TAXATION OF MINERAL ROYALTIES (Hansard, 27 May 1970)

HC Deb 27 May 1970 vol 801 cc1896-904 1896

§ (1) Subject to the following provisions of this section, a person resident or ordinarily resident in the United Kingdom who in any year of assessment or accounting period is entitled to receive mineral royalties under a mineral lease or agreement shall be treated—

(a) for purposes of income tax (including surtax), or as the case may be for purposes of corporation tax on profits exclusive of chargeable gains, as if the total of the mineral royalties receivable by him under that lease or agreement in that year or period and any management expenses available for set-off against those royalties in that year or period were each reduced by one half; and
(b) for purposes of Part III of the Finance Act 1965, or as the case may be for purposes of corporation tax on chargeable gains, as if there accrued to him in that year or period a chargeable gain equal to the relevant fraction of the total of the mineral royalties receivable by him under that lease or agreement in that year or period;

and this section shall have effect notwithstanding any provision of section 156(1) of the Taxes Act (rent etc. payable in connection with mines, quarries and similar concerns) making the whole of certain kinds of mineral royalties chargeable to tax under Schedule D, but without prejudice to any provision of that section 1897 providing for any such royalties to be subject to deduction of income tax under Part II of the Taxes Act.

§ (2) For the purposes of subsection (1)(a) above, " management expenses available for set-off " against royalties means—

(a) where section 158 of the Taxes Act (expenses of owners of mineral rights) applies in respect of the royalties, any sums brought into account under subsection (1) of that section in determining the amount of the repayment of income tax in respect of those royalties or, as the case may be, deductible from those royalties under subsection (2) of that section in computing the income of a company for purposes of corporation tax; and
(b) if the royalties are chargeable to tax under Schedule A, any sums deductible under Part III of the Taxes Act as payments made in respect of management of the property concerned, including amounts of betterment levy treated as such payments under paragraph 6 of Schedule 4 to that Act;

and if neither paragraph (a) nor paragraph (b) above applies, the reference in subsection (1)(a) above to management expenses available for set-off shall be disregarded.

§ (3) The relevant fraction referred to in subsection (1)(b) above in relation to the mineral royalties receivable under a mineral lease or agreement—

(a) shall be one half if betterment levy was not chargeable in respect of the grant of that lease or agreement and has not subsequently become chargeable on any renewal, extension or variation of the mineral lease or agreement;
(b) shall be determined in accordance with Part I of Schedule (Taxation of capital element in mineral royalties) to this Act if, on the last disposition affecting the lease or agreement and giving rise to an assessment to betterment levy, betterment levy was chargeable under Case B within the meaning of Part III of the Land Commission Act 1967; and
(c) in any other case shall be determined in accordance with regulations made by the Board by statutory instrument, and any such regulations shall secure, so far as practicable, that account is taken of any betterment levy chargeable in respect of a disposition affecting the mineral lease or agreement on a basis comparable with that in the said Part I;

and notwithstanding anything in the enactments relating to the computation of chargeable gains, the amount of the chargeable gain treated as accruing to any person by virtue of subsection (1)(b) above shall be the whole amount calculated in accordance with that subsection, and accordingly no reduction shall be made on account of expenditure incurred by that person or of any other matter whatsoever.

§ (4) Where subsection (1) above applies in relation to mineral royalties receivable under a mineral lease or agreement by a person not chargeable to corporation tax in respect of those royalties, then in so far as the amount of income tax paid, by deduction or otherwise, 1898 by him in respect of those mineral royalties in any year of assessment exceeds the amount of income tax, exclusive of surtax for which he is liable in respect of those royalties by virtue of subsection (1)(a) above,—

(a) the amount of the excess shall in the first instance be set against the tax for which he is chargeable by virtue of subsection (1)(b) above; and
(b) on the making of a claim in that behalf, he shall be entitled to repayment of tax in respect of the balance of that excess.

§ (5) The provisions of Part II of Schedule (Taxation of capital element in mineral royalties) to this Act shall have effect in relation to capital losses which accrue during the currency of a mineral lease or agreement.

§ (6) In this section and in Schedule (Taxation of capital element in mineral royalties) to this Act, references to mineral royalties refer only to royalties receivable on or after 6th April 1970, and the expression " mineral royalties " means so much of any rents, tolls, royalties and other periodical payments in the nature of rent payable under a mineral lease or agreement as relates to the winning and working of minerals; and the Board may by regulations made by statutory instrument—

(a) provide whether, and to what extent, payments made under a mineral lease or agreement and relating both to the winning and working of minerals and to other matters are to be treated as mineral royalties; and
(b) provide for treating the whole of such payments as mineral royalties in cases where the extent to which they relate to matters other than the winning and working of minerals is small.

§ (7) In this section and in Schedule (Taxation of capital element in mineral royalties) to this Act— minerals " means all minerals and substances in or under land which are ordinarily worked for removal by underground or surface working, but excluding water, peat, top-soil and vegetation; and mineral lease or agreement " means—

(a) a lease, profit a prendre, licence or other agreement conferring a right to win and work minerals in the United Kingdom;
(b) a contract for the sale, or a conveyance, of minerals in or under land in the United Kingdom; and
(c) a grant of a right under section 1 of the Mines (Working Facilities and Support) Act 1966, other than an ancillary right within the meaning of that Act.

§ (8) A statutory instrument made in the exercise of any power conferred on the Board by this section shall be subject to annulment in pursuance of a resolution of the Commons House of Parliament.

§ (9) In the application of this section to Northern Ireland—

(a) paragraphs (a) to (c) of subsection (3) above shall not apply but the relevant fraction referred to in subsection (1)(b) above shall be one half;
b) references to mineral royalties include references—

(i) to periodical payments of compensation under section 29 or section 35 of the Mineral Development Act (Northern Ireland) 1969 or under section 4 of the Petroleum (Production) Act (Northern Ireland) 1964; and
(ii) to periodical payments made as mentioned in section 37 of the said Act of 1969 or under section 55(4)(b) of that Act or under section 11 of the said Act of 1964 (payments in respect of minerals to persons entitled to a share of royalties under section 13(3) of the Irish Land Act 1903); and

(c) in the application of this section to any such payments as are referred to in paragraph (b) above, subsection (5) above shall be omitted, and references in any other provision of this section to the mineral lease or agreement under which mineral royalties are payable shall be construed as references to the enactment under which the payments are made.—[Mr. William Rodgers.]

§ Brought up, and read the First time.

Mr. Rodgers
I beg to move, That the Clause be read a Second time.

§ The Deputy Chairman
It will be convenient for the Committee to discuss, at the same time, Amendment No. 17—the new Schedule.

Mr. Patrick Jenkins
It would be churlish if my hon. Friends and I did not express our gratitude to the Government for having, at a comparatively late stage in these proceedings, made what is by any standards an important change of the law, in enacting an important relieving provision.
The new Clause and the Schedule that goes with it will significantly relieve the tax burden on landowners who become entitled to mining royalties. As I understand, the case has been put forward solely on the ground—there may be peripheral arguments—that the burden of taxation, due to the rapid receipt of royalties over a short period, constitutes such a disincentive that certain commercially valuable mining deposits are left unmined and certain economic activities that are useful both for the nation and for our balance of payments do not take place.
This is a case where high taxation was undoubtedly providing a severe and totally inhibiting disincentive to important and valuable commercial activity. The only distinguishing factor about the case was that the injured parties were 1900 able to produce the body and point to the wounds. In this case it could be proved that something was not happening which, if taxation were lower, might happen. The question that we are inevitably forced to ask ourselves is: how many other cases are there of desirable commercial activity not being carried out because of the penal rates of taxation that can affect people at the margin?
That is the real message of the Clause. It is valuable, and we welcome it, but it is merely one example where the Government have found it necessary to move in and relieve from tax citizens who otherwise would face such a high burden that the game would simply not be worth the candle, and mining activities would not take place. That fact lies at the heart of the tax philosophy of the party that I represent. We believe that high taxation is a severe disincentive. The Government have always denied this, but in this case they have admitted it and acted on it. How many other cases are there on which they ought to act?

§ Mr. Carol Johnson (Lewisham, South)
I am reluctant to introduce a somewhat critical element into this mutually congratulatory atmosphere, but the fact that the new Clause was not included in the original Budget statement or in the Finance Bill means that outside the House it has not received the attention that it merits. Although in outlining the proposal in the Second Reading debate the Chief Secretary stated that it had been discussed with the interests concerned, I suspect that he was thinking solely of those likely to benefit from the tax concession.
I want to refer to some of the other interests that have not been consulted, but that have some apprehensions about the possible effect of the proposal upon some parts of the countryside. I should have thought that it was at least agreed that there was a broad national interest to be taken into account, especially in Conservation Year, and when we are on the eve of an election during which I feel certain that members of all three political parties will be pledging themselves to the urgent necessity of protecting our environment.
We are already faced with a specifically difficult problem in respect of derelict land. It is commonly thought of as a legacy of the Industrial Resolution, and 1901 it is certainly an appalling one. The latest authoritative figures I have been able to find show that in England and Wales in 1954 there were no fewer than 14,187 sites covering over 126,000 acres. Although some of this land has been reclaimed since then, the process of reclamation is very slow.
It is not generally realised that the scale of continuing dereliction remains significant. About 3,000 acres of land are being used each year for surface mineral workings alone, and half of these are left derelict. Thus, we already have a state of affairs in which no fewer than 1,500 acres of dereliction are being created each year for mineral workings alone.
Because of this situation, and the problems it creates, the control of mineral workings is dealt with in several Acts of Parliament and innumerable Regulations and Circulars. Now, the Chancellor makes a proposal which will inevitably add to the problem. A responsible spokesman for the Country Landowners' Association has claimed, according to The Times, that this action by the Government opens up the path to a major development of mineral resources, while one of the possible developers has said, again according to The Times, that it is a substantial step towards encouraging major groups to exploit and develop mineral deposits in the United Kingdom, a purpose which, I understand, the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) strongly approves.
No doubt, I shall be told by the Financial Secretary that these are matters for the planning authorities and that we can leave it to them to deal with any conflict which may arise in regard to change of land use. It is true that planning authorities in general are concerned with competing pressures on land and with the resolution of conflicting demands. But—it is an important " but " —proposals for mineral working invariably raise issues of more than local importance and often involve technical considerations which require expert opinion of a character more easily available to a Government Department, and in practice many of these applications are called in by the Minister of Housing and Local Government.
1902 Can the Financial Secretary tell me what consultations his Department has had with his right hon. Friend about the implications of the new policy, particularly in those sensitive areas of the countryside in which the giving of priority to the extraction of minerals over amenity and other forms of land use might have grave results?
I am not arguing that amenity considerations should be paramount. They are only one of the factors to be taken into account. But I should like an assurance that the considerable extension of mineral workings which is now likely to take place will not be allowed in any way to override, restrict or limit the present policy followed by the Minister of Housing and Local Government, namely, that they shall be carried out with proper regard for the appearance and other amenities of the area and that, when the working is finished, the land should, wherever practicable, not be left derelict, as it has been in the past, but be restored or otherwise treated with a view to bringing it back into some form of beneficial use.
I can quite see that in the older industrial areas which have already been ravaged by past development further mineral working will not in some cases materially change the appearance of the area, and I understand that it is in development areas where the new tax concession is intended as a direct incentive. But in other parts of the country—

§ Mr. Patrick Jenkin
I think it right to say that there is no specific provision confining this to development areas. It could apply to a mine in Lewisham or in Woodford, as to one on the Yorkshire Moors or in Cornwall.

§ Mr. Johnson
Exactly. In other parts of the country different considerations apply, and any new working for minerals ought. I suggest, to be more strictly controlled than in the past. There must be many hon. Members who have been disturbed, as I have, by reading the article in The Times today about the possible effects of mining activity, in that case open pit working in the Snowdonia National Park. This raises relevant questions about how much further mining can be allowed in such areas without wrecking the very environment the status 1903 of which as a National Park is meant to be preserved. I am thinking here of farming activities and forestry as well as mere amenity.
I feel that I need not apologise to the Committee for having dealt with this aspect of the matter. Hon. Members may think that some of the points which I have raised are extraneous, but I should like to feel that the implications of the policy are fully appreciated before the Committee passes the Clause. Perhaps the Financial Secretary will be able to assure me that all the interests concerned, not only those of the land owners and developers, will be taken into account, and that, should any new administrative arrangements become necessary to guard against the dangers to which I have referred, they will be made.

§ 8.15 p.m.

§ Mr. Taverne
First, I thank the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) for his welcome to the new Clause. Second, I greatly admire his ingenuity in seeking to extract a political point out of it. What he says about incentives is wholly inappropriate. There is no parallel to this situation, which, as my right hon. Friend the Chief Secretary fully explained on Second Reading, is a special situation arising out of the very high royalties obtainable for a short time through the recent technological developments in deep mining.
I come now to the points raised by my hon. Friend the Member for Lewisham, South (Mr. Carol Johnson). I agree entirely that these proposals have not received the attention which they deserve, first, because they open the way to an enormous saving on the balance of payments—that was not the point which my hon. Friend had in mind—and second, because they mean that there will be a lot of useful work in development areas.
My hon. Friend's special concern is with the planning aspects and the possible danger to the environment. The new Clause does not come into play—to some extent my hon. Friend recognised this—until planning permission has been given. There may be some extra exploration which takes place, but no question of working and winning minerals and paying tax on them arises until 1904 after planning permission has been given. The planning authorities are in on the question from the very first, and all the considerations to which my hon. Friend referred, to which, obviously, the greatest attention must be paid, will be very much in mind at the planning stage.
My hon. Friend asked whether we had consulted the Ministry of Housing and Local Government on the matter as environment might well be affected. We did not consult the Ministry of Housing and Local Government at that stage. This was a piece of technical tax legislation on which one would not normally consult other departments, particularly when the planning aspects were in any event matters over which that Ministry would retain full control. However, when the Clause was tabled, we did, naturally, consult the Ministry of Housing about the effects. Our discussions showed that the Ministry thinks that, far from hampering protection of the environment and conservation, the Clause may actually be of help, the reason being—I am sure that my hon. Friend will be glad to hear this —that it covers payments for the right to extract mineral from waste material in spoil heaps.
The Ministry of Housing and Local Government thinks that the improved tax treatment of these payments should help in the efforts being made to have old tips cleared away from derelict land. This is an important matter in the environment, and part of a policy which should be enhanced and furthered by this tax concession. I hope, therefore, that these proposals will be welcomed on all sides.

§ Question put and agreed to.

§ Clause read a Second time and added to the Bill.