§ Order of the Day for the Second Reading read.
§ THE LORD CHANCELLOR (VISCOUNT SIMON)My Lords, I beg to move the Second Reading of this Bill which, as your Lordships will see, is a war-time measure and is for the purpose of extending temporarily the powers of the Court under a section of the Settled Land Act, 1925, and a section of the Trustee Act, 1925. I had better explain in non-technical language the reason why this Bill has become necessary. In ordinary times, as your Lordships appreciate, when property is settled, it is the duty of the tenant for life, out of the income of the property, to meet expenses which are income expenses. Generally speaking, the capital of the fund or of the settlement is not available for that purpose.
To take a very simple illustration, the repair and maintenance of a mansion house would fall to the tenant for life to meet out of income. The tenant for life could not ordinarily be made to repair such a house, though he would do so if he could in most cases because he is occupying it. But under the conditions that now exist, what with the great height of taxation, the limitation of income, and other circumstances, it is pointed out to me that there are many cases in which it is not really possible for the tenant for life, out of what remains of his income, always to meet these burdens. Already in the law there are cases in which he could apply to the Court for special authority to vary his normal obligations, but there is no adequate provision to meet that sort of case. The proposal of this Bill is that, for the period of the war, the Court, when applied to, can authorize the use of a portion of the capital of the estate for meeting expenses which 744 in normal times would be income expenses. But the power is carefully hedged round. Our object is not merely to relieve the tenant for life. It is for the purpose of maintaining the estate for the general advantage of all interested in it, so that it should not go to rack and ruin, else those who succeed will suffer quite as much as the immediate tenant for life.
If your Lordships are interested in the actual provisions of the Bill, you will see that before the Court can make an order it must be satisfied that the action taken or proposed was, or would be, for the benefit of the persons entitled under the settlement or under the trust for sale generally. That of course would include those who come after the tenant for life. It must also be satisfied that the available income from all sources of the person entitled to possession or receipt of rents, who ought otherwise to have borne the expense, has been so reduced by circumstances arising out of the war that he is unable to bear it without undue hardship; and, thirdly, that no such person as aforesaid has sufficient income available for meeting that expense. There is a further provision, which is rather a novelty in our Statute Law, in which not only must the Court review all the circumstances of the general financial position of the applicant, but give consideration to the fact whether he has taken artificial means to avoid the normal incidence of taxation.
I believe that the object of this Bill is approved generally. I have been at pains to ascertain the views taken by some of the principal authorities and, at any rate in regard to the principle, they are all at one. I see my noble friend Lord Maugham here. Doubtless he will say what he feels about it. I have ascertained that the Master of the Rolls and my Chancery colleagues who are Law Lords feel that these are necessary and suitable provisions. By this means we shall, notwithstanding the circumstances of the war, be able to see properties maintained in the general interest of all who are concerned, although under the very harsh and difficult conditions of to-day the tenant for life may not himself have sufficient income to discharge his normal obligations. I beg to move.
§ Moved, That the Bill be now read 2a.—(The Lord Chancellor.)
§ VISCOUNT MAUGHAMMy Lords, it is with great regret I have to rise on 745 this occasion and explain why I feel this Bill is quite insufficient to meet the difficulties with which tenants for life all over the country are confronted. While admitting to the full the excellent intentions which lie at the bottom of this Bill, I must explain to the House my own reasons for coming to the conclusion that it is insufficient to meet the difficulties which now arise. There is no law in the least of a complicated nature that I have to call to your Lordships' attention, so I hope nobody will think I am going to embark on anything of a technical character. The position is this. There are in this country a very large number of tenants for life of land and buildings, not as many I think as there used to be at the time when, so long ago as the year 1882, the Settled Land Act was passed. The position in 1882 was that if a tenant for life, who of course, only had the income of the property, was to improve the property in any way, he had to do it at his own expense. He was not bound to improve the property, and I should like to make it perfectly clear that in the normal case he was not bound to repair the property either. In many cases that was impossible. Houses grow old. Those who have been in possession of a Tudor residence or one that is perhaps older, as I have been, know the very great expense that may occasionally confront them if they are liable to repair, or if they feel bound to repair, and attempt themselves to repair.
I would add that I am afraid now and then I shall have to say something about my own personal knowledge of the matter. When I was a Judge of the Chancery Division I had, on a number of occasions, applications by tenants for life to be allowed to pull down the mansion house upon the property in order to sell the materials for what they would fetch. There were no means of selling the house itself as a residence, but there were perhaps panelling, perhaps mantels and other materials which were worth selling, and the tenant for life could no longer go on residing in the house or on the property. That is very much more common now when, as I know, quite a number of your Lordships have come to the conclusion that after this war they will probably not be able again to live in their own principal mansion house. In 1882 the Legislature o thought fit to give power to tenants for life to make a number of improvements 746 on the settled land for the benefit of all persons entitled under the settlement, and when one says "all persons entitled under the settlement" one generally means the tenant for life whose interest is for his life and his own children when he dies, his eldest son, it may be, or it may be other members of his family. Those are the people who are the persons interested.
I should like now to say that any comments I make on this Bill and any suggestions which I am earnestly going to press the noble Viscount on the Woolsack to consider, are not in the least designed to affect any money considerations of the Government or the country as a whole. They are put forward simply because I think, for the benefit of the families who are interested in such a property as we are dealing with, the settled estate, something much more than this Bill provides ought really to be done. Let me remind your Lordships, because many of you are riot as old as I am, that in 1882 the Income Tax was 5d. in the pound, and there was no Surtax at all. The result was that the tenant for life of a substantial estate, which was bringing in, we will say, £1,000 or £2,000 a year, was paying on that sum 5d. in the pound for Income Tax. Out of that income he was generally well able to maintain the property, look after the agricultural interests of the estate, and keep up his roof, see after the gutters, and do the drains and all the other little things of that kind that required to be done. But there were a number of improvements which required substantial sums to be paid out in respect of them, and those were provided for in the Act of 1882.
A long list of things, with which I will not weary your Lordships because I have something to say which will take some few minutes, appears in that Act. These improvements of various sorts were authorized to be done out of capital money standing in the names of trustees and held upon the trust of the land, with the sanction of the Court. It is very easy for people who have never had anything to do with it to think the sanction of the Court is an easy thing to obtain, but I know very well, from having been concerned with this for a long time both as counsel and Judge,, that is not so, and that what with the advice of a solicitor, the obtaining of the necessary evidence, the affidavits that have to be put before 747 the Court, the cost of the summons, of the counsel whom there must be in the normal case and sometimes also to appear when the summons comes before the Judge, the drawing-up of the order, the reference back to the solicitor and the surveyors to see that what is done complies with what is being allowed—all this is a very expensive business, and unless there is a substantial thing to be done it is not really worth while to go to the Court. It is much better either not to do it at all or to do it out of your own money if you can manage it.
That went on fairly reasonably with a long list of improvements that could be authorized by the Court till the Settled Land Act, 1925, was passed. In the days of the first Lord Birkenhead a number of important Acts were passed, and the Settled Land Act, 1925, was an Act which showed that the Legislature had appreciated the circumstance that tenants for life were not as well off as they used to be, and that a certain number of improvements ought to be done by the tenant for life, with a safeguard which did not require an application to the Court at all. Now between 1882 and 1925 the expenses of Government had gone up and Income Tax was then 4s. 6d. in the pound instead of 5d. Other expenses that fell upon tenants for life were also much more than they had been. The measure which was passed in 1925, which was called the Settled Land Act, 1925, contained a Part IV with reference to improvements. Sections 83 and 84 enabled a number of improvements to be effected without going to the Court at all. The safeguard was this: that where capital money was to be expended, say, in the hands of the trustees of the settlement, which is the normal case, they might apply the money towards payment of the whole or any part of any work comprised in the improvement. Reading it shortly, a certificate was to be furnished by the competent engineer or a practical surveyor employed independently of the tenant for life—that means in practice nominated by trustees of the settlement—certifying that the work or the portion comprised in the improvement, had been properly executed, and what amount was proper to be paid in respect of it. That would justify the improvement being effected without going to Court at all.
748 In the alternative an order of the Court might be obtained, if the work was very expensive and if the various trustees of the settlement thought it better to get the consent of the Court. In the case of work costing £2,000 or £3,000 the cost of the application would be comparatively trifling. If they were spending a few hundreds that could be done without going to Court by getting the certificate I have mentioned which would be necessary in any case for repair of a substantial character in respect of buildings. Your Lordships may think that the improvements mentioned were only of a very special character and were comparatively trifling. That is not true at all. I will just tell your Lordships some of the improvements which that Act of 1925 authorized without going to Court at all in proper cases. They included drainage, bridges, irrigation, warping, drains, pipes and machinery for supply and distribution of sewage as manure, embanking or weiring from a river or lake or from the sea, inclosing, straightening of fences, redivision of fields, farm roads, cottages for labourers, farm servants and artisans, whether employed on the settled lands or not, the building and erection of farmhouses, offices and outbuildings and other buildings, sawmills and other mills, reservoirs, tanks, etc., for distribution of water, tramways, railways, canals and docks, jetties and piers, markets and market places, streets—I will not go on. There is a long list of things that can be done without an application to the Court.
As I say, I think it is quite true you could apply to the Court, and trustees could insist on an application for the more important of these things if a large sum was involved, but all the smaller jobs could be done without going to Court. What is the position under the present Bill, which as far as it goes is quite good and has my support? I need not tell your Lordships what Income Tax is at present; we know it is 10s. in the pound, and we know that Surtax begins at £2,000. If you are lucky enough to have what the Income Tax officials regard as an income of £20,000, though perhaps in practice it is only a fraction of that, you have to pay in Surtax a sum which I have forgotten because I have not got that income. The amount is, I think, on £20,000 and over 9s. 6d. in the pound. It goes up from 2s. to 9s. 6d. You have to add that to the 10s. I dare say some 749 of your Lordships will have very little sympathy with those so rich as to have to pay the larger sums, but think of the ordinary squire who is a person of some importance in a particular district, who has got a house, settled land, farms and so forth, who has to pay 10s. in the pound on his income and perhaps 4s. or 5s. for Surtax. That means that three-quarters of his income goes direct to the State either as Income Tax or Surtax.
If he started by not being very rich and if the settled estate was not a very big one, he would not have much left when three-quarters of his income had been taken away, if he had perhaps a couple of children to educate. It is not unlawful even in these days to educate your children at a public school. If he does that a good deal of his income is gone. Then he has, we must suppose, to keep up a house of some kind. It is true that his wife is probably doing the cooking or assisting in the cleaning of the house, but food has to be bought and it is not very cheap even with the assistance of the noble Lord, Lord Woolton. Such a man as I am speaking of has got nothing left with which to repair the premises at all if his house is old and requires substantial repairs. Probably he has already let the garden go to rack and ruin. The man who used to employ three gardeners has now none at all. He has not got a car; so to that extent his expenses are reduced. But there it is. He has not enough left to repair the property.
What is it this Bill offers him? The Bill offers him the possibility of going to the Court and going into the whole of his income, which the noble and learned Viscount on the Woolsack very fairly said is rather a new thing in legislation. He has to go into his whole available income front all sources and the assumption of Clause 1 (2) (b) is that his available income front all sources ought to have borne the expense of the action taken or proposed, which means, so far as the individual is concerned, the repair of the property. He has got to show that that income has been so reduced by reason of circumstances arising out of war conditions as to render him unable to bear the expense. In the case of a man who has got an income from a profession, say, as a member of the Bar or as a member of any other profession, or who happens to have saved a few thousand pounds or has any sub- 750 stantial number of pounds invested belonging to himself absolutely, why it should be said that he ought to have borne the expense of action taken, in which is included the repair of the roof it may be, I cannot understand. That is an idea which is entirely new to me as a lawyer. He is entitled to repair or not to repair. If the house is falling to bits it may be better to let it fall to bits. What moral or legal obligation there is to repair that house I do not know. On the footing that he has not got the money to repair it the thing appears to me perfectly monstrous.
Assume the case of a man who has not got a professional income, and who has not got income from other sources from investments belonging to him, a man who is tenant for life of a property which used to bring in £2,000 a year but now brings in only £500. Out of that he has to keep up a position in the neighbourhood, so far as it is capable of being kept up, and has to support his wife and children and, may be, educate the latter. How it can be said of him that he ought to have borne the expense of repairs I am completely at a loss to understand. The matter does not stop there. When he goes to the Court he is not to be able to get any advantage out of an application to the Court. The Court in fact cannot make an order if available income has been reduced by action taken by him for avoidance of Income Tax. This seems to me to be a penal clause. Why, if you have no other income, should you not be able to repair property at the expense of capital if there is some capital available for this purpose, because at some date or other you endeavoured to save a liability for Income Tax? And what does it mean? Most of your Lordships, I expect, or at any rate a large number of you, have handed over sums in these days to your children. Is that action taken by you for avoidance of liability to Income Tax? Of course it has avoided your liability to some extent, because you have not got as much income. Then you have been asked to invest in certain Government securities on which you do not pay Income Tax. Is that an endeavour to avoid liability to Income Tax? Again, most of us have entered into covenants to pay certain charities for a period of years, and you know perfectly well that that results in avoidance of liability to 751 Income Tax pro tanto. But this subsection does not say anything about the amount by which you have avoided liability to Income Tax. If you have done anything to avoid liability to Income Tax you are not entitled to go to the Court for leave to pay, we will say, three hundred pounds or four hundred pounds, or larger sums, out of the capital of capital moneys because you have committed this heinous offence.
I protest as firmly as I can, consistently with complete courtesy, against any such clause being inserted in this Bill. I submit that it is not right. I consider that this is an illogical clause and as such it will have a hopelessly illogical effect. I am taking again the case of a man who has not got the necessary income to enable him to pay for repairs. If he cannot do the repairs, who is going to suffer? Possibly his own son, if he has a son, or some relative or relatives of his. It is the family of this man who are going to suffer, not the Government. It is said that he shall not do repairs which are really necessary and proper for the upkeep of the property because he once avoided liability to Income Tax by doing something which was perfectly legal at the time it was done. It really does not seem to me to be fair or just or logical or sensible to insert in regard to this power of application to the Court, if it is insisted on, a provision to say that if a man's available income has been reduced by his action in some way or other in the past, he is not to be entitled to ask the Court to permit the payment of some sums for repair of the property, however necessary it may be. I do not understand that, and I ask the Lord Chancellor, or rather the Government, to reconsider it and to see what can be done to make this measure a little hit fairer.
What I am suggesting, or rather what I am giving notice of, at the present time, is this. There are two things which I think the Lord Chancellor might fairly consider in the interests of the people of whom I am thinking—and here I would say parenthetically that I am not one of them because I am not a tenant for life of any income. The first is that expenditure on repairs, at any rate up to a certain amount—say a few hundred pounds, because I quite agree that if the amount is very large you might properly ask the 752 tenant for life to go to the Court—that during this period of emergency, whilst Income Tax and Surtax are such as to take away so great a proportion of a man's income, up to that amount the expenditure should be brought within Section 84 of the Settled Land Act, 1925, and therefore be treated as a matter in respect of which capital money can be expended, subject to the production of a certificate by a competent engineer or practical surveyor that the work is necessary and has been properly done. That is one thing which I think would be of enormous advantage to quite a number of poor tenants for life in this country while the present state of things subsists. The other matter which I would urge the Lord Chancellor to consider is the question of omitting from Clause of subsection (3) these words which make the application to the Court one which cannot be complied with by the Judge if the income of the person making the application has been reduced by reason of action taken by him for avoidance of liability to Income Tax.
If those two things are done I think it would be of great advantage. If I may say this with reference to myself, I have had a very large experience of this type of application, for I have been concerned with it as counsel and as Judge for certainly thirty years or more, and I say that if these suggestions were adopted this Bill would be far more useful to these tenants for life of this country who are not in the position to do the work which is pointed at in this Bill. It would be far more useful to them, and what I regard as the really unjust provision in subsection (3) of Clause I would be removed so as to make it possible for an application to be made, even by a man who has been guilty of the heinous offence, at some time in the past, of forming an estate company or of taking one of the measures which so many men of means have been forced to take lawfully, in accordance with the law of the time, with a possible view of escaping or reducing their liability to Income Tax. I hope that I have not spoken too strongly on this matter. I hope that the Lord Chancellor will not in any way resent my taking the view which I have taken with regard to this Bill. I am in favour of the principle of the Bill, but I am very clearly of opinion that if it passes in the form in which it now stands 753 it will be of very little use at all to the tenants for life of settled land in this country.
§ THE EARL OF WARWICKMy Lords, I understood the Lord Chancellor to say that the period of the operation of this Bill would be the period of the war. I would like to draw your Lordships' attention to something which I and several other people do not altogether understand. We have not yet, I believe, had a definite explanation of what the period of the war is, but none the less at this moment most tenants for life with mansions or other properties that may need considerable sums of money spent on maintenance, are away. They are kept away by the war ieself, and are consequently able to devote but very little attention to these things. But even if they could, and if it were possible under this Bill for them to obtain relief by going to the Courts for leave to spend capital money on maintenance, they being unable to find the money out of their reduced incomes, the fact still remains that it would be impossible for them to obtain either materials or labour to do the work. In fact, we are not allowed to-day to spend more than £100 on any building without obtaining a licence, which I believe is only granted, and quite rightly so, if the work is to further the war effort. It seems to me that in order to help us the period of the war should be extended to include a short time after the war, when building materials and labour will be available, and when those tenants for life, who have little or no opportunity at the moment of discovering what damage there has been or of knowing what damage there may still be in the future, will be in a position to go to the Court and put forward their case, knowing what the costs will be and what labour and materials are available for what ought to be done. No doubt there is some misunderstanding on my part, but I should be glad if the noble and learned Viscount on the Woolsack would explain the position.
§ THE LORD CHANCELLORMy Lords, with regard to the point just raised by the noble Earl, Lord Warwick, he may not yet have had an opportunity of studying the text of the Bill, but I agree with him that the question does arise of whether a measure of this sort should be limited so strictly in its time of operation. That is a matter which is already being 754 considered with my advisers, and by one or two persons with special experience of this type of question who are available to help me. I will look into it, and perhaps in the meantime the noble Earl will be good enough to look at subsection (6) of Clause 1 of the Bill.
I must say a word—but it will only be a word—out of courtesy, in view of the elaborate speech made by my noble and learned friend Lord Maugham. I do not know whether your Lordships fully appreciated the fact during his speech that he is in favour of giving this Bill a Second Reading.
§ VISCOUNT MAUGHAMI made that quite clear.
§ THE LORD CHANCELLORYou made it clear in your concluding sentence. The noble and learned Viscount is not against the Bill; he is in favour of it, but he thinks that in one or two respects, which I do not say are not important, the form of it should be altered. I shall be the first to recognize his great experience of this type of matter, for everyone who knows him will know that he has great experience of it; but I think that I should tell your Lordships that I have consulted almost all the eminent members of the Bench who have a very large experience of this type of application, and all the others whom I have consulted think that this Bill in its present form should be warmly approved. Possibly on the Committee stage some of them who are members of your Lordships' House may be able to attend. I am, however, very grateful to my noble and learned friend for his criticisms, and I shall certainly give fresh consideration to every point that he has raised.
There is, however, one large consideration which does not seem to have entered into his argument at all, and it is this. In. the case of any settlement, if you are going to allow the tenant for life to spend capital beyond what is permitted to-day, you are in the same degree going to reduce the amount of capital which is available for the remainder-man. The more there is for the tenant for life, the less there will be for the remainder-man. When a settlement is made, of course, the desire is to provide for the remainder-man and not simply to make things easy for the tenant for life. It is necessary, therefore, to be very careful about this. It is not a question of being 755 large-minded or generous purely on one side.
My noble and learned friend made a reference to arrangements for avoiding tax. Whether the words in the Bill are right or not—and I may say that they are words which commend themselves very warmly to some judicial persons of long experience, such as my noble and learned friend rightly claims for himself—if you take some of the varieties of tax avoidance which have come before the Courts in recent years, involving the creation of companies in Palestine and elsewhere, one company selling to another and the second company issuing debentures to a third, you have there perfectly deliberate efforts to avoid tax liability, and it would seem to me a pity if, in the face of an arrangement of that kind, you should allow the tenant for life, without making allowance for such an arrangement, to spend the capital at the expense of the remainder-man. That is the reason for suggesting some such provision. We can discuss that, however, and other matters on the Committee stage. The other suggestions which my noble and learned friend has made must be, coming from him, not only disinterested but most valuable. I have not the slightest complaint that he should make them, but I do want to make it clear to noble Lords who have listened to this rather lengthy discussion, that my noble friend is in favour of the Second Reading of this Bill.
§ On Question, Bill read 2a, and committed to a Committee of the Whole House.