LORD DENMANMy Lords, on behalf of my noble friend Lord Strachie, who is unavoidably absent, I desire to ask His Majesty's Government the Question standing in his name—Whether it is the case that Mineral Rights Duty is payable on Excess Profits on mineral royalties; and, if so, whether they consider it fair that such tax should be imposed on that part of royalties on minerals which has to be paid over to the Government.
§ LORD HYLTONIn answer to the Question, my noble friend will probably 278 know that the Mineral Rights Duty imposed by the Finance (1909–10) Act, 1910, is charged at the rate of 1s. in the £ upon the net amount, after the deduction of Income Tax, of mineral royalties paid by the lessee working the minerals in respect of the right to work the minerals. Then as regards the Excess Mineral Rights Duty, that was imposed by the Finance (No. 2) Act, 1915, as an addition to the Mineral Rights Duty. It corresponds in some respects, as your Lordships know, to the Excess Profits Duty, being a charge upon the "excess" royalties accruing in certain circumstances to the owners of mineral rights just as the Excess Profit Duty is a charge upon the "excess" profits of trades and businesses. The subject of the charge to Excess Mineral Rights Duty is the mineral royalties payable by the working lessees in respect of the right to work the minerals; but whereas the Mineral Rights Duty is charged upon the full amount of the mineral royalties so paid, the Excess Mineral Rights Duty is levied only in cases where the royalty varies according to the selling price of the minerals, and is charged upon the "excess" of the royalty payable in any working year ending after August 4, 1914, after the pre-war standard. The rate of duty which is payable on the "excess" has always followed the rate of the Excess Profits Duty. That was originally 50 per cent., subsequently it was increased to 60 per cent., then to 80 per cent., and it has now been reduced to 40 per cent., in respect of the excess accruing as from January 1, 1919.
I do not know whether my noble friend wants me to explain to him exactly how that pre-war standard of which I have spoken is arrived at. As a matter of fact, it is the average of any two of the pre-war rent values of the last three pre-war years. That pre-war rent value is a purely hypothetical figure bearing no relation to the amounts of royalty actually payable in the pre-war year, and is taken to be the figure to which the royalties payable in the working year would have amounted if the selling price of the minerals in the pre-war year were substituted for the selling price in the working year. There is one point about the Mineral Rights Duty and the Excess Mineral Rights Duty—namely, that they are both of them in effect annual levies on capital; because, as your Lordships know, minerals are a wasting asset, and, to arrive at the difference between the gross and the actual net receipts in the case of an income 279 derived from mineral royalties, you must deduct from the gross royalties in the first place the Income Tax at 6s. in the £ in the second place, the Mineral Rights Duty, to which I have referred, at 1s. in the £ in the third place, the Excess Mineral Rights Duty, if any; in the fourth place, the super-tax if any; and fifthly—owners cannot disregard the fact that this must be the fifth deduction to arrive at the difference between the gross and net mineral receipts—the salary of minerals agents whose services are, as many of your Lordships know who are practically acquainted with these matters, indispensable in the case of every royalty owner. From the figures I have given it will be obvious to your Lordships that the State has been receiving, and is now receiving, a larger proportion of the receipts on royalties than the nominal owner of the royalties; and it will, perhaps, be a matter of regret to some future Chancellor of the Exchequer to lose this considerable branch of the revenue if mineral royalties are nationalised.
The second Question of my noble friend asks whether in the opinion of His Majesty's Government it is fair that the Excess Minerals Rights Duty should be imposed on that part of royalties on minerals which have been paid over to the Government. I am not authorised by His Majesty's Government to answer this question, but most noble Lords know that, under the present system of assessing Income Tax on lands or houses, we most of us have to pay Income Tax on much that we do not and cannot receive. My noble friend might equally ask whether the Government thought that was fair. I am afraid that the only answer I can give is that at present it is legal.