INCOME TAX BILL.

HL Deb 07 June 1945 vol 136 cc497-507

4.38 p.m.

Order of the Day for the Second Reading read.

THE LORD CHANCELLOR

My Lords, this is a bulky looking Bill. It consists of eight Parts, seventy clauses and three schedules. None the leas I think I can commend it to your Lordships quite briefly and without referring much, at any rate to the text. It really is a very important Bill and represents a measure of Income Tax reform which for a very long time has been asked for from many quarters. It has often been urged that in computing profits for the purpose of Income Tax allowance ought to be made for capital expenditure on assets which are used up in earning the profit. In times past in another House when I was a Law Officer I dealt with similar proposals in various forms with such arguments as occurred to me, but to-day at this distance of time I am free to say that I think there is a great deal to be said for the taxpayer in this connexion.

The principle as yet has received a very limited application in our Income Tax system through the allowances made. When I was Chancellor of the Exchequer we increased the allowances for wear and tear of plant and machinery. This Bill extends that principle to other substantial assets both in town and country—buildings, structures and the like used in productive industry, including agriculture and including mining. I think there will be no difficulty in obtaining agreement in your Lordships' House that that is a very just and proper development. Another thing in it, which I have more than once heard commented on in your Lordships' House as desirable, is that the Bill provides that a trader can write off, in computing his taxable profits, the cost of patent rights which he has acquired for the purpose of his trade. A patent only lasts seventeen years and it seems only proper that he should be able to write off that expenditure during that period.

This taxation reform is specially appropriate now and I imagine my right honourable friend the Chancellor of the Exchequer must have had this very much in mind because, although it is to the prejudice of the revenue, it is designed to help industry in undertaking modernization and re-equipment which is so essential for post-war reconstruction and for a revival of the export trade. Therefore, in spite of our very heavy burdens and the natural desire of the Treasury to gather in all they can, it has been thought right, and I imagine your Lordships would think it is right, to make this important change. In the matter of allowances in respect of buildings, the Bill draws a broad distinction between what is non-productive and what is productive and creative. Nobody should be misled into thinking that if the proprietor of a dog-racing track puts up an additional stand he will get any further writing off under this Bill. It applies to creative industry. In respect of allowances for machinery and plant, which includes as I have said mining and agriculture, new allowances will accrue to the benefit of all forms of industry, whether productive or not.

That is the broad scheme of the Bill. Perhaps I should shortly state what the different Parts of the Bill do. There are seven Parts. Part I provides in the case of capital expended on the construction of new industrial buildings and structures, including for example, such things as canteens set up for the welfare of industrial workers, for an initial allowance equal to 10 per cent. of the cost. That will be given as and when the expenditure is incurred. As for the rest of the expenditure there is to be an annual allowance of another 2 per cent. which will write off the whole of the balance of the expenditure in 45 years. It will apply to capital expended on reconstruction of existing buildings as well as expenditure on brand new buildings, and that should be of material assistance in enabling those engaged in productive industry to equip themselves with new factories. As regards existing buildings the initial allowance will be made only on expenditure incurred after April 5, 1944, but the allowance equal to 2 per cent. per annum will, in general, be given after an appointed day to be fixed under the Bill. To give a simple illustration of a factory which is twenty-five years old now, the taxpayer will get henceforward in respect of this from the appointed day a 2 per cent. allowance for each of the next twenty-five years.

LORD REA

On his original cost?

THE LORD CHANCELLOR

I think that is right. My noble friend would be the last to trap me by an interruption, but I believe that is right. Part II provides for an initial allowance equal to 20 per cent. of the cost of machinery and plant. This allowance will be given also in respect of machinery or plant which a person acquires after April, 1944, if he still owns it at the appointed day, but in such cases the allowance will be 20 per cent. of the residual value as at the appointed day, that is, the cost less any Income Tax allowances already granted. This should be of substantial advantage in permitting the replacement of the old equipment by the most up-to-date equipment and will stimulate the process of discarding old machinery and installing new machinery.

Part III provides for the grant of initial allowances and for the writing off by way of annual allowances of new capital expenditure in connexion with the discovery and working of mineral deposits. It has long been a matter of complaint that this form of enterprise, which is necessarily rather chancy, does not get sufficient protection and assistance under our Income Tax law to-day. If I understand it rightly, and I think I do, it will apply to a British company registered here even though it is mining abroad. It is not merely a question of looking in these islands for minerals which may not be there, though I hope they are. In the case of existing mines the annual allowances will enable the writing off of a proportion of the capital expenditure corresponding to the deposits which remain to be extracted. It is manifest, I think, and we are all entitled to rejoice over it, that this provision will be a great help not only to those engaged in the mining industry at home, but also to those British companies which undertake mining activities abroad in the face of world competition and so contribute materially to the welfare of the people of this country.

Now we come to agriculture and forestry, which are dealt with in Part IV. Where the owner or tenant of land, which is used either for agriculture or for commercial policy, incurs any capital expenditure on the construction of new buildings or other works for the purpose of husbandry or forestry, and that expenditure cannot be taken into account in the existing maintenance claim, he will be able to claim an allowance spread over a period of ten years. The benefits of this proposal will be felt not only by landowners and farmers but also by the workers, because it will relate also to expenditure on the building or reconstruction of farm cottages. There can be little doubt, I think, that these proposals must be welcomed as a substantial contribution to the well-being of the agricultural industry, and of the importance of that industry I need say nothing in your Lordships' House.

Part V deals with the writing off of expenditure on the acquisition of patent rights and will, it is hoped, make traders more ready to take up new inventions with a view to their development. Part VI of the Bill extends the provisions of Part IV of the Finance Act, 1944, which provided special allowances in respect of expenditure on scientific research so as to grant a corresponding relief in respect of certain payments made for this important object before the appointed day. Part VII of the Bill extends the exceptional depreciation allowance to cover cases where the assets are retained in the business jut their value on the date determined by Parliament is less than the net cost. Substantially the effect of this change is that in all cases of assets provided for war purposes the loss in value resulting from war-time use will be wholly allowed for Income Tax purposes.

Speaking from what is now a fairly long experience I may say that I have seldom found that when one expounds a measure relating to Income Tax before any assembly it is greeted with enthusiasm by the prospective taxpayers. But I think this Bill really is the exception. It is true that the House of Commons has the primary responsibility in connexion with the imposing and regulating of taxation. The assent of this House is necessary unless indeed we would bring upon ourselves the extreme penalty of the Parliament Act. But generally speaking your Lordships' privilege is not so much (to frame and carry tax legislation but merely to pay the taxes which it imposes, along with the rest of the population. In the present case I hope that your Lordships will receive this Bill with enthusiasm and give it a Second Reading.

Moved, That the Bill be now read 2^a.—(The Lord Chancellor,)

4.52 p.m.

LORD NATHAN

My Lords, the noble and learned Viscount's suggestion that this Bill should be received with enthusiasm shall certainly have a response from me of at least modified enthusiasm. This is a useful Bill. It contains most valuable provisions designed to bring about substantial amelioration of conditions, sometimes harsh, under which industry in this country has for many years been labouring. I welcome in particular the provision for agriculture and that in respect of scientific research. Both of these provisions should be most helpful in promoting the objects which are in mind. I notice that the noble and learned Viscount pointed out—as is, of course, true—that the provisions of this Bill are prejudicial to the revenue.

THE LORD CHANCELLOR

Not in the end. I think.

LORD NATHAN

I think he would have wished to have qualified that by saying that they were prejudicial to the immediate revenue, but that, I hope and believe, they will be beneficial if a long view—which is the view we ought to take—is taken.

Broadly speaking, this Bill, into the details of which I do not propose to enter, deals with industry of one class and another, but it by no means exhausts the possibilities of reform in the tax law. It leaves unaffected, for instance, provision for the relief from taxation of certain reserves of companies and others, a matter which I, when a member of the House of Commons, and others, have raised on a number of occasions in another place. We then used to receive rather unsympathetic replies from the Chancellor of the Exchequer of the day, but in the freedom in which he finds himself to-day, the Chancellor of the Exchequer is able to show that he has changed his views in one respect. Perhaps he has changed them in another also. I believe it to be of importance both to industry and to the commercial community in general that there should be further consideration of the provision with regard to reserves. There is one further matter which is giving rise to a good deal of difficulty and apprehension in the present days of high taxation. That is the position of privately-controlled companies and of private partnerships in regard to taxation when their position is considered relatively to that of companies. That also is a matter to which, I feel, attention should be given in the not-too-distant future.

On behalf of my noble friends, I welcome this Bill, and I wish to make one further comment upon it. Here we have, as the Lord Chancellor has said, a very long Bill consisting of, I think, some seventy clauses and three schedules. It covers altogether some sixty-seven pages. In a way it is a difficult. Bill to follow. Its provisions are complex, but I must say frankly that I think that in this Bill the draftsman has been far more successful then he often is in Tax Bills in putting before us the provisions of the Bill with a very fair degree of clarity. I would congratulate the draftsman of this Bill in that respect.

The rules of your Lordships' House are so flexible that perhaps, although it is not strictly germane to this Bill, I may be allowed to refer to another matter relating to tax. Whilst this Bill may, as I have said, be held to be a Bill the provisions of which are described with a fair degree of clarity, it is a Bill which has to be read into the whole of our existing tax legislation. It is when the practitioner or the taxpayer is under the compulsion of reading these provisions into the general frame of the tax legislation that real difficulties arise. Our tax legislation fills many Statutes—some of them of the utmost complexity—which have given rise over a long period of years to an infinite amount of litigation. As long ago as I think 1927—that is nearly twenty years back—the Government of the day was so oppressed and impressed by the fact that it set up a Committee, a very distinguished Committee, on the codification of the tax law. That Committee sat over a considerable period of years.

THE LORD CHANCELLOR

Nine years.

LORD NATHAN

Yes; for no fewer than nine years. It was not until 1936 that it was able to report. The Committee consisted of busy men, of very distinguished men experienced in the matters under review, and in the end they produced a most valuable and voluminous Report, accompanied by a number of volumes of illuminating evidence. They also produced, if my recollection is right, a draft Bill codifying the law as to tax. Time and again, when I was a member of the House of Commons, I raised the question of what the Government of the day was going to do with the outcome of these long, strenuous and public-spirited labours. For one reason or another—perhaps the complexity of the subject, perhaps the strain placed upon members of the Government—it was not found possible to do anything. At least nothing has been done, but it is really a matter of very great public importance. If is of the first importance that the taxpayer, or, at all events, the practitioner who advises the taxpayer, whether in the legal or accountancy profession, should be able to understand without much doubt what is the law relating to tax which affects every citizen, and that tax legislation should be found in a compendious volume, in one document.

At this hour I will not delay your Lordships by expanding upon this matter, but I will say that it is of great public importance that something should be done. This Committee was set up nearly twenty years ago and reported after nine years' labours. Since then many Acts of Parliament have been passed involving additions to an already complex system of tax law. I wish to make a suggestion to the Lord Chancellor, if I may respectfully do so. On looking back I am not at all sure that a committee for the codification of the tax law was one best suited to meet the problem. I would venture to suggest to the Lord Chancellor that he might consider setting up a Committee or asking the Law Reform Committee to undertake, as a first step, but only as a first step, the consolidation of the tax law. Consolidation is, of course, very different from codification. When we have before us, under one cover, the consolidated tax law it will be opportune to set up a committee for the codification of the tax law. Consolidation would impose a great strain on the draftsmen but would not involve taking up any important Parliamentary time. Codification will take a very considerable time—it cannot be done by draftsmen alone—and for that purpose it would be necessary to set up a committee. That would be a very important first step and would ease the position of the practitioner. In the first instance we might have a Consolidation Act and I put forward that suggestion to the Lord Chancellor in the belief that action in that direction would be very much in the public interest.

5.4 p.m.

LORD REA

My Lords, I think it is appropriate that someone from these Benches should express their very unusual satisfaction with the Income Tax Bill. This is a matter on which I fought in my early days in the House of Commons some forty years ago, and in my later years I had a similar experience in regard to derelict farm buildings and cottages. I think it is only fair that we should recognize that the Government has at last made a start in the right direction.

5.5 p.m.

LORD WINSTER

My Lords, I wish to say a very brief word with reference to that portion of the remarks of the noble and learned Viscount which dealt with the part this Bill will play in assisting industry to re-equip itself. I certainly welcome anything in the Bill in that direction because there is no more important task than the re-equipping of plant and machinery. Under the system of free enterprise, by which many of our industries have been carried on, they have fallen into a shacking state of inefficiency owing very largely to the obsolescence of their plant and machinery. In the cotton industry not nearly enough of the looms are automatic, the mining industry is under-mechanized and our once great ship-building industry had, before the war re-established the building yards, fallen into a shocking state of repair. During the war the State has had to spend £ 6,500,000 on introducing up-to-date and efficient plant and machinery to the yards. In this matter of machinery for our great industries we are shockingly behind the United States of America and that must, of course, be disastrous for our chances of recovering our export trade and)f regaining our competitive capacity in world trade.

I cannot respond to the noble and learned Viscount's invitation to receive the Bill with enthusiasm because the words "Income Tax" always plunge me into the deepest gloom, and in any ease I do not understand enough of the I cannot feel enthusiastic about a Bill with which I am imperfectly acquainted, but in regard, to that matter of industry I most certainly welcome a Bill which does anything to help in that direction.

5.8 p.m.

THE LORD CHANCELLOR

My Lords, I will reply very briefly as there is important business to follow this which I know some of your Lordships ore a waiting. I thank those who have spoken and those who have been silent for receiving this Bill with what I might call modified rapture. I do not think I need make any other comment except to refer to the important suggestion of Lord Nathan in reference to the question of progressing with Income Tax codification. This is a very remarkable story. The Commission took nine years and produced a series of Blue-hocks, and they did, as he correctly said, append to their Report a suggested Bill. It is important to realize that the Bill which they appended was not putting into a single document the Income Tax law as it now stands, or then stood. On the contrary, it was a new scheme of Income Tax doubtless intended to produce equally good results, equally good from the revenue point of view, and for all I know very much better expressed. It did not contain a great deal of new matter, and I do not think that your Lordships will want any description of it, beyond that it abolished that always entertaining but somewhat difficult distinction between Schedules A, B, C, D, and E, or however many there are. To undertake that as a piece of legislation would really be a herculean task; but it is far from the case that nothing has been done about it; the Report has been carefully studied in the Treasury and the Inland Revenue, and no doubt elsewhere.

My most recent occupation, apart from presiding in this House, has been to preside at the hearing of appeals at your Lordships' Bar; and that strongly confirms me in the view that our present Income Tax law is in some respects complicated. I should naturally like it very much if all the creases were ironed out; but that is a tremendous task, and one which could not be undertaken by any Government, however energetic and determined, in the present conditions of pressure. The noble Lord referred to the fact that when he was in another place he asked questions on this subject. I happen to have a copy of one before me, which was answered on August 3, 1939, by Sir John Simon, who said: I fully appreciate the importance of a complete codification of the Income Tax law as soon as is practicable. So long, however, as the present pressure of affairs continues, I can see no possibility of finding sufficient Parlamentary time to deal with legislation on this complicated subject. That was at any rate frank.

While it is most regrettable that so many highly-skilled and devoted men should not see the fruit of their labours—and I as much as anybody regret that—it is the case that sometimes quite a considerable time elapses before you can do what you wish to do. After all, the Commission was appointed only in 1927, but I seem to recollect an Act of Parliament which received the assent of this House in the year 1911, and which said that the reform of your Lordships' House did not brook delay, or words to that effect. This is one of the cases where we have to proceed as well as we can, but without much hope of achieving a great result very quickly. I will, of course, convey the suggestion which my noble friend has made to the proper quarter. It would not be for the Lord Chancellor to appoint such a committee, but I will see that the Treasury are informed of the suggestion. I hope that your Lordships will pass this Bill through the rest of its stages, so that we can get on with the Scottish Bills.

On Question, Bill read 2^a; Committee negatived.

Then, Standing Order No. XXXIX having been suspended (in pursuance of the Resolution of May 29), Bill read 3^a, and passed.