FINANCE BILL. (Hansard, 11 July 1944)

§ THE LORD CHANCELLOR
My Lords, I beg to move that this Bill be now read a third time.

§ VISCOUNT BENNETT
My Lords, I must ask your Lordships' indulgence for a few minutes while I say a few words on behalf of that almost forgotten man, the inventor. As the noble and learned Viscount on the Woolsack pointed out the other day, provision is made in this Bill for certain concessions to be granted to those who are engaged in research. Clause 27 provides that the Income Fax shall be reduced where scientific research is carried on and expenditure is incurred "not of a capital nature," and in the case of payments to research associations and universities it provides that the "expenditure incurred or sum paid, as the case may be, may be deducted as an expense in computing the profits or gains of the trade for the purposes of Income Tax," while Clause 28 makes provision for an allowance for capital expenditure on scientific research: A deduction equal to one-fifth of the expenditure shall be allowed in charging the profits or gains of the trade for each of the 822 five years of assessment mentioned in the succeeding provisions of this section. No provision is made, however, for the private investigator or inventor.
We have been talking a good deal about education, in the hope that we may be able to direct the attention of young men who have a bent in that direction towards invention, and invention becomes of the utmost importance under present conditions. It was pointed out by the Committee which sat on world trade and by the World Chambers of Commerce that it would be necessary to establish new industries in this country as a result of invention, and it has been pointed out on more than one occasion that invention has become of very great importance to the economy of this country. In fact, this country has always had a very tender regard for the inventor. I trespassed upon your Lordships' time last year to point out that the inventor secured a monopoly by reason of his invention, which we speak of as Letters Patent. The definition of that has been that it is a grant from the Crown of a monopoly in respect of an invention, and the grant of the Patent is a matter of the King's grace—something, I think, that is perhaps not always remembered. That attitude which Parliament has adopted towards the inventor is as old as 1623, when the Statute of Monopolies was passed. It was to restrain the exercise of the Royal Prerogative in granting undue monopolies to favourites and people of that kind. Now we have oar Letters Patent, and by an odd circumstance they still issue in practically the same form as they did in the earlier days before we had the existing Statute.
I say it is a very odd circumstance because the tenderness of Parliament to the inventor is illustrated by the terms of the Letters Patent. I will not trouble to read the whole text, but the basis of the Letters Patent is the beginning of the grant, and it provides— Know ye, therefore, that We of our especial grace, certain knowledge, and mere motion do by these presents, for Us, our heirs and successors, give and grant unto the said patentee our especial license, full power, sole privilege, and authority, that the said patentee by himself, his agents, or licensees, and no others, may at all times hereafter during the term of years herein mentioned, make, use, exercise, and vend the said invention within our United Kingdom of Great Britain and Northern Ireland, and the Isle of Man, in such manner as to him or them may seem meet, and that the said patentee shall have 823 and enjoy the whole profit and advantage from time to time accruing by reason of the said invention during a term beginning on the date hereunder written of these presents and ending at the expiration of sixteen years from the date the sixteenth day of February one thousand nine hundred and forty: AND to the end that the said patentee may have and enjoy the sole use and exercise and the full benefit of the said invention, We do by these presents for Us, our heirs and successors, strictly command all our subjects whatsoever within our United Kingdom of Great Britain and Northern Ireland, and the Isle of Man, that they do not at any time during the continuance of the said term either directly or indirectly make use of or put in practice the said invention, or any part of the same, nor in anywise imitate the same, nor make or cause to be made any addition thereto or subtraction therefrom, whereby to pretend themselves the inventors thereof, without the consent, licence or agreement of the said patentee in writing under his hand and seal, on pain of incurring such penalties as may be justly inflicted on such offenders for their contempt of this our Royal command, and of being answerable to the patentee according to law for his damages thereby occasioned: There are provisions for the revocation of the Letters Patent, and provision also that the patent may be void for certain reasons. The document ends: Provided also that nothing herein contained shall prevent the granting of licences in such manner and for such considerations as they may by law be granted: and lastly, We do by these presents for Us, our heirs and successors, grant unto the said patentee that these our Letters Patent shall be construed in the most beneficial sense for the advantage of the said patentee. This private investigator, carrying on research work, ultimately secures the patent in his hands, and this particular document confers certain privileges oh him to which I have referred. Yet if he sells his patent, as he may, for a lump sum, he pays no Income Tax because it is capital; and if he receives royalties, which include payment for his expenditure in getting his patent as well as the value of the sixteen years, he has to pay Income Tax, which of course makes the patent much less valuable than otherwise. Whether to that extent the exaction of Income Tax conflicts with the terms of the grant is a matter I do not propose to discuss, but I do point out to your Lordships that the inventor has some right to be considered as being in the same class as the man who makes a contribution to a university or a research bureau in which case the sum so contributed is deducted from the sum upon which he would otherwise pay Income Tax.
824 The matter is of some importance, having regard to the future of this country and the necessity for assisting the inventor in every possible way, and that is my justification for bringing it to your Lordships' attention even at this late hour. There was no other occasion on which the matter could so suitably be brought to your attention for the reason that concessions have been granted with respect to expenditures made by companies for research work and also for payments made to others to do it as well as provision for capital. I suggest it is possible there might still be time to place the inventor in as favourable a position for carrying on his work and spending large sums of money, because in these days is is very difficult for inventors to devise new patents owing to the number that already exist and the difficulties with regard to specifications; but at any rate an opportunity should be afforded to look into the matter to ascertain whether the private investigator whom we wish to encourage, and who has always been encouraged for three centuries, should be placed in an equal position with those who carry on research work either as corporations or give assistance to others to do it, in consequence of which they get an allowance in respect of Income Tax.

§ THE LORD CHANCELLOR
My Lords, those of us who are here have been much interested to listen to my noble friend Lord Bennett. I should like to say just a word in reply. It is undoubtedly part of the finance law that royalties on a patent are subject to Income Tax. Undoubtedly in an ideal system you would draw a distinction between incomes which go on for ever and incomes which come to an end, as royalties on patents must do, in sixteen years; but as yet, at any rate, the Finance Acts have not drawn that distinction completely, though they have made some effort to adjust the position. The consequence is, as my noble friend implied, the owner of a patent receiving royalties in respect of it will find himself charged Income Tax on the amount of those royalties. There is a certain amount of logic in that arrangement, but it is part of a much larger question, which is the question of wasting assets. There are all sorts of incomes drawn from the ownership of property which in the course of time will be worked out and will exist no more, and 825 in these cases, whatever the reason may be, the Finance Acts of this country treat the annual receipts as being all annual income.
There is one other thing that my noble friend may be interested to be informed upon. Quite recently the President of the Board of Trade appointed a Committee to advise him on the law of patents. It is presided over by a very distinguished member of the Patent Bar, Mr. Kenneth Swan, and I have no doubt that in due course it will produce a report and recommendations. When that report comes we shall see whether it is in any way proposed to amend the trying position which my noble friend has described to the House in such moderate and brief terms. As it is, I am afraid that the owners of patents must continue to pay Income Tax on their receipts.