§ 9.30 p.m.
§ Mr. Richard Wainwright
I beg to move amendment No. 5, in page 18, line 16, at end insert:'(4) In paragraph 2(1) of the said Schedule 5 after "him" there shall be inserted the words "subject to sub-paragraph (2) below" and after paragraph 2(1) of that Schedule there shall be inserted—1908(2) There shall be excluded from a charge by way of recovery of relief for any period of account an amount equal to the difference between the relief which could have been claimed under paragraph 1(2) above and the amount of relief specified in a claim under paragraph 1(4) above for the immediately preceding period of account.".'.The amendment touches the income tax aspect of stock relief. It is of great significance to tens of thousands of self-employed traders, many of whom already have a justified sense of grievance at losing a considerable amount of the stock 1909 relief that on any equitable interpretation should have been written off under the provisions of the Bill—but the Government turned that down at about mid night on Monday 9 July.
It has been pointed out previously that that clumsily constructed form of relief hinges entirely on the value of a trader's stock on only one day of the year. For example, it is easy for a trader through the accidents of trade to finish his trading year with a large stock, perhaps abnormally large, at these times at inflated money values. In the same year, he may well have been unsuccessful and made little or no profit. Under that curious form of relief, such a trader is then confronted with a dilemma. His profit is by no means sufficient to cover his ordinary personal allowances and perhaps the allowances in respect of the capital equipment in his business. On those figures alone he would be foolish to claim anything like the whole of his stock relief because he would get no value from his ordinary income tax allowances. In many cases he is advised to make no claim or, under the Bill, to make only a partial claim.
The mischief arises in the following year when he starts with the colossal disadvantage of an enormous initial stock. Under the perverse system of relief, at the end of the second trading year he may find that because of a lorry-men's strike or other unintended and uncontrolled hold-up in delivery he ends the year with a very low stock. Then comes the most vicious part of the so-called relief. The Revenue claws back from him all the relief in respect of the difference between the large accidental opening stock and the abnormally small closing stock.
Under the clauses of the Bill the trader can make a claim for partial relief. The amendment is designed to cure the astonishing situation which the Government intend to perpetrate that, although a trader can make a partial claim for relief, the clawback in the following year, when his stock situation is reversed, is made in full. This is most inequitable. The trader has had a partial benefit in one year but he is not allowed even a partial clawback the following year. The Revenue's powers of clawback are total.
1910 It is strange and depresssing that this should have arisen under this Government and that the debate tonight should be managed by the Minister of State. In the early days of this strange and illogical relief it was the Minister of State who was one of the most pertinent critics of its shoddy nature. I must remind him of statements that he made on this subject on 21 January 1975. He said:The Chief Secretary told us that this is a rough and ready clause. The measure of relief that it gives is haphazard in the extreme.A little later he said:As has been pointed out, to refer to this as a relief is a misnomer. I do not know whether I would call it a loan. At any rate, for the advantage gained in the present accounting period there will be comparable disadvantages in later accounting periods—[Official Report, 21 January 1975; Vol. 884, c. 1256.]Given the Minister's perspicacious criticism of this ill-designed, irrational and inequitable relief, it is depressing that he should now pile upon the original irrationality a further irrationality by matching a system for partial stock relief with total clawback powers for the Inland Revenue.
Many sole traders and small business men may find themselves having a claw-back against them far in excess of the partial relief they received the previous year. This is inequitable and it adds to the perversity of the relief.
In a Finance Bill that had to be drawn up in haste this year because of the strange timetable, I did not expect the Government to come forward with a much improved system of inflation accounting for tax. Certainly they will have to do so next year or they will be roasted. However, I did not expect them to add to this monument to folly a further annexe of equal unfairness and irrationality. The Government could redeem themselves and put the matter right if they accepted this simple amendment.
§ Mr. Peter Rees
Obviously this is self-employment night for the Liberal Party because by the most specious and indirect means the hon. Member for Colne Valley (Mr. Wainwright) has attempted to tie this issue to the self-employed. However, it is true, and a matter of curiosity, that companies are excluded by his amendment. The hon. Gentleman embroidered his speech with a great deal of hyperbole. 1911 However, I am not sure whether he understands the inwardness of his amendment. The amendment appears to be designed so that the unclaimed portion of stock relief could be carried forward to a later year to be set against the recovery charge, but the hon. Gentleman seems to suggest that the recovery charge can somehow exceed the total relief that was claimed. I shall re-examine the matter.
§ Mr. Richard Wainwright
I have not suggested that the clawback would exceed the relief claimed. I suggested that it could exceed the relief due on the figures of stock over a period of trading. That is different from the relief that is actually claimed.
§ Mr. Rees
The hon. Gentleman should look again at the matter. The point is that the clawback is to be equated with the relief claimed. It can be related to the fall in stock value or the total relief allowed in past years but it can never exceed the total relief claimed in past years. Therefore, I do not think that the position is as astonishing as the hon. Gentleman affects to have discovered.
I am flattered that he should have recalled my criticisms of our system of stock relief in earlier years. It is always flattering when one's words are quoted back at one and I do not dissent from what I said on that occasion.
§ Mr. Rees
It is not in the least disconcerting. The hon. Member for Oldham, East (Mr. Lamond) was obviously not following our debates on that occasion. It may be that he is as confused by the amendment of the hon. Member for Colne Valley as I am.
The system of stock relief was cobbled together in rather a hurry when the previous Administration realised the dent in company liquidity that their tax policies of 1974 had inflicted on the business sector. To that extent, I feel that my criticisms were and still are justified. The previous Administration and ourselves have endeavoured to improve the system in small particulars. However, the hon. Member for Colne Valley is right when he says that we have to look at corporate taxation. When we do so the question of stock relief and inflation accounting will feature in our deliberations. 1912 There is a measure of common ground between us.
However, there are criticisms to be advanced of the case which the hon. Gentleman deployed, no matter how eloquently and however embroidered with hyperbole it may have been. He does not appear to have given ample recognition to the fact that in the Finance Bill, short though it was, we managed to work into it claims for partial relief. That had been asked for over the years and at last it was conceded. Stock relief was originally designed as relief for liquidity in the business sector. By definition, the relief should operate in a year when a business man's or a company's liquidity is affected.
The hon. Gentleman's amendment will enable unclaimed relief to be carried forward to a year when it is by no means self-evident that there will be a shortage of liquidity in the case of the person who claims it. It will be administratively complicated. Companies will be excluded. The general principles which he has advanced to support his case are good and there can be no good reason for excluding the corporate sector, except on a rather specious ground. I am sure that it will not have occurred to the hon. Gentleman that he is making a great case for the self-employed in this evening's debate. There are various other points, of technicality but importance, as to what would happen if there was a change in persons carrying on the business.
Why should the case of a business man, who instead of making a partial claim in one year made no claim at all, not receive the advantage of the amendment? The general principles behind the hon. Gentleman's amendment are good and sound, and why should that case not be taken care of? Therefore, I do not think that the hon. Gentleman has made out his case in principle. I think that he will be the first to recognise, being a generous-spirited person, that there are a considerable number of technical situations which are not covered by the amendment and which, if the principles are good principles, should be covered.
However, to reassure the hon. Gentleman and the House, perhaps I may say that we shall be looking at the taxation of business profits, particularly for the 1913 corporate sector. This is the kind of point which I hope we shall catch up with and reconsider, although I hold out no particular hope and offer no particular commitment that the matter will be deserving of a legislative cure.
On that basis, I hope very much that the hon. Gentleman, having made his point and deployed it with his usual eloquence, will not feel obliged to take the matter further, at any rate at this stage.
§ Mr. Richard Wainwright
I find the Minister of State's reply very disappointing on several counts. First, his promise is very unsatisfactory, because he goes out of his way to say that it is corporate profits that are to be looked at. It was in consideration of that sort of attitude that my amendment was designed particularly to relieve the self-employed, the sole trader or the man who is in a partnership but is not part of a company structure.
I shall be glad to give way to the Minister if he wishes to correct his statement and to say that it is all business profits, and not business profits especially in the corporate sector, that are to be looked at. If the Government allow this gimcrack-type of relief, in one of the most arbitrary, banana republic-type statues that we have ever had in this country, to remain for another year after the next Finance Bill, they will be guilty of tolerating the most awful unfairness.
§ Mr. Peter Rees
I think that the hon. Gentleman got my words accurately, because he repeated them. I very carefully said "business profits", and although I put particular emphasis on corporate profits I did not exclude other forms of business profits. I hope that that meets the hon. Gentleman's lingering anxieties.
§ Mr. Wainwright
That is a great improvement. I am glad to hear it and that it is on the record. It is a useful promise to have extracted from the Minister—even with some difficulty.
However, I must go on to express my great dissatisfaction that in trying to deal with my amendment the Conservative Minister of State took over holus-bolus the arguments which were served up by the previous Chief Secretary to the Treasury when he was rejecting amend- 1914 ments of the same kind. To have the words of Heywood and Royton recited from Dover and Deal is almost more than flesh and blood can stand. Whenever he was in difficulty—and all Ministers have been in appalling difficulty over this absurd type of relief—the previous Chief Secretary, the beloved right hon. Member for Heywood and Royton (Mr. Barnett), started taking refuge by saying that this relief was simply to help companies at times when they were embarrassed by problems of liquidity. This is a caricature of a defence for this relief.
Perhaps I may pray in aid the situation with which I think all hon. Members will be familiar in connection with traders in their constituencies who were affected at the very end of their trading year last winter by the failure of deliveries through the lorry men's strike, a failure which sometimes completely exhausted the trading stocks of certain types of traders. For instance, this applied to people dealing in agricultural products, food and so on.
This particular form of relief has the effect that if on the one closing day of the trading year a total accident has reduced the trader's stocks to abnormally low levels, he loses any prospect of relief that year and, worse still, is subject to a full clawback by the Revenue of previous relief which he has had in other years. Yet that situation does not in the least mean that his liquidity troubles are at an end, because for the whole of the rest of the 11 months and three weeks of the trading year he may well, in these inflationary times, have been trying to bear the burden of financing inflated stocks. It was only through the accident of the final week of the year, when the strike deprived him of supplies, that he lost his relief and was subject to the vicious clawback provisions.
Therefore, the argument that all this is to do with liquidity fails completely when the relief itself goes nowhere near touching the real problems of maintaining a high trading stock week in and week out through the greater part of a trading year. I am surprised that the Minister of State should have taken over this feeble argument, which was knocked about in Committee upstairs year after year on previous Finance Bills, and should be retailing it to the House in an attempt to resist this amendment.
1915 I have to acknowledge, however, that, as is often the fate of those on the Liberal Bench, the big battalions are against us. In the circumstances, with a sharp eye on the Minister's performance next year, I beg to ask leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.