to assist here. In regard to agricultural estates, it is nonsense to safeguard the position of those who wish to purchase and of those who wish to improve, yet to deny the opportunity to those who wish to maintain their estates. The maintenance of an agricultural estate is an important aspect of the efficiency of the farming that goes on on that estate. Therefore, I believe that it is essential that some Amendment of this nature should be accepted. If the Government do not like our wording, they can clearly provide their own. But in Amendment No. 155 we have provided an alternative wording which, if accepted, would go a long way to meet the needs.

I do not wish to go over the arguments again, but we have tried to meet the differences in the points raised by the Chief Secretary. In Amendment No. 155, we have the wording: in the case of property let, to the fulfilment of statutory obligations in the matter of estate management, or". I have already referred to the Agricultural Holdings Act, 1948. That has very sweeping impositions. It is directly in relation to that Act that I think it is possible to claim that there is a responsibility on landlords which the Government should recognise. Indeed, the whole essence of that Act is summed up in Section 1(2) where, in defining agricultural land, it states: land used for agriculture which is so used for the purposes of a trade or business. If all agricultural land let by estates is let for trade or business, and if the Government accept that wherever trade or business is concerned it is legitimate to allow interest, surely the man who provides the land for letting to the farmer should equally qualify.

The Government must recognise the special circumstances of those who own and manage agricultural estates. They do not come within this narrow definition of "business". Yet they are directly related to the business of running farms, and they have specific responsibilities laid down in parliamentary enactments—particularly the 1948 Act.

If the Chief Secretary does not like Amendment No. 153, then I suggest that Amendment No. 155, with its reference to the statutory obligations, provides the necessary distinction that is required.

I remind the Government that the obligations of agricultural landlords are very far reaching. They extend far beyond the buildings. They extend to things like fences, gates, farm roads, drainage, farm water supply and many other things which are essential to the running of a farm business. This is a responsibility which the agricultural landlord willingly accepts. Therefore, it is entirely wrong to seek to divorce this from the whole sphere of "business" which the Chief Secretary seemed to think was one of the determining factors in the case.

I think that this is a very strong case indeed. I hope that the Chief Secretary will see the force of the argument and will concede the point.

Mr. Michael Jopling (Westmorland)

I support what has been said by my right hon. Friend the Member for Grantham (Mr. Godber).

I cannot understand why the Chief Secretary, in Committee, was not able to accept that ownership of agricultural estates is a perfectly normal business activity and why he distinguished the ownership of agricultural estates from other business activities.

I can envisage many instances, in the ownership of agricultural estates, when it would be absolutely vital that money should urgently be spent on maintenance, particularly in emergencies, and where that money would have to be borrowed to do it. In recent years there have been many instances of storm damage, particularly in Scotland. Considerable damage has been done to agricultural estates, and the repair and maintenance work has had to be done very quickly, otherwise all the farming operations on the estates would come to a halt.

The Government must accept Amendment No. 153, which is modest in its requirements. It applies to rents paid quarterly or half-yearly in arrears. It does not apply to estates where the rent is paid in advance, but includes cases where the landlord voluntarily forgoes the payment of rent in advance.

I have referred only to storm damage. Fire is another natural disaster which sometimes damages buildings which have to be dealt with speedily. Most landlords readily accept this responsibility, and immediately restore the damage that has been done. This is normal maintenance, which is covered in the Amendment, but would not be covered unless the right hon. Gentleman was prepared to meet this case. This is a real problem, and I hope that it will be met by the Government.

Mr. R. H. Turton (Thirsk and Malton)

I want to try to clear up what I think is a little puzzling, especially to those who were not on the Committee, since when Clauses 18 and 19 have been changed. My right hon. Friend the Member for Grantham (Mr. Godber) and my hon. Friend the Member for Westmorland (Mr. Jopling) talked about rents being paid in arrear. In some parts of the country the custom is that the rent is not only paid in arrear but there is a lapse of three months between the date the rent is due and when it is collected. This means that when the estate owner is doing repairs he has to wait for the rent which will cover his expenditure on those repairs. Therefore, in the estate's account there is a period of the year when the money is at the bank earning interest, and a period of the year when the account carries an overdraft.

Under this legislation, for the period of the year when the estate owner is earning interest, he pays tax on his interest, and for the period of the year when he is running his overdraft he gets no relief. He therefore loses on both the swings and the roundabouts because of this custom of rent being paid in arrear and the three months' delay. I ask the Chief Secretary to clear this up, because in some parts of the country this is very important.

Having listened to this debate, and having studied the Committee proceedings, my sympathies lie not only with estate owners but with the inspectors of taxes. It will be extremely difficult to disentangle the problem of what the loan is for, whether it comes within or without the scheme of relief.

My hon. Friend the Member for Westmorland talked about drainage. If an estate owner renews the drains in a field which was drained, 100 years ago, that is maintenance and repair and not improvement. If, however, he drains a similar field which has never been drained before that is improvement. In the one case the interest on the money that he borrows is allowed for tax relief, in the other it is not.

I ask the right hon. Gentleman to examine this Amendment with great sympathy, because what applies to drains could apply to buildings. In this modern age in estate management, one is in some cases scrapping old buildings and building new ones where one will be entitled to get relief because this is an improvement. In other cases, one is remodelling old buildings and getting no relief because this is repair and maintenance. I ask the Government to reconsider their attitude on the Committee stage.

In modern days—it was different in old times—the business of estate management is indistinguishable from any other business under Schedule D, and it is wrong to have one law for one type of person in the countryside and another for the remainder.

It is easy if an estate owner sells out to another person from the town. The latter can get the interest on the borrowed money free of tax and also relief in respect of interest on the money needed for improvements made when the property is purchased, whereas the estate owner who is carrying out his obligations under the Agricultural Holdings Act gets no relief at all.

Mr. Edward du Cann (Taunton)

I rise to support warmly the case which has been argued by my right hon. and hon. Friends, and in particular the comprehensive review given by my right hon. Friend the Member for Grantham (Mr. Godber) so clearly and well in moving this Amendment.

Out of respect to the obvious wishes of the House, I shall be brief. It is this wish of the House which precisely illustrates our difficulty at present. The Committee stage of the Bill took place before a small number of hon. Members and here we are, late in the day—and it is day rather than evening—discussing this important Clause which the Government are proposing amending a Bill which substantially alters the business habits and practice of many important sectors of the community. This is outrageous.

My hon. Friend the Member for Crosby (Mr. Graham Page) made the point that we went in one remove from Clause 10 to Clause 19. It is a tragedy that we should be passing quickly ill-digested and badly written legislation. The Chief Secretary could curtail the debate in a moment by saying that he will graciously accept the obvious logic of the Amendment, but if he does not do that at least he owes the House an answer to two simple questions.

The first is: when is a farm a business and when is it not a business? I read the Committee stage report and I have listened to such logic as the Chief Secretary with charm and confidence pretends lies behind Clauses 18 and 19, but I cannot understand how this applies in farming and estate management.

I repeat the question: When is a farm a business and when is it not? The Chief Secretary remarked in an earlier debate that he cannot influence the courts. We know that, alas, it is not the intention of Ministers which counts but what is eventually in the Act. He went on to say, however, that the Government can influence the Inland Revenue. If he will not accept these Amendments to a Clause which he argues is justified, he at least owes the duty of explaining it clearly and fully and to say what in his judgment constitutes maintenance and what does not, so that we all know precisely where we stand. If he is unwilling to detain the House for long tonight, by doing that, though he owes that explanation to the House and the farming community, let him tell the House how he proposes to make this clear at a very early date, though we should have the explanation before passing this miserable Clause into law rather than subsequently.

I repeat my two simple questions to the Chief Secretary: when is farming a business, and when is it not; and what precisely constitutes maintenance? I hope that we shall have a clear explanation.

12.30 a.m.

Sir Charles Mott-Radclyffe (Windsor)

I support my right hon. Friend the Member for Grantham (Mr. Godber) and my hon. Friends who have spoken so forcefully and clearly to the Amendment.

I hope that the Chief Secretary will not run away with the idea that this is not a very big issue, because it is. What we are debating is how, in respect of tax relief, loan facilities will be treated for the maintenance of all the agricultural land that is let in England, Wales and Scotland. Since I believe that that is about 48 per cent. of the total agricultural land it is a very large slice of the land on which this country's food production depends. This is not a hole-in-the-corner argument.

For the first time, as far as I know, the Government have sought to draw a clear dividing line in the way that loans are to be treated in respect of land in hand, which is a business, and land let, which is not. They have also drawn a dividing line for the first time in respect of loan facilities and the tax relief on them for improvement on the one hand and maintenance on the other. I believe that in many respects it will be almost impossible for any inspector of taxes to draw this dividing line.

The agricultural land owner has obligations far more diverse, diffuse, and onerous than the urban landlord. I agree with every word that my right hon. Friend the Member for Grantham said on this issue. Unlike any other landlord, the agricultural land owner is a party to a bargain with the Government under the 1948 Act, in which the party opposite rightly take pride. A partnership was entered into between the various sectors of agriculture and the Government. The Government undertook to provide guaranteed prices for what were then called scheduled commodities. In return the farmer undertook to abide by the rules of good husbandry, and the land owner undertook to abide by the rules of good estate management. In extremis, both undertakings were enforceable, and rightly so.

It is clear that no agricultural land owner can choose to carry out repairs on farms that are let on a priority of convenience; he must undertake to do the repairs in a priority of urgency. He cannot say to a tenant farmer the roof of whose Dutch barn has been blown off in a gale, or who has suffered substantial flood damage, or whose milking parlour is in a shambles through an act of God, "I am sorry. I shall not repair your buildings because the half year's rent has rot yet come in. I shall wait until it does. But I shall repair the damage to my own farm buildings in hand, though they were not anything like so badly damaged, because I can get a loan and obtain tax relief on those buildings as the Government say that that is a business. But I cannot get tax relief on a loan for the repair of the buildings which are let, because the Government say that that is not."

Rightly, no agricultural land owner could possibly say that to a tenant. He must undertake the repairs in order of urgency and damage—and he is under a statutory obligation to do so—because stock are involved. The issue is wider than maintaining the farmhouse. There are the other buildings, drainage, fences —a whole gamut of things which do not concern any urban land owner.

The right way to deal with these maintenance and repair problems is by a loan. But the cost of the repair can absorb the whole year's rents, and it often does. There is nothing peculiar about that. The right way to do this is to raise the money by a bridging loan until such time as the rents come in. For the right hon. Gentleman to say that this is a loan for private purposes is nonsense. Does he really equate repairs to the roof of a Dutch barn or a farm building accommodating pedigree cattle with the building of a garage or a swimming pool?

What sort of order of priorities has he got? Does he understand anything about food production or the increased food production programme which the Government are asking the farming community to carry out?

This is all double-faced talk unless he meets us in some way on the Amendment. The principle has for long been ceded, because the capital expenditure on fixed farm equipment, which is the landlord's responsibility and the excess maintenance, have always been accepted by every inspector of taxes under the old Sections 313 and 314. If an estate owner has to borrow to discharge his direct obligations under a farm tenancy agreement, whose rents are taxable when they come in, it seems only logical and fair that he should be allowed to charge interest against tax on the money he has borrowed.

If this is not conceded, I warn the right hon. Gentleman and his colleagues that they will create an incredible number of anomalies. There could be the ridiculous anomaly whereby a farmer-tenant can borrow money to pay the rent and deduct the interest against income from his farm, whereas the landowner, if he borrows money to maintain the tenant's farm, cannot deduct interest against tax. There is the even more ridiculous position where, if the landowner does not wish, or cannot afford to go on with the burden of maintaining let property and sells it, the new purchaser is allowed relief on the loan to buy the farm and on the loan to do the repairs under Clause 19(5). If this is not cloud-cuckoo-land tell me what is.

My right hon. Friend mentioned the problem of rent six months in arrear. This is by custom, not by Statute. It would be absurd to drive any agricultural land owner into a position whereby he has to ask his tenants to renegotiate all tenancy agreements and pay rent in advance. They would not do it. The right hon. Gentleman is driving the estate owner to cut back on maintenance of land that is let and to concentrate on the improvement of land that he has in hand. This is contrary to the best traditions of estate management, contrary to all custom, and it is thoroughly bad for agriculture as a whole.

I can only say that if the right hon. Gentleman is serious in his demand that the farming community should increase production I do not understand how he can put forward a policy by which a person can get tax relief on a loan to buy a caravan and go off on a holiday but cannot get tax relief on a loan to maintain farm buildings containing pedigree stock. This is the agricultural policy of a Government who say that they are trying to get into the Common Market.

Mr. Speaker

Order. Perhaps I might remind the House that after this debate there are 29 debates ahead of us. Brief speeches will not hurt.

Mr. Peter Mills (Torrington)

There is no doubt that the Government's proposal will have a very real effect on agricultural landlords. It will create serious problems for them. What is at stake is nothing less than good estate management. It is not a question of the agricultural lobby pursuing a small or minor point. Unless the Minister meets us in the Amendment, the effect on agriculture will be very serious. When we consider the size of this problem—48 per cent. of all land—we see how important it is.

We have been told that it is normal practice for payments to be made in arrears. This can lead to a very serious situation, for land owners obviously would have to borrow to carry out maintenance and repairs. Things are difficult enough in agriculture at present without putting another burden on the industry. Agricultural landlords are in business. They supply capital and fixed equipment to agriculture. They may not be in business in the eyes of the law, but I believe that they are. They play a very important part in the agricultural community, and it is important that they should be helped and not discouraged.

Work must be done quickly. It is not a question of delaying it. One can put off painting, but one cannot put off emergency work. It is ridiculous to leave a Dutch barn which has collapsed or any other serious maintenance problem. The work must be done quickly, and it must be paid for. The money for it must be found. If the rent is not paid, the landlord must borrow the money. It is easy to see this point. I cannot understand why the Minister cannot see it.

The alternative is that tenant farmers will have to pay in advance. This is stupid. They cannot possibly find a year's rent in advance, particularly in present conditions, with overdrafts hitting the ceiling. It is hard enough to keep things going now without having to find a year's rent in advance. There is a serious principle at stake. If something is not done, the industry will be left in a critical position. In view of the importance of agriculture and the support which landlords are giving it, careful attention must be given to these Amendments.

It is not a small sum of money which is involved. Agricultural rents have, rightly, gone up and up. But a lot more money must be borrowed from the banks to finance maintenance and repairs. When one thinks of some of the rents, running into thousands of pounds, one realises what a serious situation could arise if the Minister does not consider the Amendments favourably. I repeat that this is not a small point pushed by the agricultural lobby in the House. Good estate management is at stake. I hope that the Minister will seriously consider the points put to him.

Mr. Paul Hawkins (Norfolk, South-West)

I am glad to have a few moments to speak on this subject because I manage several estates. For anybody to say that the management of a landed estate let to farming tenants is not business is absolute nonsense.

The job of trying to make ends meet throughout the year is very difficult on many estates. Farm rents are payable in arrears, and for quite a time, and particularly during the next year, we will have great difficulty in collecting rents in certain areas which were badly damaged last year by flooding. An enormous amount of drainage work will have to be done, and money will have to be advanced for it so that tenants may produce the crops and pay the rents in future.

Estate management is a real business. One must try to make ends meet, otherwise the estate cannot be carried on. I do not know whether the borrowing of money by a landlord to pay an agent for managing the estate would be tax allowable, but we cannot go into that now. But there are many sides to this question. In our last agricultural debate, almost every speaker said how necessary drainage work would be in the autumn on the waterlogged land. A lot of money will need to be borrowed to enable that work to be done. If we cannot borrow the money and charge the interest against the running of the estate, it will make a big difference. I am glad that the Joint Parliamentary Secretary to the Ministry of Agriculture is present: I hope that he is giving his near neighbours some good advice. I just cannot believe that the Government will not accept the Amendment.

12.45 a.m.

Mr. J. E. B. Hill (Norfolk, South)

Can the Chief Secretary tell us how much the Treasury hope to save by disallowing agricultural maintenance? I suspect that the sum is quite large. If it is, that merely emphasises the tremendous significance and importance of maintenance. Is the right hon. Gentleman aware that in any textbook of rural estate management there is a long chapter having as its theme the importance of keeping maintenance up to date?

Has he further considered the psychological effect on the owner of discriminating against maintenance in this way? It must follow that the tenant occupier of the land will feel that in a time of stringency he can neglect some of his own obligations in return. Nothing could have a worse psychological effect on the industry,

If the Chief Secretary does not much mind about that, I might tell him that it could have a worse psychological effect on the image of the Government in the eyes of the people, because this action in the Budget is wholly inconsistent with the Government's profession of their support for agriculture, their desire to see an expanding, modern industry. What other industry is having one section of its fixed equipment—the equivalent of the factory floor—and much of its raw materials—the land—discriminated against? How can he justify such discrimination against one sector of one large industry?

Mr. John Wells (Maidstone)

Generally horticultural holdings are owner-occupied, but some of the larger and more complicated ones are inevitably let to tenants. On those maintenance is most costly. A horticultural holding is more labour-intensive and more capital-intensive than a mixed farm. Problem which apply to agriculture generally are multiplied many times when applied to horticulture. There are massive cold stores, packing sheds and buildings of that sort. That maintenance of those buildings and the equipment when they are landlords' property will not be allowed is a great absurdity. When he reconsiders this situation, as I hope he will, I hope that the Chief Secretary will bear this in mind.

Mr. Tom Boardman

Arguments in favour of this Amendment have been marshalled largely to deal with the problem for agriculture, but my right hon. Friend the Member for Grantham (Mr. Godber) made clear that the evil applies also to urban estates. This is so especially on small estates where the owner is faced with the problem of repairing roofs to houses. He cannot get relief for that, but he can obtain it for constructing a swimming pool. The Chief Secretary must know how artificial is the line drawn in respect of maintenance. The Revenue has to decide how much maintenance arose before ownership started. It will be impossible to decide that when a new roof has to be put on a cottage and how much wear and tear developed over the previous 45 years. It is a nonsense.

Having listened to the powerful arguments on behalf of agriculture, I remind the Chief Secretary that the Amendment applies also to urban properties. It is far too modest to meet the requirement to do justice to owners of houses and other buildings apart from agriculture, but it is a step in the right direction and I hope that the right hon. Gentleman will accept it.

Mr. Temple

I would not rise at this late hour if I did not think there was a point which has not been raised already in this debate. The debate has centred mainly on large agricultural estates, but there is a development in farming which is entirely new and which should be considered. I refer to the practice of owner-occupiers selling on a system of leaseback.

There is tremendous shortage of capital. Any owner-occupier today is desirous of raising more capital to develop possibly an intensive farming interest. The Parliamentary Secretary to the Ministry of Agriculture will know of this new development. An owner-occupier farming his land is in a privileged position under these Clauses, but if he sells out on the basis of lease-back, although the situation is exactly similar, in fact a different ownership has taken place. In those circumstances the maintenance situation in regard to capital requirement to finance maintenance will be different. Is it right to act against this progressive system of lease-back? This practice will increase in the immediate future. In Field and Country Life one often sees advertisements involving the lease-back system to put more money into owner-occupied farms. I believe that, unless the Chief Secretary accepts the Amendment, he will stultify the progress which the lease-back system is making.

I endorse what my right hon. Friend the Member for Thirsk and Malton (Mr. Turton) said about land drainage. It is well known that land drainage is one of the most important aspects of maintenance. Much of our land drainage was done a century or a century and a half ago. Nevertheless, it is maintenance if that land drainage is being renewed. One of the biggest calls for capital in agriculture, and the most productive investment, is land drainage.

Of these two points I stress most particularly that about lease-back, because I do not believe that the Government would want to stultify the progress of this new scheme which is effective in bringing capital into argriculture.

Mr. John Smith

The Government are trying to make a distinction where none exists. With agricultural property there is no true distinction between maintenance and improvement. Some so-called maintenance is improvement. Some owners spend more on repairs and maintenance than the whole of the rent. They gradually work up a higher state of repair and maintenance. As a consequence, they run up an overdraft which they repay occasionally by a sale—for example, by the sale of agricultural cottages no longer required because of the progress of agriculture. Property is not like gilt-edged stock. It cannot be sold in penny numbers to repay an overdraft. It can be sold only in amounts of quite large value occasionally.

I referred to the difficulties of making this distinction. Owners do not make it in their bank accounts. All these provisions which will make it necessary to distinguish between improvement and maintenance, because there are to be differential rates of interest on borrowing, and will mean innumerable separate bank accounts in innumerable different branches of banks. It is simply more sand in the national gearbox. The Chief Secretary recognised this in Committee by saying this: It is impossible, or almost impossible, to segregate money and say. 'This particular pound was used for this particular purpose.' "—[OFFICIAL REPORT, Standing Committee F, 18th June, 1969; c. 446.] The converse of what I have said about maintenance often being improvement is also true. Some improvement is maintenance. Many improvements are essential to maintain rental value, just as essential as repairs are. Consequently, all landowners are making improvements all the time. As a result, it will be perfectly simple for them, if they wish, gradually to shift their borrowing on their present amalgamated accounts on to an account which they say is specifically for improvements. Therefore, as in a short time it will be easy for landowners, if they are so inclined, to avoid the purpose of this legislation, I hope that the Chief Secretary will see fit to save them from these subterfuges and accept the Amendment.

Mr. Diamond

I invite the House to be good enough to consider the present situation with regard to the law affecting landowners and farmers. I answer immediately the question put to me by the right hon. Member for Taunton (Mr. du Cann) by saying that the answer is that farming is always a business. There is no problem about that.

There is a problem, however, in the existing law. I am not talking about interest or the disallowance of interest. I am inviting the House to consider what the present law is, a law which has been the case for a very considerable time, the time affecting all parties and all Governments. The law is that an agricultural landowner is not treated as carrying on a trade so long as he is an individual. That is the present situation, and it has been so for many years.

1.0 a.m.

Time and again, right hon. and hon. Gentlemen have referred to the business of estate management. It is a phrase which I well understand. It describes the activities which go on, but those activities of an individual do not constitute a trade for income tax purposes. If, however, an agricultural land owner, be his estates large or small, turns himself into a limited company and by that process segregates these activities from the rest of his personal activities, the activities carried on by him as director of the company, albeit they are the identical activities which he previously carried on as an individual, are treated as a trade, by the sheer process of separating them from the other personal activities which he continues to carry on elsewhere.

That is the present situation under the law. It is right to describe the position as one of considerable difficulty and complexity, and it is not easy to see why in one case the treatment should be of one kind and in another case it should be different. But that is the present law. We are not proposing to alter that law. Accordingly, business expenses are business expenses, and private expenses are private expenses. Business expenses include a host of things, among them interest on borrowed money.

Expenses incurred by a company carrying on the trade of estate ownership and management are not trade or business expenses if those same activities are carried on by an individual personally. That is the present situation. I do not say that hon. Members opposite have been satisfied or have even been aware of it, but they have been acting under it for years and years.

It is not surprising, therefore, that when one puts the searchlight on a particular expense it becomes of importance whether it is treated as a business expense or not; but that depends not on any proposals in the Bill but on the law as it is at the moment. Every estate owner who runs his estate as an incorporated company receives and will continue to receive relief on interest on borrowed money, and every individual who carries on broadly the identical activities will not because he is not carrying on a trade under the Income Tax Acts. If that was to be criticised, the criticism could have come during past years. All I am doing is reminding the House that what we are now experiencing is the high-lighting of the difficulty through the development which we are proposing in the Bill.

Mr. Michael Alison (Barkston Ash)

Why has the Chief Secretary breached this clear principle in the matter of the acquisition and improvement of land?

Mr. Diamond

The Chief Secretary has not. I have never said that improvement of land is in all cases a business. I have said that we are making, as a deliberate decision of policy, as an exception, the acquisition and improvement of property. We are in a difficult situation, but obviously the situation is not difficult for those who run their estates as companies.

The right hon. Member for Grantham (Mr. Godber) moved the Amendment with his usual clarity and courtesy. I appreciate that he has gone to considerable lengths to try and separate the functions of an agricultural estate owner from the functions of an urban estate owner. But he recognised that one cannot do this completely, and the hon. Member for Leicester, South-West (Mr. Tom Boardman) has helped the argument considerably by making it clear that one cannot do it at all and that one should not attempt to do it at all. The hon. Gentleman logically went on to say that he did not see why this relief should apply not merely to the urban estate owner but to a man owning a couple of houses, for example.

The hon. Gentleman is, of course, right. One cannot distinguish in drafting or in common sense or in the pressures of the case. I recognise that there is a considerable case here, and I have gone carefully into all the distinctions which have been drawn, receiving a most valuable deputation and obtaining a lot of useful information. But the fact remains that one cannot distinguish, even in difficulty or in hardship, between an agricultural estate and an urban estate by the compulsions which are put upon the owner.

Therefore, I cannot accept the Amendment because the difficulty, such as it is, stems from the existing law, which we are not altering, and because the area proposed by the Amendment to be segregated cannot be distinguished in any tenable way from urban property which, in turn, cannot be distinguished from the owner-occupier.

If one pursues the argument of allowing interest first to the landed estate owner, then to the urban estate owner, and then to the owner-occupier, one has torpedoed the provision completely. One might say that that is a good thing, But I want to make it clear that we could not sensibly bring in this proposal at all if we had in mind allowing maintenance of owner-occupied property. Every owner-occupier incurs maintenance and repairs practically every year—certainly very frequently, and it would be impossible to deny this concession to the owner-occupier with a loan which he had incurred and which was associated with maintenance and repairs. The cost would be such that there would be nothing left of the provision at all. I hope I have made clear the logical steps from the Amendment and why it is utterly impossible to accept it.

Mr. John Smith

The right hon. Gentleman must not say that it is impossible to distinguish between agricultural and urban property when that distinction is made every day by the Inland Revenue in the matter of estate duty. Indeed, it is easier to distinguish between the two than between maintenance and improvement.

Mr. Diamond

Of course, I recognise that there is estate duty relief given for agricultural property which is not given for urban property. I am saying that for the purposes of interest one cannot distinguish between one and the other. If the hon. Member for the Cities of London and Westminster (Mr. John Smith) is asking me whether I can distinguish between Smith Street and 10 acres in the middle of Huntingdonshire,

Division No. 334.]	AYES	[1.13 a.m.
Alison, Michael (Barkston Ash)	Chataway, Christopher	Gibson-Watt, David
Allason, James (Hemel Hempstead)	Chichester-Clark, R.	Gilmour, Sir John (Fife, E.)
Astor, John	Clark, Henry	Glover, Sir Douglas
Awdry, Daniel	Clegg, Walter	Glyn, Sir Richard
Baker, Kenneth (Acton)	Cooke, Robert	Godber, Rt. Hn. J. B.
Baker, W. H. K. (Banff)	Crowder, F. P.	Goodbart, Philip
Bennett, Sir Frederic (Torquay)	Cunningham, Sir Knox	Goodhew, Victor
Bennett, Dr. Reginald (Gos. & Fhm)	Dalkeith, Earl of	Gower, Raymond
Biffon, John	d'Avigdor-Goldsmid, Sir Henry	Grant, Anthony
Black, Sir Cyril	Dean, Paul	Grieve, Percy
Blaker, Peter	Deedes, Rt. Hn. W. F. (Ashford)	Griffiths, Eldon (Bury St. Edmunds)
Boardman, Tom (Leicester, S. W.)	Drayson, G. B.	Gurden, Harold
Boyle, Rt. Hn. Sir Edward	du Cann, Rt. Hn. Edward	Hall, John (Wyoombe)
Braine, Bernard	Elliott, R. W. (N'c'tle-upon-Tyne, N.)	Hall-Davis, A. G. F.
Brown, Sir Edward (Bath)	Eyre, Reginald	Hamilton, Lord (Fermanagh)
Bruce-Gardyne, J.	Farr, John	Harvey, Sir Arthur Vere
Buchanan-Smith, Alick (Angus, N&M)	Fisher, Nigel	Hastings, Stephen
Burden, F. A.	Fletcher-Cooke, Charles	Hawkins, Paul
Campbell, B. (Oldham, W.	Fortescue, Tim	Heseltine, Michael
Carlisle, Mark	Foster, Sir John	Higgins, Terence L.

yes, I am capable of doing that. I am trying to make clear that in the context of what we are considering neither I nor the hon. Member for Leicester, South-West can distinguish between the two.

Mr. Godber

We on this side are shocked at the answer given by the Chief Secretary. It is completely inadequate and lacking in the logic which he normally employs. He has claimed that the difficulty stems from the existing law. The law has certainly continued for a long time the strange dichotomy of the position of the agricultural estate. We accept that, but it is he and his colleagues who are penalising landowners in relation to the law. The Government should accept that they are penalising them and find a way to help them.

The Chief Secretary gave no explanation that carried any weight with anybody on either side of the House in relation to his distinction between purchase and development and maintenance. He is really saying that he wants money out of urban property, he cannot distinguish between urban and agricultural property and what does it matter about farmers anyway? That is what his arguments came down to. It is a disgraceful reply. It does not meet the case; agriculture will be harmed; estate ownership will be 'harmed; agricultural development, of which we have heard so much from the Government, will be damaged; and I hope that my hon. and right hon. Friends will record their view in the Lobby.

Question put, That the Amendment be made:—

The House divided: Ayes 145, Noes 197.

Hiley, Joseph	Mills, Peter (Torrington)	Scott-Hopkins, James
Hill, J. E. B.	Mills, Stratton (Belfast, N.)	Sharples, Richard
Holland, Philip	Mitchell, David (Basingstoke)	Shaw, Michael (Sc'b'gh & Whitby)
Hordern, Peter	Monro, Hector	Silvester, Frederick
Hornby, Richard	Montgomery, Fergus	Smith, Dudley (W'wick & L'mington)
Howell, David (Guildford)	Morgan-Giles, Rear-Adm.	Smith, John (London & W'minster)
Hunt, John	Morrison, Charles (Devizes)	Speed, Keith
Hutchison, Michael Clark	Mott-Radclyffe, Sir Charles	Stainton, Keith
Iremonger, T. L.	Munro-Lucas-Tooth, Sir Hugh	Stodart, Anthony
Jenkin, Patrick (Woodford)	Nott, John	Taylor,Edward M. (G'gow, Cathcart)
Jones, Arthur (Northants, S.)	Onslow, Cranley	Taylor, Frank (Moss Side)
Jopling, Michael	Orr-Ewing, Sir Ian	Temple, John M.
Joseph, Rt. Hn. Sir Keith	Osborn, John (Hallam)	Turton, Rt. Hn. R. H.
Kershaw, Anthony	Page, Graham (Crosby)	van Straubenzee, W. R.
Kimball, Marcus	Percival, Ian	Vaughan-Morgan, Rt. Hn. Sir John
King, Evelyn (Dorset, S.)	Pike, Miss Mervyn	Waddington, David
Kirk, Peter	Pink, R. Bonner	Weatherill, Bernard
Kitson, Timothy	Pounder, Rafton	Wells, John (Maidstone)
Knight, Mrs. Jill	Powell, Rt. Hn. J. Enoch	Whitelaw, Rt. Hn. William
Lane, David	Price, David (Eastleigh)	Wiggin, A. W.
Legge-Bourke, Sir Harry	Prior, J. M. L.	Wilson, Geoffrey (Truro)
MacArthur, Ian	Pym, Francis	Wolrige-Gordon, Patrick
Maclean, Sir Fitzroy	Ramsden, Rt. Hn. James	Woodnutt, Mark
Macleod, Rt. Hn. Iain	Renton, Rt. Hn. Sir David	Worsley, Marcus
McNair-Wilson, Michael	Ridley, Hn. Nicholas	Wright, Esmond
Maddan, Martin	Ridsdale, Julian
Maginnis, John E.	Rossi, Hugh (Hornsey)	TELLERS FOR THE AYES:
Marten, Neil	Royle, Anthony	Mr. Jasper More and
Maude, Angus	Russell, Sir Ronald	Mr. Humphrey Atkins.
Maxwell-Hyslop, R. J.	Scott, Nicholas
NOES
Allaun, Frank (Salford, E.)	Eadie, Alex	Lewis, Arthur (W. Ham, N.)
Anderson, Donald	Edwards, William (Merioneth)	Lewis, Ron (Carlisle)
Archer, Peter	Ellis, John	Lipton, Marcus
Ashley, Jack	English, Michael	Loughlin, Charles
Atkins, Ronald (Preston, N.)	Ennals, David	Lubbock, Eric
Atkinson, Norman (Tottenham)	Ensor, David	Lyon, Alexander W. (York)
Barnett, Joel	Evans, Fred (Caerphilly)	Mabon, Dr. J. Dickson
Baxter, William	Evans, Ioan L. (Birm'h'm, Yardley)	McCann, John
Bence, Cyril	Fitch, Alan (Wigan)	MacColl, James
Benn, Rt. Hn. Anthony Wedgwood	Fletcher, Raymond (Ilkeston)	Macdonald, A. H.
Bidwell, Sydney	Fletcher, Ted (Darlington)	McGuire, Michael
Binns, John	Foot, Michael (Ebbw Vale)	McKay, Mrs. Margaret
Bishop, E. S.	Ford, Ben	Mackenzie Gregor (Rutherglen)
Blackburn, F.	Forrester, John	Mackie, John
Blenkinsop, Arthur	Fowler, Gerry	Mackintosh, John P.
Booth, Albert	Freeson, Reginald	Maclennan, Robert
Boston, Terence	Gardner, Tony	McMillan, Tom (Glasgow, C.)
Boyden, James	Gray, Dr. Hugh (Yarmouth)	McNamara, J. Kevin
Bradley, Tom	Gregory, Arnold	Mahon, Peter (Preston, S.)
Bray, Dr. Jeremy	Grey, Charles (Durham)	Mahon, Simon (Bootle)
Brooks, Edwin	Griffiths, David (Rother Valley)	Mallalieu, E. L. (Brigg)
Brown, Hugh D. (G'gow, Provan)	Griffiths, Eddie (Brightside)	Mallalieu, J. P. W. (Huddersfield, E.)
Brown, Bob (N'c'tle-upon-Tyne, W.)	Hamilton, James (Bothwell)	Manuel, Archie
Brown, R. W. (Shoreditch & F'bury)	Hannan, William	Mapp, Charles
Buchan, Norman	Harper, Joseph	Marks, Kenneth
Buchanan, Richard (G'gow, Sp'burn)	Harrison, Walter (Wakefield)	Marquand, David
Callaghan, Rt. Hn. James	Haseldine, Norman	Mellish, Rt. Hn. Robert
Carmichael, Neil	Hazell, Bert	Mendelson, John
Carter-Jones, Lewis	Henig, Stanley	Mikardo, Ian
Chapman, Donald	Hooley, Frank	Miller, Dr. M. S.
Concannon, J. D.	Houghton, Rt. Hn. Douglas	Milne, Edward (Blyth)
Crostand, Rt. Hn. Anthony	Howarth, Robert (Bolton, E.)	Mitchell, R. C. (S'th'pton, Test)
Dalyell, Tam	Howell, Denis (Small Heath)	Molloy, William
Davidson, Arthur (Accrington)	Hoy, Rt. Hn. James	Morgan, Elystan (Cardiganshire)
Davies, G. Elfed (Rhondda, E.)	Hughes, Rt. Hn. Cledwyn (Anglesey)	Morris, Alfred (Wythenshawe)
Davies, Dr. Ernest (Stretford)	Hughes, Roy (Newport)	Morris, Charles R. (Openshaw)
Davies, Rt. Hn. Harold (Leek)	Hunter, Adam	Morris, John (Aberavon)
Davies, Ifor (Gower)	Jackson, Colin (B'h'se & Spenb'gh)	Moyle, Roland
de Freitas, Rt. Hn. Sir Geoffrey	Jay, Rt. Hn. Douglas	Murray, Albert
Dell, Edmund	Jeger, Mrs. Lena (H'b'n&St.P'cras, S.)	Newens, Stan
Dempsey, James	Jenkins, Rt. Hn. Roy (Stechford)	Ogden, Eric
Dewar, Donald	Johnson, Carol (Lewisham, S.)	O'Malley, Brian
Diamond, Rt. Hn. John	Johnson, James (K'ston-on-Hull, W.)	Oram, Albert E.
Dickens, James	Jones, T. Alec (Rhondda, West)	Orbach, Maurice
Dobson, Ray	Judd, Frank	Orme, Stanley
Doig, Peter	Kerr, Mrs. Anne (R'ter & Chatham)	Oswald, Thomas
Driberg, Tom	Kerr, Dr. David (W'worth, Central)	Owen, Dr. David (Plymouth, S'tn)
Dunnett, Jack	Kerr, Russell (Feltham)	Page, Derek (King's Lynn)
Dunwoody, Mrs. Gwyneth (Exeter)	Lawson, George	Palmer, Arthur
Dunwoody, Dr. John (F'th & C'b'e)	Leadbitter, Ted	Parkyn, Brian (Bedford)
	Lee, John (Reading)	Pavitt, Laurence

Peart, Rt. Hn. Fred	Short, Mrs. Renée (W'hampton, N. E.)	Whitaker, Ben
Pentland, Norman	Silkin, Rt. Hn. John (Deptford)	Whitlock, William
Perry, Ernest G. (Battersea, S.)	Silkin, Hn. S. C. (Dulwich)	Williams, Alan (Swansea, W.)
Perry, George H. (Nottingham, S.)	Silverman, Julius	Williams, Alan Lee (Hornchurch)
Price, Christopher (Perry Barr)	Skeffington, Arthur	Williams, Clifford (Abertillery)
Probert, Arthur	Small, William	Williams, Mrs. Shirley (Hitchin)
Rees, Merlyn	Spriggs, Leslie	Willis, Rt. Hn. George
Roberts, Rt. Hn. Goronwy	Summerskill, Hn. Dr. Shirley	Wilson, William (Coventry, S.)
Roberts, Gwilym (Bedfordshire, S.)	Taverne, Dick	Winnick, David
Rodgers, William (Stockton)	Thomson, Rt. Hn. George	Winstanley, Dr. M. P.
Roebuck, Roy	Tinn, James	Woof, Robert
Ross, Rt. Hn. William	Urwin, T. W.
Rowlands, E.	Varley, Eric G.	TELLERS FOR THE NOES:
Ryan, John	Wallace, George	Mr. Ernest Armstrong and
Shaw, Arnold (Ilford, S.)	Watkins, David (Consett)	Mr. Neil McBride.
Sheldon, Robert	Watkins, Tudor (Brecon & Radnor)
Shore, Rt. Hn. Peter (Stepney)	Wellbeloved, James

Sir C. Mott-Radclyffe

I beg to move Amendment No. 238, in page 21, line 43, at end insert 'or (d) in carrying out any works for which a grant has been, or will be, given on the advice of the appropriate Historic Buildings Council'.

Mr. Speaker

With this Amendment we are discussing the sub-Amendment, in line 2, at end add 'or under any Act which may enable a local authority to recommend an historic buildings grant'.

Perhaps I might again remind the House that after this debate there are 28 more debates on Report. I am grateful to hon. Members who responded to my appeal for brief speeches in the last debate. Brief speeches will help.

Sir C. Mott-Radclyffe

Mr. Speaker, I shall respond to your request and be extremely brief.

At the outset, I should explain that the hon. Member for Barking (Mr. Driberg) and I are the two Parliamentary representatives on the Historic Buildings Council for England. The Amendment is drafted with the words the appropriate Historic Buildings Council because there are separate councils for Scotland and Wales and we were not trying to obtain a concession in respect of England at the expense of Wales and Scotland, for obvious reasons.

The Historic Buildings Council is responsible for advising the Government on grants for the upkeep and restoration of buildings of historic and architectural importance as regards both exteriors and interiors. In the case of private houses, we apply a means test to make sure that an owner who has applied for a grant cannot afford the sum required to restore his house, and the conditions imposed are that the house must be open to the public. Of course, the Historic Buildings Coun- cil's reports are published annually and can, in effect, be debated by this House.

We rarely give a grant of more than 50 per cent. of the cost, and that 50 per cent. is seldom given until the work is completed. Thus, an applicant has to borrow the money for the whole cost of the operation knowing that when the work is completed he will get back 50 per cent. or some smaller proportion of the total sum by reason of the grant recommended by the Council. Until now, the owner has been able to set off bank interest against other income for tax purposes; in other words, he has been able to service the loan net instead of gross.

A completely different situation has now arisen. Under the Government's new Clause 28, anybody who is in receipt of a grant previous to 15th April—Budget day—is all right in relation to tax relief on the loan up to 1975; anybody who is in receipt of a grant after that date will not be able to service that loan net but will have to service it gross.

Therefore, this curious anomaly will arise. Let us suppose that owner A is in receipt of a grant, upon the recommendation of the Council, early in April this year and owner B is in receipt of a grant upon the recommendation of the Council early in May this year. Owner A will be able to deduct the bank interest against other sources of income, but owner B will not. This creates a ridiculous position.

It is important that houses of historic interest, together with their contents, should be maintained in a fit state to be open to the public. There is no doubt that the public enjoy seeing them, because the figures of visitors to these houses increase annually. Indeed, there is almost a race between the owners of historic houses to see who can attract the most visitors.

But there is a great difference between borrowing net and borrowing gross. If we put an unfair or impossible financial burden on an owner, he will not be able to defray 50 per cent. of the cost of maintaining his house or of preserving it into good repair.

I want to put before the Chief Secretary two simple examples which I have worked out. If my arithmetic is wrong, I am prepared to be told that it is. I want to take two hypothetical owners of historic houses—Mr. A. and Mr. B. I presuppose that the cost of renovating and repairing each of their houses is £40,000. That is for eradicating dry rot, repairing the roof, the stonework, and so forth. Mr. A gets a 50 per cent. grant before 15th April and Mr. B gets a 50 per cent. grant after 15th April; that is, each gets £20,000. Each owner has to borrow the whole £40,000, knowing that he will be getting £20,000 back when the work is completed. Owner A, who was in receipt of the grant early in April, will be able to deduct the interest on the bank loan against his other sources of income. Owner B will not. Borrowing at 10 per cent. on £40,000 is £4,000. Assuming that both owners are surtax-payers at 14s. 9d. in the pound, it will cost owner A about £900 a year to service the loan until the grant is repaid, but it will cost owner B. servicing the loan gross, £12,000. If owner B could afford £12,000 a year. He would not have passed the Council's means test and would not have got the grant.

So, in two comparable cases involving the same amount of money, one is allowed to deduct the loan interest against tax and the other is not.

Mr. Arthur Lewis

May I ask whether the means test is based on the social security scale? How is the means test based?

Sir C. Mott-Radclyffe

The hon. Gentleman knows very well how the means test is conducted. The owner's resources are gone into with very great care. There has never been any dispute about that.

I am pointing out the ridiculous anomaly which will arise between a grant given before Budget day and a grant given after Budget day. This will raise serious complications. It will mean that an owner who applies for a grant now will have to service the loan gross and that will put him in great difficulty. Many of those who would have accepted 50 per cent. and done the necessary renovations to the house will no longer be able to do so, and therefore houses of great historic importance, with valuable contents, will not be maintained to the benefit of the public, but will fall down.

I know that in theory local authorities have power to clap on a compulsory preservation order. I know that in extremis they have power to acquire compulsorily, but this is a bluff, because we know that the money is not available for them to do so. Therefore, if the Government wish to enable owners to maintain a fit state for the public to see houses of historic interest, it would not only be far easier, but cheaper and more sensible to allow houses in receipt of a grant from the Council to attract tax relief, which they used to get before the Budget was brought in.

1.30 a.m.

Mr. Tom Driberg (Barking)

I shall speak briefly at this time of night. It is nobody's fault in particular that this Amendment happens to arise so inconveniently late, and I am sorry to detain the House for even a few minutes.

I support the Amendment, because if my right hon. Friend were to reject it he would be doing something which would tend to frustrate the intention of the Government themselves, who provide these grants through the Ministry of Housing and Local Government, on the advice of the Historic Buildings Council, on which both the hon. Member for Windsor (Sir C. Mott-Radclyffe) and I sit. Even in the conditions of economic stringency of the past year the Government saw fit to increase the relatively modest budget of the Council by £100,000. The total budget for each year is now £650,000, which is not an enormous sum, as hon. Members would realise if they could see the immense volume of work that has to be done with it and the number of deserving cases which, unfortunately, have to be turned down. When I say "deserving cases" I mean deserving cases of buildings.

The only point on which I disagree slightly with the hon. Gentleman is that his two hypothetical cases were of people paying surtax. The hon. Gentleman knows as well as I do, because we have been on tours visiting houses, that many of the people who are trying their best to keep these houses in good repair because they are part of the superb architectural heritage of this nation, together with the cathedrals, churches, and other public buildings, are far from well off. As the hon. Gentleman said, stringent financial inquiries are made—and this is the answer to my hon. Friend the Member for West Ham, North (Mr. Arthur Lewis)—and people who can really afford to do these repairs and restorations themselves are simply refused a grant. Indeed, if they are really rich they probably will not bother to apply for a grant because it involves conditions which some of them find rather troublesome, like having to open their houses several times a week, which some may not want to do.

Do the Government want these houses to be kept in good repair? There is the artistic point, which I have mentioned—and there is the architectural heritage, which I regard is immensely important. There is also the practical point, that these historic houses, so many of which are now open to the public, are a relatively new but increasingly important part of the general tourist attractiveness of this country. It is astonishing how many Americans and visitors from Europe and all over the world come to see these great and small houses, and it would be a great pity if my right hon. Fiend and the House were to turn down this very modest relief which applies to only a limited number of buildings. It is limited to the repair and restoration of buildings, and not to their every-day maintenance. I hope that my right hon. Friend will not say anything like that, because it is restoration and repairs that we are concerned with: we firmly refuse to recommend grants simply for maintenance. I hope very much that my right hon. Friend will be able to accede to this Amendment.

Mr. Julian Ridsdale (Harwich)

I wish to speak briefly in support of my hon. Friend the Member for Windsor (Sir C. Mott-Radclyffe). I wish to draw the attention of the House to the Local Authorities (Historic Buildings) Act, 1962, and the Local Government (Financial Provisions) Act, 1963, both of which enable help to be given for restoration of scheduled buildings and historic buildings by grants or loans.

The difficulty I see at present, because of the financial policies of the Government, is that the money available for grants is very small indeed and this is making it difficult for those important buildings to be preserved as they should. The only other way money can be obtained is by a loan. The Government are empowered to give loans through these Acts, but are clawing bark the money by not allowing this as a deductible expense. It seems entirely wrong to me and, I am sure, to many people in the country.

This means that the Government, in order to preserve or to clear the present economic position, are allowing our heritage to be gravely impaired because they are not willing to allow the loans as a deductible charge. It is for those reasons that I wish to support the Amendment.

Mr. Robert Cooke

I also wish to support my hon. Friend the Member for Windsor (Sir C. Mott-Radclyffe), and I would also endorse what the hon. Gentleman the Member for Barking (Mr. Driberg) said. He speaks from great knowledge. Not only has he an historic building of his own which he makes available to thousands of visitors each year, but he also sits on the Historic Buildings Council and on the Historic Houses Committee of the British Travel Association, on which I have the privilege of serving with him. This Committee is concerned with the enjoyment of buildings restored by the help of the Historic Buildings Council.

When my hon. Friend the Member for Windsor gave his financial information and statistics, he made the point that it was the owner of the more modest house who would find himself in real difficulty. The big men, the big-time proprietors who hit the headlines, the proprietors of historic houses which have many other activities—and I will not advertise them by naming them—can write off the interest on borrowed money. Some of them receive grants because the cost of maintaining their building or of doing the necessary restoration work is prodigious. It is the smaller people who cannot do this. They are in the majority, and it is their houses which are more modest—and often more beautiful than the palatial residences—which will be lost, not immediately, but will be run down over the years.

Anyone who has had anything to do with them will know that if one does not keep such a building in a reasonable state it can get into a state where it cannot be redeemed, and that is why these grants are given by the Historic Buildings Council. The Government support their policy and give money, but they are making it difficult in cases where they should be even more helpful to smaller people doing a fine job. The hon. Member for Barking spoke of the increasing number of people enjoying these buildings. They bring money in through tourism. I hope the Government will bear this in mind and give a favourable reply.

Mr. John Smith

This Amendment, among others, is a typical result of the ill-conceived nature of this legislation. The Government are trying to nobble speculators, but all that they appear to be doing is to encourage dry rot in historic buildings.

I support the Amendment. I have no objection to the Government's trying to stop speculation, but surely they can think of a way of doing it without encouraging dry rot in historic buildings?

Mr. Diamond

The more one listens to the hon. Member for Cities of London and Westminster (Mr. John Smith) the more one realises that however often he speaks one will never hear anything faintly comparable with dry rot.

I should like to express our appreciation to both the hon. Member for Windsor (Sir C. Mott-Radclyffe) and my hon. Friend the Member for Barking (Mr. Driberg) for the work they do on the Council. They need have no anxiety about being able to persuade me personally to recognise the value of its work and the great heritage this country has in its ancient buildings and their richness.

If my hon. Friend had not mentioned it, I would have added to the arguments of the hon. Member for Windsor that obviously these buildings are a great attraction to those from outside who have nothing like a tradition of this kind, and who rightly go to some of the less fre- quented parts of the country to see some of the wonderful buildings and architecture. Nobody with the privilege of being the Member for Gloucester could fail to recognise the richness in his own constituency. There is no difference between us on the value of the work of the Council and those who serve on it, the grant that is paid, the wisdom with which it is used, and the wisdom of increasing it.

But that is not the Government's difficulty. The difficulty is that we have an Opposition who are most anxious that the Bill should be carried out logically. I find it very difficult to accept the whole of the words in the Amendment. I say "the whole", because it includes the words: …carrying out any works for which a grant has been, or will be, given…". The House knows now that the distinction is not whether or not a grant has been given, but whether or not the work is improvement. If it is, the interest on the loan will qualify for tax relief. I do not know whether the work is entirely or partly improvement. I suppose that it will vary from case to case. Where it is partly improvement and partly maintenance, repairs which merely restore but do not improve, it will have to be treated in the same way as repairs for all purposes. It would be impossible for the Government to signify their approval of the work of the Council and the need to maintain our historic buildings by giving special income tax treatment. The way for a Government to signify their approval is to give grants, which they are doing.

As regards income tax treatment, the house owner must comply with the law like any other taxpayer and get the benefit where the loan is for improvement, but not get it where it is not.

The point raised by the hon. Member for Windsor on the date of the grant is valid. It is not the date of the grant that matters; it is the date of the loan. But it is the same point here as in every other case where one draws a line based on a date. Those who come in before it are treated differently from those who come in after. That is in the nature of things, as when one changes the law from a certain date.

1.45 a.m.

It is true that a loan incurred prior to the relevant date will have interest which will rank for tax relief until 1975, whereas a loan incurred after that date will not, if it is a loan purely for maintenance and not improvement. I am sorry that I cannot recommend the House to accept the wording, although I think that a large part of the work that will be carried out will be work of improvement and as such any money borrowed will rank for tax relief.

Mr. John Smith

The Chief Secretary is under a misapprehension. It is not possible to get a historic building grant for improvement.

Sir C. Mott-Radclyffe

Will the Chief Secretary clarify a point. We are not dealing with a house assessed under Case 1 of Schedule D, which deals with businesses. Any loan for a business qualifies for tax relief. What we are dealing with are those houses where a loss is incurred under case 6 and can only be set against corresponding profit under the same section. It could of course be that someone might have a house in England running at a loss and one in Scotland running at a profit, but that is unlikely. I am not certain whether the Chief Secretary is right and that a loan, a portion of which is for improvement and a portion for maintenance of a house under case 6 would qualify for tax relief.

Mr. Diamond

Borrowing money for the purposes of a business is incurring a business expense. We are not concerned with that. I also confirm that whether it is a historic or non-historic house any loan incurred wholly or in part for the improvement of any property attracts tax relief on that part of the interest which represents the proportion of the loan attributable to the improvement.

Mr. Driberg

If my right hon. Friend is hinting, in a slightly encouraging way, that what we ask for may be covered in part by (2)(b), is there not some risk that (5) would cancel that out in respect of a good many, perhaps most, of the houses eligible for grant?

Mr. Diamond

It is because I could not be more specific that I had to leave myself to more general remarks. I listened carefully to the comments made by the two members of the Council and it seemed that what they described was work which was partly improvement, partly repair. To the extent that it is improvement the loan will rank for relief; to the extent that it is not it will not, and that is the normal law. The real point that I am making is that I could not depart from the normal law for historic houses. If we want to treat them kindly, the way to do it is through grants, which is what the Government are doing.

Sir J. Foster

It is unlikely that restoration will be an improvement because the house was built in 1252. Everything done after that is by way of repair to bring it back to its original state. The layman thinks that a house with dry rot is improved by removing the dry rot; but common sense is not part of the law. One is merely restoring it to what it was before. This is the difficulty about the grants: they are always for repair purposes.

We might leave the thought with owners who cannot borrow that if they sell their house to somebody under an estate contract which is registered, and thus avoid stamp duty, they can take advantage of subsection (5), because all the repairs for which grant was payable when it belonged to somebody else would be eligible for deduction of income tax. If they have a son or somebody else is to get the house, they can avoid stamp duty by registering an estate contract. I leave that thought in the air.

Sir C. Mott-Radclyffe

I am not wholly satisfied with the Chief Secretary's reply, but I know that he has done his best to explain the Government's position. As this was an all-party Amendment, supported by hon. Members on both sides of the House, I beg to ask leave to withdraw it.

Amendment, by leave, withdrawn.

Mr. Higgins

I beg to move Amendment No. 119, in page 21, line 43, at the end insert: (3) Subject to the provision of this section interest is eligible for relief under this section if it is paid by a person being the holder of a policy of insurance on his life which is a qualifying policy within section 16 of the Finance Act 1968 on a loan to defray money applied—

1. (a) in payment of any premium due there-under or a sum in lieu of such premium; or
815
2. (b) under a contract of loan for which the policy forms the security.

The purpose of the Amendment is to allow for tax relief loans which are made to pay a premium on an insurance policy or raised on the security of an insurance policy.

We have had the spectacle of the Chief Secretary gradually moving from one line of defence to another, producing at every stage a new principle which we had not heard about and throwing in the wastepaper basket the principles on which he had been defending his case. At various stages he has complained that he has not been able to be as logical as he might have been, but we have consistently argued that he can be logical only by throwing out the whole Clause. Nevertheless, there is a very strong case for his going one stage further, because this is essentially the line at which the battle is now being fought. This is the point—loans on insurance policies—at which he has not yet given way, and it is clearly the point on which he should next give way.

The arguments in favour of our proposal are overwhelming, even in the terms of the Chancellor's Budget speech. The right hon. Gentleman, before his peroration, extolled the virtues of saving and went on: The new savings scheme I have just described is designed to encourage people to save rather than spend some of the money that they have earned. But it is also important, as part of the same approach, to discourage people from spending money they have not earned, or do not even possess."—[OFFICIAL REPORT, 15th April, 1969; Vol. 781, c. 1039.] The essential point about insurance policies is that they are clearly an important form of saving. One of the major incentives for people to invest in insurance policies—in other words, to save —is the fact that they know, particularly with endowment policies, that it is likely that they will be able to raise money on the policy. If the Chancellor raises the cost of borrowing on those policies, it will be a discouragement to people to take out such policies and save. Therefore, it is wrong that he should act in the way that he has. It is contrary to his own policy

The Chancellor is wrong in saying that these people are borrowing money they have not earned and do not even possess. People with insurance policies are bor- rowing money they have earned and possess and have invested in insurance policies. Therefore, the right hon. Gentleman should accept the Amendment. In many ways, people are borrowing their own money.

People may take out this kind of insurance policy but do not borrow until an emergency arises, or perhaps they say that they cannot continue the premiums for a short period. If this is so, it seems to us clearly desirable that people should be able to continue to maintain their insurance policies and, if necessary, borrow against them in order to keep the premiums going during a period of emergency. But the danger now is that, given an increase in the effective cost of borrowing, people faced with an emergency will surrender their policies, and the total savings will to that extent be reduced, rather than take out a loan to carry themselves over that emergency period.

It is true that the Government, adopting the position which the Chief Secretary has adopted, have given way on earlier Amendments relating to existing loans. None the less, the point on emergency borrowing, and other points, has not been covered by this so-called concession, so we think it essential that the Government should give way on this Amendment.

It is particularly important with regard to future loans—perhaps educational loans, or loans carried out by people going back to business school in an endeavour to get more technical education. I shall not weary the House with examples, which we have already discussed to some extent, but the fact is that the whole of this area is one in which the attitude of the Government is contrary to the overall policy.

We believe that the Chief Secretary, having really no point on which he can reasonably take a stand on any reasonably logical principle at all, ought to concede the Amendment. I hope that he will do so, but if he remains adamant I most certainly hope that my right hon. and hon. Friends will divide the House.

Sir J. Foster

If the Government were disposed to accept the Amendment we would probably need a manuscript Amendment to include exempt policies as well. Qualifying policies are those dated back to 1968, and it would be illogical to exclude those policies which qualify but are not qualifying policies.

The present position is a disincentive to saving. The amount of life assurance policies will undoubtedly diminish as a result, because a person will not be willing to pledge so much of his income if he feels that it is, so to speak, gone for ever unless he can surrender it or borrow at an excessive rate. Statistics obtained from the life offices show that the average loan is comparatively small—something under £400. This provision, therefore, does not hit the surtax payer but the man who meets with an emergency—who has to have some money, say, for an operation, for education fees, or the like.

That man is only borrowing back his own money. He is not creating any kind of income. He is not going in for any tax saving which is part of the philosophy, I understand, of Clauses 18 and 19. The man who takes out an insurance policy like this cannot realise his security as can the person who has borrowed to obtain shares. Surrender is very disadvantageous, and one does not want to see savings diminish, as they will, by large-scale surrender of policies.

2.0 a.m.

Mr. John Smith

Unless this Amendment is accepted the Clause will convert insurance policies into an exceedingly non-liquid form of saving. To get back any part one will have to abandon the whole method of saving. As such the method will be far more unsuitable for people of limited means than for richer people.

When arranging one's saving, one has to put the first tranche into an exceedingly liquid medium such as the Post Office Savings Bank. From then on the more one has the less liquid the form of saving it is reasonable to invest in. Unless the Amendment is accepted the Clause will discriminate in favour of the rich. I do not say that for the sake of effect but because it is true. All Governments have always by legislation and exhortation encouraged life insurance not only as a means of saving but as a means of conducting one's life in a sensible manner for oneself and one's dependants. I therefore hope that the Chief Secretary will accept this Amedment.

Mr. Diamond

This Amendment raises a very similar point to those raised in Committee. The arguments were then fully deployed and the answer I gave then I am afraid I must give now. I cannot see that there is any difference in borrowing on an insurance policy and borrowing on any other kind of security such as stocks and shares. I cannot see why it should be thought that this should attract special treatment for tax.

I recognise that the case has been made mainly on the ground of the effect on the payer of a modest premium and that the borrowing would be only in proportion. The borrowing would be modest and the interest would be modest, but the tax on the interest would be even more modest. I do not recognise for a moment the force of the argument that because the tax would be one-third of 10 per cent. on a small amount per annum people would be discouraged from entering into insurance policies. Nor can I see the argument that, discouraging as the proposal in the Bill certainly is for people to realise their savings, it is a discouragement to saving.

On the contrary, if people are saving through insurance policies one wants to encourage them to go on saving. To encourage borrowing on an insurance policy is to discourage saving. It is part of the policy of my right hon. Friend to encourage saving. It is sensible that an insurance policy should be treated as security for a loan, but if it is there is no distinction to be drawn between that kind of security and any other. I am sorry to say in reply to the hon. Member for Worthing (Mr. Higgins), who suggested that I have moved my ground, that I am confronted by an excellent brief to reply to him, but it consists solely of what I said in Committee. Therefore, there is no better argument that I can produce.

Mr. Higgins

We do not accept the argument which the right hon. Gentleman has put forward in Committee and tonight. Tax relief on the interest on such a loan may seem modest but it will not seem modest to the person with an emergency to cope with. It will seem less modest for a person who, to maintain his policy, has to borrow to pay the premium. The whole point about the Amendment is that if a person has to surrender a policy the matter is at an end, but if he has the policy and can borrow money on it to pay the premiums he can resume it when better times come for him. We do not accept the arguments put forward by the Chief Secretary either now or in Committee. I therefore hope that my hon. and right hon. Friends

Division No. 335.]	AYES	[2.4 a.m.
Alison, Michael (Barkston Ash)	Hall, John (Wycombe)	Onslow, Cranley
Allason, James (Hemel Hempstead)	Hall-Davis, A. G. F.	Orr-Ewing, Sir Ian
Astor, John	Hamilton, Lord (Fermanagh)	Osborn, John (Hallam)
Atkins, Humphrey (M't'n & M'd'n)	Harris, Reader (Heston)	Page, Graham (Crosby)
Awdry, Daniel	Hastings, Stephen	Percival, Ian
Baker, Kenneth (Acton)	Hawkins, Paul	Pink, R. Bonner
Baker, W. H. K. (Banff)	Heseltine, Michael	Pounder, Rafton
Biffen, John	Higgins, Terence L.	Powell, Rt. Hn. J. Enoch
Black, Sir Cyril	Hiley, Joseph	Price, David (Eastleigh)
Blaker, Peter	Hill, J. E. B.	Prior, J. M. L.
Boardman, Tom (Leicester, S. W.)	Holland, Philip	Pym, Francis
Boyle, Rt. Hn. Sir Edward	Hordern, Peter	Ramsden, Rt. Hn. James
Braine, Bernard	Hornby, Richard	Renton, Rt. Hn. Sir David
Brown, Sir Edward (Bath)	Howell, David (Guildford)	Ridley, Hn. Nicholas
Bruce-Gardyne, J.	Hunt, John	Ridsdale, Julian
Buchanan-Smith, Alick (Angus, N&M)	Hutchison, Michael Clark	Rossi, Hugh (Hornsey)
Burden, F. A.	Iremonger, T. L.	Royle, Anthony
Campbell, B. (Oldham, W.)	Jenkin, Patrick (Woodford)	Russell, Sir Ronald
Carlisle, Mark	Jones, Arthur (Northants, S.)	Scott, Nicholas
Chataway, Christopher	Jopling, Michael	Scott-Hopkins, James
Chichester-Clark, R.	Joseph, Rt. Hn. Sir Keith	Sharples, Richard
Clark, Henry	Kershaw, Anthony	Shaw, Michael (Sc'b'gh & Whitby)
Clegg, Walter	Kimball, Marcus	Silvester, Frederick
Cooke, Robert	King, Evelyn (Dorset, S.)	Smith, Dudley (W'wick & L'mington)
Crowder, F. P.	Kirk, Peter	Smith, John (London & W'minster)
Cunningham, Sir Knox	Kitson, Timothy	Speed, Keith
Dalkeith, Earl of	Knight, Mrs. Jill	Stainton, Keith
d'Avigdor-Goldsmid, Sir Henry	Lane, David	Stodart, Anthony
Dean, Paul	Legge-Bourke, Sir Harry	Taylor, Edward M. (G'gow, Cathcart)
Deedes, Rt. Hn. W. F. (Ashford)	MacArthur, Ian	Taylor, Frank (Moss Side)
Drayson, G. B.	Maclean, Sir Fitzroy	Temple, John M.
du Cann, Rt. Hn. Edward	Macleod, Rt. Hn. Iain	Turton, Rt. Hn. R. H.
Elliott, R. W. (N'c'tle-upon-Tyne, N.)	McNair-Wilson, Michael	van Straubenzee, W. R.
Farr, John	Maddan, Martin	Waddington, David
Fisher, Nigel	Maginnis, John E.	Weatherill, Bernard
Fletcher-Cooke, Charles	Marten, Neil	Wells, John (Maidstone)
Fortescue, Tim	Maude, Angus	Whitelaw, Rt. Hn. William
Foster, Sir John	Maxwell-Hyslop, R. J.	Wiggin, A. W.
Gibson-Watt, David	Mills, Peter (Torrington)	Wilson, Geoffrey (Truro)
Gifmour, Sir John (Fife, E.)	Mills, Stratton (Belfast, N.)	Wolrige-Gordon, Patrick
Glover, Sir Douglas	Mitchell, David (Basingstoke)	Woodnutt, Mark
Glyn, Sir Richard	Monro, Hector	Worsley, Marcus
Godber, Rt. Hn. J. B.	Montgomery, Fergus	Wright, Esmond
Goodhart Philip	More, Jasper	TELLERS FOR THE AYES:
Goodhew, Victor	Morgan-Giles, Rear-Adm.	Mr. Reginald Eyre and
Gower, Raymond	Morrison, Charles (Devizes)	Mr. Anthony Grant.
Grieve, Percy	Mott-Radclyffe, Sir Charles
Gurden, Harold	Munro-Lucas-Tooth, Sir Hugh
	Nott, John

NOES
Allaun, Frank (Salford, E.)	Bray, Dr. Jeremy	Dell, Edmund
Anderson, Donald	Brooks, Edwin	Dempsey, James
Archer, Peter	Brown, Hugh D. (G'gow, Provan)	Dewar, Donald
Armstrong, Ernest	Brown, Bob (N'c'tle-upon-Tyne, W.)	Diamond, Rt. Hn. John
Ashley, Jack	Brown, R. W. (Shoreditch & F'bury)	Dickens, James
Atkins, Ronald (Preston, N.)	Buchan, Norman	Dobson, Ray
Atkinson, Norman (Tottenham)	Buchanan, Richard (G'gow, Sp'burn)	Doig, Peter
Baxter, William	Callaghan, Rt. Hn. James	Driberg, Tom
Bence, Cyril	Carmichael, Neil	Dunnett, Jack
Benn, Rt. Hn. Anthony Wedgwood	Carter-Jones, Lewis	Dunwoody, Mrs. Gwyneth (Exeter)
Bidwell, Sydney	Chapman, Donald	Dunwoody, Dr. John (F'th & C'b'e)
Binns, John	Concannon, J. D.	Eadie, Alex
Bishop, E. S.	Dalyell, Tam	Edwards, William (Merioneth)
Blackburn, F.	Davidson, Arthur (Accrington)	Ellis, John
Blenkinsop, Arthur	Davies, G. Elfed (Rhondda, E.)	English, Michael
Booth, Albert	Davies, Dr. Ernest (Stretford)	Ennals, David
Boston, Terence	Davies, Rt. Hn. Harold (Leek)	Ensor, David
Boyden, James	Davies, Ifor (Gower)	Evans, Fred (Caerphilly)
Bradley, Tom	de Freitas, Rt. Hn. Sir Geoffrey	Evans, Ioan L. (Birm'h'm, Yardley)

Will suppot the Amendment in the Lobby.

Question put, That that Amendment be made:—

The House divided: Ayes 140, Nose 188.

Fitch, Alan (Wigan)	Lyon, Alexander W. (York)	Perry, Ernest G. (Battersea, S.)
Fletcher, Raymond (Ilkeston)	Mabon, Dr. J. Dickson	Perry, George H. (Nottingham, S.)
Fletcher, Ted (Darlington)	McBride, Neil	Price, Christopher (Perry Barr)
Foot, Michael (Ebbw Vale)	MacColl, James	Probert, Arthur
Ford, Ben	Macdonald, A. H.	Rees, Merlyn
Forrester, John	McGuire, Michael	Roberts, Rt. Hn. Goronwy
Fowler, Gerry	McKay, Mrs. Margaret	Roberts, Gwilym (Bedfordshire, S.)
Freeson, Reginald	Mackenzie Gregor (Rutherglen)	Rodgers, William (Stockton)
Gardner, Tony	Mackie, John	Roebuck, Roy
Gray, Dr. Hugh (Yarmouth)	Mackintosh, John P.	Ross, Rt. Hn. William
Gregory, Arnold	Maclennan, Robert	Rowlands, E.
Grey, Charles (Durham)	McMillan, Tom (Glasgow, C.)	Ryan, John
Griffiths, David (Rother valley)	McNamara, J. Kevin	Shaw, Arnold (Ilford, S.)
Griffiths, Eddie (Brightside)	Mahon, Simon (Bootle)	Sheldon, Robert
Hamilton, James (Bothwell)	Mallalieu, E. L. (Brigg)	Short, Mrs. Renée (W'hampton, N. E.)
Hannan, William	Mallalieu, J. P. W. (Huddersfield, E.)	Silkin, Rt. Hn. John (Deptford)
Harper, Joseph	Manuel, Archie	Silkin, Hn. S. C. (Dulwich)
Harrison, Walter (Wakefield)	Mapp, Charles	Silverman, Julius
Haseldine, Norman	Marks, Kenneth	Skeffington, Arthur
Hazell, Bert	Marquand, David	Small, William
Hooley, Frank	Mellish, Rt. Hn. Robert	Spriggs, Leslie
Houghton, Rt. Hn. Douglas	Mendelson, John	Summerskill, Hn. Dr. Shirley
Howarth, Robert (Bolton, E.)	Mikardo, Ian	Taverne, Dick
Howell, Denis (Small Heath)	Milne, Edward (Blyth)	Thomson, Rt. Hn. George
Hoy, Rt. Hn. James	Mitchell, R. C. (S'th'pton, Test)	Tinn, James
Hughes, Roy (Newport)	Molloy, William	Urwin, T. W.
Hunter, Adam	Morgan, Elystan (Cardiganshire)	Varley, Eric G.
Jackson, Colin (B'h'se & Spenb'gh)	Morris, Alfred (Wythenshawe)	Wallace, George
Jay, Rt. Hn. Douglas	Morris, Charles R. (Openshaw)	Watkins, David (Consett)
Jenkins, Rt. Hn. Roy (Stechford)	Morris, John (Aberavon)	Watkins, Tudor (Brecon & Radnor)
Johnson, Carol (Lewisham, S.)	Moyle, Roland	Wellbeloved, James
Johnson, James (K'ston-on-Hull, W.)	Murray, Albert	Whitaker, Ben
Jones, T. Alec (Rhondda, West)	Newens, Stan	Whitlock, William
Judd, Frank	Ogden, Eric	Williams, Alan (Swansea, W.)
Kerr, Mrs. Anne (R'ter & Chatham)	O'Malley, Brian	Williams, Alan Lee (Hornchurch)
Kerr, Dr. David (W'worth, Central)	Oram, Albert E.	Williams, Clifford (Abertillery)
Kerr, Russell (Feltham)	Orme, Stanley	Williams, Mrs. Shirley (Hitchin)
Lawson, George	Oswald, Thomas	Willis, Rt. Hn. George
Leadbitter, Ted	Owen, Dr. David (Plymouth, S'tn)	Wilson, William (Coventry, S.)
Lee, John (Reading)	Page, Derek (King's Lynn)	Winnick, David
Lewis, Arthur (W. Ham, N.)	Palmer, Arthur	Woof, Robert
Lewis, Ron (Carlisle)	Parkyn, Brian (Bedford)	TELLERS FOR THE NOES:
Lipton, Marcus	Pavitt, Laurence	Mr. John McCann and
Lomas, Kenneth	Peart, Rt. Hn. Fred	Dr. M. S. Miller.
Loughlin, Charles	Pentland, Norman

Mr. Anthony Stodart (Edinburgh, West)

I beg to move Amendment No. 157, in page 21, line 43, at end insert: (3) Subject to the provisions of this section, interest is eligible for relief under this section if it is paid on a fixed term loan obtained on or before 15th April 1969 on the security of agricultural or forestry property. In considering this Amendment we must have in mind the terms of new Clause 28 which was accepted by the House yesterday. That Clause allows relief to be given for six years up to 6th April, 1975, in respect of interest on a fixed loan taken out on or before 15th April this year, namely, Budget day. The object of new Clause 28 was to allow those who had entered into firm commitments to adjust their affairs with more reasonable convenience than the original date of 5th April, 1970, would have allowed them. That was clearly a gesture by the Government, although we regard the principle underlying the Government's approach to this matter as being basically wrong. Therefore, my welcome to that gesture must inevitably be somewhat less than warm.

2.15 a.m.

The Amendment is designed to allow for the special circumstances under which I believe agriculture and forestry operate. I am not a disciple of the cult of special pleading on behalf of either agriculture or forestry. My general outlook is that I am thoroughly in favour of these industries enjoying similar treatment to other industries getting similar returns for their efforts. But one cannot ignore the fact that the finance required for forestry operations is of the longest possible nature and that agriculture, although its various sectors differ, comes second in that category.

It is usual for loans to be taken out repayable over 20 years on both the Agricultural Mortgage Corporation and the Scottish Agricultural Securities Corporation. Indeed, a period of 40 years is by no means unusual. This is what puts these basic industries into a category of their own, and the length of time involved is due to the fact that from trees one has planted last March there will be no income from thinnings for at least 15 years, while 10 years in farming is only two of the rotations which are still practised on many farms.

We have a situation in which interest on a loan taken out, for example, 20 years ago, and with 10 or even 20 years still to run, will be disallowed after April, 1975, unless it can be specified how the loan was used. If the loan has been applied to buying land or improving or developing it, the interest is unreservedly allowable. If, on the other hand, some of it has been used for maintenance or perhaps for paying estate duty or for some other purpose, clearly very intricate and elaborate calculations will have to be made, instigated by the inspector of taxes.

My experience from constituency correspondence is that the Inland Revenue is already hopelessly overburdened without having to delve into the past on a scale and over a length of time such as I have described. This, together with the long-term nature of forestry and agriculture operations and their financing, plus the encouragement which should be given to them as enormous potential import savers—and we tend to concentrate on this aspect of agriculture, forgetting the enormous amount of money spent on importing timber—justifies special consideration being given to these two industries, and that is why the Amendment has been put down.

Mr. Diamond

The hon. Gentleman wished us to have in mind that the money to which he was referring was being borrowed to be spent on agricultural and forestry property. The form of the Amendment is "on the security of" agricultural or forestry property. May I make the preliminary point that security is totally irrelevant to the purpose of the Clause? A loan can be secured in any way; what is of relevance is the purpose to which the loan is devoted. The hon. Gentleman is asking that where the loan is devoted to agricultural or forestry property it should rank for more than the five years proposed under the new Clause.

I recognise that there will be many loans in forestry which are needed for a long period. In fixing the five years we did not attempt to fix a period longer than the period for which a loan could be contracted. That would have been impossible. As the hon. Gentleman has said, loans may be for 20 years or 40 years, and it would be impossible to have a new system of disallowance of interest running side by side with a system of allowance of interest for 40 years, and expect the new system to be understood or even to become acceptable. A transitional period of five years to give people time to adjust is understandable, but a period of 20 or 40 years, or, as is proposed, an indefinite period, would be impossible.

The five-year period is not intended to be a period which will be longer than the loan, but is intended to be a period in which the borrower will have ample time to adjust his affairs. Five years is a long period for that. I do not know what each borrower will do; it will depend on the arithmetic and circumstances of each case, but each person will have nearly six years in which to prepare for the new set of circumstances. I cannot recommend to the House acceptance of the Amendment.

Mr. John Smith

The point of the Amendment is not so much to give people time to adjust their affairs. The type of loan covered by the Amendment is difficult to adjust, however long may be the period of adjustment—presumably most such loans will have been raised for the payment of estate duty. If they were used for improvement they would in any case qualify for allowance of the interest against tax. Most of the property against which such loans are secured is difficult to sell except as a whole. Therefore, if a person is forced to pay off such a loan, his only way of adjusting his affairs is to cease altogether whatever activity he is conducting with the property. That is not only an unfair state of affairs; it may also be undesirable. Both agriculture and forestry can be satisfactorily conducted only in units of a certain size. Unless the Clause is amended in the way proposed, it will surely have a number of effects which I am sure the Government do not intend and which are not at all desirable.

Amendment negatived.

Mr. Graham Page

I beg to move Amendment No. 241, in page 22, line 1, at end insert: (a) to defray money applied in a purchase, improvement, development or payment described in that subsection which occurred prior to 15th April, 1969, or (b).

Mr. Deputy Speaker

With this Amendment, we shall discuss Amendment No. 245, in line 7, at end insert: 'unless that other purpose is a deposit with a bank or an investment in a building society temporarily, pending readiness to fulfil any of the purposes described in the said subsection'.

Mr. Page

The House is well aware by this time that Clause 19(2) gives relief to interest upon a loan to defray money applied in purchasing land. The draftsmen of that subsection, or should one say the Government, have not made it clear whether the relief is to be given in respect of interest on a loan which is being used simultaneously with the purchase, or for a simultaneous purchase, or for a past purchase, or whether the subsection is meant to cover both circumstances. It is said to be a loan to defray money applied in purchasing land. The question is whether the money is being applied at that time or whether the money has been applied in the past in the purchase of land.

Subsection (3) says that if the interest is to have relief it must be on a loan in connection with the application of the money for the purchase, and the money must be borrowed either on the occasion of its use for purchase or within a reasonable time from that purchase. It is fairly clear—as clear as a Finance Bill ever endeavours to be—that for somebody who purchased a property a few years ago, having found all the money himself, and who now mortgages the property to borrow on it, no relief would be given for the interest paid on that loan.

My Amendment seeks to give relief in such circumstances where the property was bought in the past with the purchaser's own money and at a later stage the purchaser finds it necssary or desirable to borrow on the security of the property. Let me give a typical example of what I have in mind. A couple, having married a year or so ago, both then at work and earning, save some money and put down all or a substantial part of the purchase money for their home. After a time the wife becomes pregnant and gives up her job, but in order to tide them over the birth of the first child, they borrow some more; they take a further advance on the security for the property, perhaps another 10 or 20 per cent.

As I read the Clause, interest on that further advance would not rank for relief as the Bill stands. I want it to rank for relief. The result of the Clause as it stands will be that the couple in my example will in the first instance try to borrow up to the hilt. They will borrow more than they need because they will be advised that, if they do not do so and find they nee da little more money in the future, the interest will not rank for relief on that further advance. Surely it is wise to encourage them not to take more than they need at the start, and then, when the wife is out of a job and having her children, they can borrow more and still get the same relief.

2.30 a.m.

Now I pass to Amendment No. 245, which is to add some wards at the end of subsection (3). That subsection says that the relief provision, subsection (2), … shall not apply to a loan the proceeds of which are applied for some other purpose before being applied as described in that subsection. In other words, there is no relief if the proceeds of the loan are applied for some other purpose before being applied for the purchase of land.

The Amendment seeks to modify that by saying that a couple shall not be deprived of relief if all that they have done is to put the money on deposit at a bank or with a building society. They will probably want to get their advance out of a building society, and it seems reasonable to let them deposit their money in that way.

The sort of example that I have in mind is where a purchaser is negotiating for the purchase of property, the negotiations fall through but, in the meantime, he has been able to negotiate a loan, perhaps from a relative, and has received the money. If the Clause remains as it is, it orders him to deposit that money on current account until he finds another property to purchase. Surely it is reasonable to put it where it earns a little interest, on deposit at a bank, including the Post Office or Trustee Savings Banks or in a building society.

Under subsection (3), relief is granted in respect of the interest only if the loan is in connection with the purchase and either on the occasion of the purchase or within a reasonable time after it. I am not concerned in Amendment No. 245 with raising the money after the purchase. I am concerned with the man who has raised the money before the purchase, perhaps considering another property, the negotiations have fallen through, he has the money in hand, and still intends to go on and purchase. To tell him that he must not earn interest on that money in the meantime seems to be ridiculous, and therefore the slight modification that I suggest appears to be appropriate.

Mr. Diamond

Dealing with Amendment No. 241, I repeat what I said in an earlier debate. We are not concerned with the security on which the loan is obtained. The borrowing may take place on the security of the house. But the hon. Gentleman described the loan as one for the purpose of "tiding over" the couple concerned. I understand what he means. But tiding a couple over is not one of the purposes for which loan interest is treated as qualifying interest, and the fact that the money is borrowed on the property does not make it money borrowed for the purpose of improving property. Therefore, I regret that I cannot accept that Amendment.

I turn hurriedly to Amendment No. 245 and say to the hon. Gentleman that the temporary deposit of money in a bank or building society cannot be regarded as applying the money for any particular purpose. The money is just resting there. We do not require that it should be held in a pillow case pending deposit with the hon. Gentleman on the purchase of a property by one of its clients. The best way to answer this point is by using the now hallowed words: this Amendment is unnecessary.

Sir J. Foster

Is it unnecessary? I suggest that the Government are penalis-

(4) If and so far as a loan made by allowing the debtor to overdraw an account is applied in improving land or buildings (otherwise than by the construction of a building or part of a building) no relief shall be given in respect of interest on the loan falling due more than three years after the end of the year of assessment in which the loan is so applied.

ing the poorer man, the unsophisticated man, by preventing him putting his money in a more sophisticated form of investment which produces a higher rate. That seems bad luck on him.

I understand from the right hon. Gentleman that in a building society it is all right; that is not a purpose. How he arrives at that I cannot think, but we are grateful for it. Can the right hon. Gentleman extend that to explain that any money resting is money resting in an investment pending its application? In other words, if it comes under the definition of money supply, would that be all right? I should like to know where he stops. We must be grateful for the interpretation which includes a building society. But why not short-term Government loans, or whatever?

Mr. Diamond

The short answer is that I was asked to deal with the Amendment, and I have dealt with it.

Mr. Graham Page

I am obliged to the Chief Secretary for dealing with Amendment No. 245 in the way that he did. I accept his assurance that, in the cases which I had in mind, the relief will be given.

However, I am disappointed with his answer to Amendment No. 241. It seems wholly illogical that someone purchasing property who does not want all the purchase money advanced to him at that moment, but takes some of it at that time and at a later time takes the rest when he needs it, should not get relief on that second loan. That is the interpretation that the Chief Secretary has given to the Clause and I gather that is what he intends should happen. I can only warn him that it will cause considerable hardship to some people. It will not cause hardship to those who take too much credit, take more money than they need borrow when they purchase, and thereby put more money into circulation, which I should think that the Government would wish to stop.

Amendment negatived.

Mr. Diamond

I beg to move Amendment No. 216, in page 22, line 8, leave out subsection (4) and insert:

Mr. Deputy Speaker (Mr. Harry Gourlay)

With this Amendment it will be convenient to take the sub-Amendment, in line 3, after 'building', insert 'or by carrying out an improvement to agricultural land'.

Mr. Diamond

The main purpose of the Amendment is to provide that relief for interest on a loan by way of overdraft which has been used for improvements of land or buildings is not to qualify for relief where the interest becomes payable more than three years from the end of the tax year in which the money is spent. I repeat, I am referring to an overdraft.

Improvements consisting of the construction of a building or part of a building are not affected, because borrowing for building, like borrowing for buying a house or land, cannot be expected to be paid off for a long time.

The case is different with borrowing for improvements, such as the installation of central heating. Borrowing for such a purpose ought to have been paid off within three years, and there is no reason why it should result in the borrower's being entitled to relief for interest on an overdraft of the relevant amount for ever.

This is the best that we can achieve for practical purposes of determining what would be an otherwise difficult matter. I hope that the House will regard it as a reasonable compromise.

Mr. Higgins

Before my right hon. Friend the Member for Grantham (Mr. Godber) comments on the Amendment, may I ask the right hon. Gentleman to tell the House the connection between subsection (4) which is being left out, and the subsection which is now being inserted?

Mr. Godber

I do not think that I need take long over the sub-Amendment, although it is a matter of some significance. After the rebuff that we had from the Chief Secretary on the agricultural point earlier, my hopes are not very high. This is a matter for which the right hon. Gentleman ought to provide here. He is, in this new subsection (4), taking away some of the assistance being given under subsection (2)(b). This subsection is of significant interest to agriculture. We can understand the right hon. Gentle- man's desire to limit the provisions as he is seeking to do in the Amendment, but the words in brackets in the Amendment do not go far enough to safeguard the position in relation to agriculture.

The right hon. Gentleman has said that it is reasonable to allow loans for the construction of a building, or part of a building, to have a longer term because it would be impracticable to consider repayment within three or four years. If this is logical in relation to buildings, it must equally be logical in regard to a number of matters which are common practice in agriculture. One such practice is drainage. We heard earlier that land drainage is sometimes done at intervals of 100 years. This is by no means abnormal. The cost is high, and it should be spread over a longer period than three years. It must be spread over 15 to 20 years to be reasonable. This is the sort of term that is required if the cost is to be spread evenly before further drainage is necessary.

The same applies to water supplies, which are becoming increasingly important for irrigation which plays an important part in agriculture. The provision of reservoirs for irrigation is another aspect which is substantially costly, and where the costs should be spread over a much longer period. Farm roads are another example. There are many aspects to which this should apply, and that is why we have suggested the inclusion of the words or by carrying out an improvement to agricultural land. Lest the Government feel that this wording is spreading it too wide, I refer again to the normal definition of agricultural land in relation to agricultural holdings, to which I referred earlier. The 1948 Act says that agricultural land means land used for agriculture which so used for the purpose of a trade or business…. If that definition is applied to the Amendment, it prevents any abuse of the type which the Government may have in mind in relation to the purposes for which they have moved the Amendment.

I am merely seeking to widen the Amendment to include a loan obtained for legitimate agricultural purposes, which could not reasonably be repaid over three or four years. I ask the Chief Secretary to consider this as at least some concession to agriculture after the curt reply that he gave on a previous occasion

Mr. John Smith

I cannot see what business it is of the Government's whether a person takes borrowing by way of loan or overdraft. In the past, it has often been completely fortuitous whether a person has taken borrowing by way of loan or overdraft. To make it harder for them to do so by way of overdraft simply damages an extremely effective system which we have developed, far more than in any other country in the world, to our own advantage, namely, the overdraft system which makes a much more effective use of resources than any system based on loans. As the right hon. Gentleman is aware, taking money by way of loan increases the money supply more than taking money by way of overdraft, and it seems to me that pointless and unnecessary damage is done by the Amendment to a system which we have, and which many other countries envy.

2.45 a.m.

Sir C. Mott-Radclyffe

I have no wish to repeat what was said on the agriculture Amendments, but I must ask the Chief Secretary to hoist in the fact that on many agricultural estates it is fortuitous whether maintenance and improvements are financed by overdraft, mortgage or loan. It made no difference before this Bill. Long-term arrangements, once made, are difficult to get out of, and one cannot escape obligations under the Agriculture Act, 1947. A loan or grant, whether by overdraft or mortgage, does not solely apply to buildings. They may be buildings on farm A, or an access road on farm B, or fencing on farm C or drainage on farm D. Some of these may have to be done together and others may be separated over many years—that is what the maintenance of agricultural property means.

That is why this provision of only three years' grace to pay off the loan for relief on the interest does not make any sense at all in terms of agriculture.

Sir J. Foster

The difference between loan and overdraft is even more absurd, because a joint stock bank can be the one making a loan. If one is careful to go to a bank where one does not have an account, and ask for a loan, one will get away with it.

This is not an argument to stop loans, but is discrimination against overdrafts, because an overdraft is only another way to make a loan. It is a fluctuating loan which goes up and down as one credits it. In countries like the United States, overdrafts are illegal and they would have a much better fiscal system if they allowed overdrafts. This stems from odd historical reasons.

The Chief Secretary should explain why he is discriminating against overdrafts and forcing people to lending and borrowing in a strained way, contrary to the economic well-being of this nation.

Mr. Diamond

The hon. Gentleman the Member for Windsor (Sir C. Mott-Radclyffe) referred to a person borrowing by overdraft and to entering into long-term commitments. I do not know quite what he meant, but presumably he was saying that borrowing by overdraft is long-term commitment. The distinction is that an overdraft is not and cannot be a long-term commitment. It is, by its nature, short term and is capable of being called in by the lender at short notice and of being repaid by the borrower at any time. That is not the case with a loan for a fixed term where the borrower can repay at any time but the lender must await the end of the period before calling in the loan.

That is the distinction one draws and there is great inconvenience in dealing with an overdraft. As the hon. and learned Member for Northwich (Sir J. Foster) said, it is wobbling up and down and is not in the nature of a fixed loan and one cannot make the calculations upon it.

This is a reasonable way of dealing with the matter—

Sir Douglas Glover (Ormskirk)

rose—

Mr. Diamond

If the hon. Member will allow me, I will first respond to the debate. I was asked about Clause 19(4). That is now to be found in new Clause 29(3).

Sir D. Glover

The right hon. Gentleman the Chief Secretary is not quite correct. There are many instances where a person goes to a bank which gives an overdraft on an agreed basis of two or three years.

Mr. Diamond

The hon. Gentleman has confirmed what I was saying. He talked about two or three years.

Mr. du Cann

We can all see the distinction the Chief Secretary is drawing between an overdraft and a loan. Of course, the two things can be—I do not say that they always are—very different. But the point we were putting to him was rather different. It was, why does he draw the distinction at all?

Mr. Diamond

We are drawing the distinction because interest payable on an overdraft ranks for relief in the normal case until 30th June this year. Interest on a fixed loan ranks for relief until 1975. The second is a long-term commitment and the first is not. In the second case it is right to give the person concerned a longer time to adjust his affairs. If the right hon. Gentleman wants to persuade me that that was wrong I shall listen with sympathy, but I do not think that he does.

The main point, which was not contained in the words of the Amendment, though that is nothing we should bother about, was that of the repairs referred to some would be substantial and some would not. I think that the hon. Gentleman said that the cost of the substantial ones should be spread over a longer period. I was more concerned to find out from him what would be a reasonable period in practice for the borrower to repay the loan, not the period over which the cost should be spread. He is putting to me that beyond what has been provided for here there are things like drainage schemes which are quite substantial, that although they are maintenance they necessitate borrowing which must be repaid over a longer period than that for which provision is made. That is something of which I must take note. There is no intention to disregard it. I cannot take note of it in this Bill, and I am not sure that it is something which will prove to be a difficulty or hardship. I promise him that I will give it consideration during the coming year, and see whether difficulties arise. If they do, I shall hope, without making a specific promise, to bring something before the House in a year's time.

Mr. Godber

May I say "Thank you" for at least this small concession, which may be of some help to us.

Amendment agreed to.

Mr. Deputy Speaker

The next Amendment is Government Amendment No. 275, with which we may discuss Amendments No. 141, in page 22, line 26, after which', insert: 'has either both of the following dimensions—

1. (a) an overall length (excluding any drawbar) exceeding 22 feet;
2. (b) an overall width exceeding 7 feet 6 inches

or'.

No. 142, in page 22, line 35, after 'subsection', insert: '"overall length" and "overall width" shall have the meanings respectively assigned to them in Regulation 3 of the Motor Vehicles (Construction and Use) Regulations 1966 and". and Government Amendments No. 276 and 277.

The Minister of State, Treasury (Mr. Dick Taverne)

I beg to move Amendment No. 275, in page 22, line 26, leave out 'which' and insert: 'but, unless it is a large caravan, no relief shall be given by virtue of this subsection in respect of the payment of any interest unless— (a) the caravan'. The Amendment deals with the change asked for by the hon. Member for Wan-stead and Woodford (Mr. Patrick Jenkin). I said when he raised his points in Committee that I would consider them. I saw the Caravan Council and was persuaded by it and the hon. Gentleman that this was a change worth making. I am satisfield that it excludes touring caravans. It includes a number of residential caravans in respect of which there might otherwise be some difficulty, because while they are rateable they are not necessarily rated and therefore there would be some difficulty in obtaining relief.

Mr. Patrick Jenkin

II is right that we should express gratitude for the acceptance of an Amendment, not only in substance, but in every single detail, as we put it forward in Committee. It would be right too, to pay tribute to the National Caravan Council which was very quick off the mark and which has clearly helped to right what would have given a serious injustice in the Bill as originally drafted.

Amendment agreed to.

Further Amendments made: No. 276 in page 22, line 30, leave out from 'Ireland' to last 'the' in line 31 and insert 'and'(b)'.

No. 217 in line 44 leave out subsection (9).—[Mr. Taverne.]

Mr. Taverne

I beg to move Amendment No. 218, in page 23, line 19, leave out subsections (11), (12) and (13) and insert: (11) Subsection (2)(a) above shall not apply—

1. (a) where the seller and purchaser are a husband and his wife, and either sells to the other, or
2. (b) where the purchaser, or the wife or husband of the purchaser, has, since 15th April, 1969, disposed of an estate or interest in the land in question and it appears that the main purpose of the disposal and purchase was to obtain relief in respect of interest on the loan, or
3. (c) where the purchasers are the trustees of a settlement, and the seller is the settlor, or the wife or husband of the settlor, and it appears that the main purpose of the purchase is to obtain relief in respect of interest on the loan, or
4. (d) where the purchaser is directly or indirectly purchasing from a person connected with him, and the price substantially exceeds the value of what is acquired,

and subsection (2)(b) above shall not apply where the person spending the money is connected with the person who, directly or indirectly, receives the money, and the money substantially exceeds the value of the work done. For the purposes of this subsection—

1. (i) references to a husband and wife are references to a husband and his wife living with him,
2. (ii) any question whether a person is connected with another shall be determined in accordance with paragraph 21 of Schedule 7 to the Finance Act 1965.

This Amendment leaves out three subsections now dealt with in new Clause 29. Secondly, it introduces some of the anti-avoidance provisions previously negatived in Committee. The Amendment is directed at the exploitation of Clause 19 by transactions which, in form, are a purchase of an interest in property but which, in fact, are designed to obtain tax relief for loans for other purposes. When the previous Amendments were moved there were a number of criticisms. In particular, there was one which seemed to be a telling one, made by the hon. and learned Member for Northwich (Sir J. Foster), that the Revenue might have regard to any case where someone had sold any land, not just the case where he bought back his own. The words "any other land" have been omitted from the new draft.

The Amendment is now restricted to the sale by one spouse to another, where they are living together—and this is the test the Revenue is to have regard to in any claim for personal allowances—to purchases of a house which has previously been sold, where the main object is to get the relief, sales within settlements, where the main purpose is to obtain relief, and sales between connected persons. The last point was also criticised by the hon. and learned Gentleman. The two conditions have to be fulfilled. Not only has it to be a transaction between two connected persons, but also one for an inflated price.

Amendment agreed to.

Further Amendment made: No. 277 in line 36 at end insert: 'large caravan' means one which has either or both of the following dimensions—

1. (a) an overall length (excluding any drawbar) exceeding 22 feet;
2. (b) an overall width exceeding 7 feet 6 inches

where 'overall length' and 'overall width' have the meanings given in Regulation 3 of the Motor Vehicles (Construction and Use) Regulations 1966.—[Mr. Taverne.]