PRIVATE FORESTARY AND TAXATION

HL Deb 18 February 1976 vol 368 cc479-517

3.10 p.m.

Lord LOVAT rose to call attention to the threat to private forestry which is posed by present trends in taxation; and to move for Papers. The noble Lord said: My Lords, in opening this debate my sole purpose is to persuade your Lordships that we ought now to under-take a larger programme of afforestation, both in the public and private sectors, than we have ever done before. I call for a consistent forestry policy and in support of this I would say that in such a long-term operation sound planning without risk of chop and change must be the first essential.

I would further stress that to achieve success in this direction the Government must reconsider their fiscal policy to enable the private sector to continue to march in step with the Forestry Commission, in order to reduce an import of timber bill that is running presently at the staggering sum of £1,700 million per annum, a figure only exceeded by our imports of fuel and food. I do not wish to draw politics into the debate, but I hope that both sides of the House will agree, without thought of further nationalisation, to make the best use of our natural resources, be they farming or in forestry. I shall leave it to other more expert Peers to voice the various rights and wrongs of what, in privately-owned woodlands, is fast becoming, to use military language, an untenable position. This is occurring on a crumbling front.

My own speech will be mercifully brief and is only intended to serve as an introduction in staccato sentences speaking against the clock. At this point, I have been asked to say that this debate can last only for 2½ hours; there are 15 speakers, and that limits my speech to 15 minutes and everybody else's to 10 minutes. I am claiming the indulgence of an extra minute or two, because I do not propose to speak at the end of the debate, and that is another five minutes on the allowance time. I regret that the noble Lord, Lord Taylor of Gryfe, cannot be present this afternoon. He has written to say how interested he will be in the outcome of this debate. That is what this is all about.

I hope that common sense will prevail on both sides of the House. We have a formidable array of foresters, both from North and South of the Border. Some of them are backwoodsmen in the truest sense of the word. However, they speak with authority and require no briefing from me. In fact, that was not possible because I arrived only in time for the debate, having been delayed at the airport as the result of a bomb scare. I venture to suggest that all those who will speak on this matter regard the continuity of a sound forestry policy as a matter of national importance. In the private sector the country has already run into serious tax difficulties. I do not wish to dazzle your Lordships with facts and figures, but the latest statistics of existing wood-lands may serve as a base plate from which to work out and evaluate the situation. These figures are fairly up-to-date, and I shall not quote many more after this. It is important for your Lordships to know the exact extent of woodlands in the nation today. The private sector owns 1,133,000 hectares. My Lords, if you can convert that to acres you know how to multiply! The Forestry Commission owns 792,000 hectares of woodlands. So the private sector is still very much the largest in the industry.

That can be regrouped into the following figures: there are 45,000 private owners of timber; there are 250 State foresters. I do not know what the Government's intentions are, but I think it is only fair to ask, in view of the crippling burden of taxation, whether they propose to nationalise the woodlands of this country. I speak advisedly because I see in the farming world Mr. Wedgwood Benn and the Executive of the Socialist Party have recommended that £15,000 million is to be spent on nationalising farms. If we are to continue to suffer from tax in the forestry business in the private sector, first the capital transfer tax and then the threat of the wealth tax—which, at the moment, is in abeyance but would mean, as I read it, a tax annually on every tree that takes 60 years to grow—private woodland owners will go rapidly out of business. Perhaps, later in the debate, we could have an answer to that.

I would also remind Her Majesty's Government that at present the United Kingdom, with the greatest difficulty, can supply only 9 per cent. of the timber requirements from home-grown sources that we need to consume annually for our various activities in trade, although this country enjoys the finest possible climate for growing trees. As Sir Walter Scott once remarked: They're aye growing while you're sleeping ". This is a very important point which is largely overlooked possibly because the tree-growing industry is a purely rural occupation and does not come to the notice of the urban politician. It is a nationally important industry which cannot be allowed suddenly to slump for no good reason. That is indeed what is happening. The capital transfer tax caused a reduction in Scotland of 40 per cent. in tree planting last year. We have not reached the planting season in Scotland yet this year but I foresee that the situation is going to be very much worse.

In Scotland one worker in every six on the land is engaged in forestry, whether as a seedsman, nurseryman, timber merchant, private woodland estate worker, or one of those who work in pulp mills and chipboard factories. It is a large and important industry which will inevitably fail unless we get a policy which gives us a fair crack of the whip to grow trees in the private sector. I mentioned the benign climate; but what is disappointing is that, in spite of the climate, next to Holland we take the least interest in cultivating trees. Every other nation takes its tree production seriously, in both the private and the public sector. I am sure other speakers will make this point. I cannot remember what the proportions are for France but I think that 28 per cent. of timber there is supplied from local sources. Here is something else about which I should like to remind Her Majesty's Government. In France, and in all the other EEC countries—which, after all, are our partners—taxation is very favourable. If there are going to be new forms of crippling taxation in this country, I hardly feel that that is in line with our Common Market policy. I hope that the noble Lord, Lord Jacques, will bear this in mind when he comes to reply.

My Lords, time is short and I must continue quickly. The private sector is at the moment most unreasonably taxed. I suggest something should be done about it. I do not blame the Government for this. I take a much blacker view of the Treasury. The Treasury is on record as saying on more than one occasion that it cannot look farther than five years ahead on any subject. When one is thinking in terms of 60 years hence when cutting trees, that is a nonsensical remark. In a previous debate on forestry—I think, in 1973—the noble Earl, Lord Dundee, drew attention to the fact that the Forestry Commission themselves are among the sufferers. I am proud to say my father was the first chairman of the Forestry Commission way back in 1919 and in the 56 or so years since then the Forestry Commission have been allowed to spend only £300 million, which is an absurdly small sum. It is less than we import in wood pulp annually.

Clearly, forestry has not been taken seriously, and I suggest it is time a much more serious interpretation was made of our vast areas which, to a great extent, are being neglected through lack of confidence. My Lords, I will not say much more because of lack of time; but the Government, after considerable hesitation, may be starting to worry about the need to create the wealth that they spend. I can think of no better way of doing that than in creating it in the way I have just said.

To sum up, I call for a consistent forestry policy; I ask for no exemption from tax in the private sector but that we should find a fair tax system which will allow us to continue to invest in an expansion of forestry and to plant acre for acre with the Forestry Commission, as we were doing until 1974. This will mean a reasonable system of valuation for capital transfer tax, a reasonable rate of tax for woodlands under capital transfer, and an exemption from wealth tax. My Lords, I beg to move for Papers.

3.21 p.m.

Lord SANDYS

My Lords, the House will be extremely grateful to my noble friend Lord Lovat for introducing this debate this afternoon so economically in time and so trenchantly in argument. It is very noticeable from the list that the noble Lord, Lord Jacques, with whom we sympathise, appears to have no supporters at all from his side of the House: at least, none who are speaking. One can draw only one conclusion: either that the Labour Party prefer not to comment on this particular issue at this time or are not interested in forestry as an industry. I noticed that there were no fewer than 36 noble friends of the noble Lord, Lord Jacques, who were present at Question Time, and perhaps some of them might have views. Nevertheless, they have refrained from expressing them.

I should like to put to the noble Lord, Lord Jacques, four questions. First, do the Government wish to see a thriving forestry industry, composed of very nearly equal parts of private and public sector? When I say "very nearly equal parts "I mean as regards the amount of planting done by the private and public sectors. My second question, which flows immediately from that, is this: if the Government wish to see a thriving forestry industry, do they appreciate that the forestry industry really does need encouragement and freedom to flourish, in the form of grants related to current costs and much reduced rates of the present penal taxation? Thirdly, do the Government realise that it is home-grown timber which can provide the feedstock for other industries which were referred to by my noble friend Lord Lovat, especially those connected with the pulp industry, chipboard, construction and furniture? Saving expensive imports is a very important task facing any Government today, and we believe that at present prices, which are now totally different from what they were two or three years ago, the Government could well save some very expensive imports. Fourthly, do the Government realise that this industry must he placed on a similar tax footing to that of our partners in the EEC if the industry is to be able to compete and that, therefore, in drafting legislation much greater regard should be paid to harmonisation?

I should like to say a word on drafting of legislation, because I believe that in such drafting a very great responsibility is placed upon the Government of the day, and especially upon the Treasury. We have before us Cmnd. Paper No. 6053, Preparation for Legislation. I should like to draw attention to Chapter 6, which deals with criticism. There is no doubt that much fiscal legislation is extremely ill-prepared. I shall quote only one example, referring to the first Finance Act 1975—not the No. 2 Act. In that Act we had Schedule 9, which was thrown in at the very last minute. I do not criticise that fact, but I do criticise the fact that it was hastily and unsatisfactorily drafted. This applies to all finance Acts, but may I suggest that we look back over the last ten or eleven years—the period, say, between 1965 and 1975. There we have a really prodigious variety of fiscal legislation, most of which has been introduced by Labour Governments, past and present. We have the corporation tax, which affects woodlands, the capital gains tax, selective employment tax, value added tax, capital transfer tax; and shortly there are to be the development land tax and a prospective wealth tax. Is it any wonder that foresters, at the present moment, are not considering planting? Owners and trustees sit tight, knowing that the trees may outlive the follies of the present Government.

One of the central issues in taxation is the problem of valuation, and because this is so important I should like to devote some time to it. In valuing timber, whether for CTT or for any other purpose, the problem is how to assess the value of immature trees. Clearly, a standing crop of timber can have no market value. The noble Lord, Lord Jacques, may say, "Oh, yes, it has; I can refer your Lordships to the yield tables. Of course it has a value." To that, I would reply immediately, "Yield tables are very complicated and they necessarily do not provide information which is the currency of the timber trade." Perhaps I may quote some factors which most emphatically are not built into the yield tables. For instance, did we know ten years ago that we should have to face the problem of elm disease, which has been catastrophic in its effect upon a very large number of counties in England? Did we know that oaks were going to suffer from oak wilt ten years ago? Of course we did not. We knew of the existence of those diseases but we did not know their effects on the industry or the growers. Did we know that grey squirrels were going to acquire a distinctly sharper appetite for beech after the sixth or seventh year following planting? We may have perhaps expected it, but there is no doubt that the grey squirrel problem is particularly germane to the forest industry.

Valuing is at the centre of much of this problem. I have no doubt that other speakers will also have trenchant comments to make upon this, but I should like to go on now to refer to capital transfer tax. I have referred to Schedule 9 already, and this provides for election to defer the tax. We believe that the election is really of very little value, because the tax should be charged on the value of the timber as at the date of death and not on the proceeds of the sale or the deemed proceeds of sale which have been duly discounted. In this connection, I should like to refer to the evidence given before the Select Committee on a wealth tax, to be found in Volume III of the very weighty Report. This evidence was given by Mr. John Christie of the Royal Scottish Forestry Society. I would refer your Lordships to pages 842 and 843 of the Report. This is what was said: Forest taxation has, quite properly, been a tool of Government in achieving the objects of foreign policy. The imposition of capital transfer tax in its present form will cause the destruction of the private sector of the forest industry, and wealth tax will considerably hasten this. There is no question about the fact that this new impost which we have been looking at over a period of months rather than years is a very significant factor indeed in the whole woodland field. It is not a question of whether or not the timber has a growth-life of four or five years. As referred to by my noble friend Lord Lovat in his view of the timescale, the timescale of the growth of an oak tree is about 200 years, or between 150 and 200 years; so the long-term aspect is surely at the centre of the matter. I should declare an interest in hardwoods, as being the owner of approximately 300 acres of dedicated hardwood, but there is no question that the Treasury really must look at the long-distance approach if we are to see any broad-leafed timber in the future.

I have only a minute left, but I should like to refer to one other matter; that is, the question of the small owner. The small owner with small areas of amenity woods—copses, spinneys and the like—is most unlikely to find that his woodland is under a dedication scheme. He is probably taxed under Schedule B on an annual value basis, and he is unable to elect for tax under Schedule D because he is not under a dedication scheme and is not subject to management. So what happens, my Lords? There is neglect, leading to the felling of trees not subject to a preservation order. My final point is this. Is it equitable that an owner who has an area of land with trees on it, subject to preservation or planning orders, should be taxed upon the trees, when he knows perfectly well that for an unlimited period he is obliged to look after and maintain those trees for amenity reasons? We believe that it is not equitable.

3.31 p.m.

Lord MACKIE of BENSHIE

My Lords, I am the third speaker in this debate and I must apologise to the noble Lord, Lord Lovat, for the fact that our experts have been stricken down not by elm disease but by 'flu. I will confine my remarks briefly to the benefits to agriculture of a respectable forestry programme. In Scotland, particularly, this is a subject which has been greatly neglected by many Governments since the war. It is a fact that we can use the resources of the Highlands and the marginal lands of Scotland infinitely better by a combination of forestry and hill farming than by the single use of either, and no policy has really been produced by the Government to enable integration to take place.

There is a splendid example at Tomintoul in Banffshire, on Crown land, where the foresters negotiated with the farmers, the tenants. The negotiations took place mostly in the pub, because they did not get on very well, but when they got together they planted up a lot of land in economic blocks to the great benefit of agriculture in the area, in producing shelter, in changing the climate, in the laying down of roads and so on. So that, without doubt, forestry has an agricultural implication in the Highlands which has been neglected but which should not be neglected. The noble Lord's staggering figure of £1,700,000 a year should make the Government think, instead of using the excuses which I am sure the noble Lord, Lord Jacques, has in his brief.

Lord JACQUES

My Lords, will the noble Lord give way? I think he might not anticipate my brief. He might wait until he hears what I have to say.

Lord MACKIE of BENSHIE

My Lords, I stand corrected. I did not intend any discourtesy but, all the same, I am sure I am right. The Government should really look again at these questions. There is nothing better that the Government can do than to persuade rich men to put their money into trees. They cannot spend it, it goes down as an asset, and the Government have the alternative of taking it away from their heirs later on. To depart from this policy, which has been reasonably successful, although we are miles behind Europe, appears to be madness in our present situation. If one looks at the flight of capital and the number of extraordinary things that rich men do to preserve their money from the Government—which is a noble objective—such as putting it in the Cayman Islands and everywhere else, it seems sensible to persuade people to put it into a great asset for this country, by planting trees here in Britain.

The noble Lord, Lord Jacques, should seriously consider the point made by the noble Lord, Lord Lovat, which will be made by others in this debate, that planting is being severely cut down, and the latest fairly authoritative figure which I have is that this year it will be about half of what it has been. If the Government are not prepared to spend money through the Forestry Commission, then they must encourage other people to do it. If they are not going to nationalise it, it is no good doing what they are doing now, which is sterilising the industry. So I hope that the Government will take note of this question.

3.35 p.m.

The Earl of DUNDEE

My Lords, I am very glad that this short debate on forest taxation should have been opened by my noble friend Lord Lovat, whose distinguished father was the first chairman of the Forestry Commission and was one of the greatest authorities on forestry in his day. I was also very glad that my noble friend, in moving this Motion on the taxation of forestry, opened right away on the note not of taxation, but of the need of this country for a greatly increased area of woodlands for far more timber production than it is producing now, because that is the important point. I do not think my noble friend's father, the late Lord Lovat, was a member of the Royal Commission which reported to the Government on our future timber policy in 1909, but the late Lord Lovat gave to that Royal Commission a great deal of very interesting evidence which is still available upstairs and is well worth reading by anybody who is interested in the subject.

In a short debate, we have no time to go into any of these matters in detail, but between the wars, owing to Government policy being chopped and changed almost every three years by both Parties, the Forestry Commission made very little progress. After the war, when the need for timber was even more acutely realised than it had been before, the Forestry Act 1947 gave a target to the Forestry Commission and also set up, according to the recommendations of the wartime White Paper, the dedication scheme which was to be administered by the Forestry Commission. A definitive target was set of 5 million acres to be afforested in 50 years from 1947 to the end of the century. That was very slow in starting off and for the first 20 years it did not look as it' we were going to get more than 2 million or 3 million acres, but by the end of the 1960s the position began to improve.

I should like to say a word of commendation here for the present Prime Minister. In his last period of office, Harold Wilson made a speech in Scotland in which he said that he wanted the Forestry Commission to adopt a target of 50,000 acres a year in Scotland, accompanied by a proportionately appropriate increase in private planting. The 1947 Act and the dedication scheme very wisely did not try to make a fixed ratio between private and public planting, but it was usually assumed that the public sector, the Forestry Commission, would do a little more than half and the private sector a little less than half. Nearly everybody said in 1968, "This is one of Harold Wilson's ' try-ons '. He just wants to look as if he is helping unemployment. "But it was not. By 1971, the Forestry Commission had reached the target of 50,000 acres in one year, which they performed twice, and private planting got to just under 40.000 acres; and in 1972 it just reached it.

We should now talk of hectares and not acres, and I must congratulate my noble friend Lord Lovat on the facility with which he has performed the transformation. I always try to do it but I am either too old or too old fashioned to do it very quickly. I try to talk in hectares but I always have to think first in terms of acres; then rapidly in my mind I have to multiply the acres by two and divide them by five, which does not give a completely correct answer but it is near enough. The only trouble is that it does not expedite the communication of your ideas to other people.

Just at the time when we attained these very satisfactory planting figures, particularly in Scotland, it so happened that the Conservative Government did what I think was the most supremely idiotic thing any Government have done in history. Suddenly, without notice and without consulting anybody in public, although they informed a few people privately, on 28th June 1972 they abolished the dedication scheme from that day, so it all had to stop without notice on one day. It was one of the most crippling blows which could have been struck by anybody at the development of an industry which had taken years and years to get going and which the country needed so badly. The foresters were successful in making the late Government understand how incredibly removed from extreme wisdom their action had been and, again after long consultations, a new dedication scheme, with slight improvements on the old one, was set up.

I have just been looking at the latest report of the Forestry Commission, for the year ending March 1975. This was a little too soon to show any effects of the late changes in taxation, but it shows what has happened since 1972. In England there has been a reduction from a total of 14 million to about 8 million hectares. Both sections, private and public, have been reduced, but that may be inevitable because the English have a much higher proportion of private planting than have the Forestry Commission. In practice, the Forestry Commission planted almost as much, or more, in the first half of this century in England as in Scotland, although the original recommendation had been about three to one in favour of Scotland. Now that proportion has altered, and I am glad to say that in Scotland the acreage has remained at something like 20,000 hectares for the public sector—I began with 50,000 acres so the conversion was not really difficult!—and about 15,000 hectares for private forestry. I hope very much that that acreage will not be diminished but, rather, will be increased.

Since then, of course, we have had the tax changes of the present Chancellor of the Exchequer. All I am going to say about these changes—the removal of the death duty's favourable treatment for agricultural land, which applied to forestry, too, and the imposition of the capital transfer tax—is that many people thought that they would have a very bad effect upon forestry. The forestry societies—the Scottish Woodland Owners' Association in Scotland and the Timber Growers' Association in England—made representations to the present Chancellor, and I think we ought to express our appreciation of the fact that he made various concessions to meet their point of view in the Budget of March, 1975, which were embodied, I think, in Schedule 9. It is always good to try to remember the difficulties which Ministers and civil servants have to face, especially at the Treasury where very few of them know anything at all about forestry. They are very ready to learn, but as soon as they have been taught what you want to teach them those concerned are promoted and are replaced by new men who know nothing whatever about the subject; so you have to begin all over again. But that goes on in all matters of public life in this country, and it cannot be helped.

I have listened to almost every forestry debate in both Houses of Parliament since 1931 when I became a Member of another place, and it is extraordinary how exactly the same mistakes are made over and over again, although they can always be corrected with patience and perseverance. In my last correspondence with the Treasury I took the liberty of writing a little parody, which I hope they did not resent, and I hope that none of your Lordships who went to Harrow will resent it, either, on the verse of the Harrow School Song which says: Forty years on, Getting older and older, Shorter in wind, though in memory long, Feeble of foot and rheumatic of shoulder, What can it help That we've always been wrong? I think that expresses very much one's feelings after dealing for 40 years with the Treasury on any subject.

The point that I want to put to the House is this. The present Chancellor, or any future Chancellor, or any future Government ought not to concentrate attention upon the amount of tax they will get, for this is absolutely trivial and inconsiderable in comparison with the enormous difference that it may make to the timber production of this country. It is likely that in the year 2050, when perhaps a great many other sources of energy have been exhausted, the people of this country, our grandchildren, will need more timber very badly indeed. We are importing still over 90 per cent. of our softwoods and 70 per cent. of our hardwoods. Our grandchildren will need this timber very badly indeed. It is no use waiting until then before something is done about it. Something has to be done about it now.

3.48 p.m.

Viscount YOUNGER of LECKIE

My Lords, I wish to support very strongly the words with which the noble Lord, Lord Lovat, introduced this debate. I speak entirely about Scotland because it is the only place of which I have any knowledge, and perhaps I speak from a slightly different angle from that of the noble Lord, Lord Lovat, whose family has been engaged in forestry for generations. I am the opposite case. When I succeeded to the property in 1946 I must have been almost the first man to sign the dedication agreement under the arrangements made by the Attlee Government. I can say quite frankly to the House that if it had not been for that agreement I do not think I should have had the courage to embark on a major reafforestation programme for a property which had been shorn of its timber in two world wars and not replanted.

What both noble Lords from Scotland have already said is perfectly true: that unless successive Governments get it into their heads that the objective we are all trying to achieve is a permanent and viable forestry and timber producing industry in this country, we shall always be in trouble. I do not think any of us who spoke in the forestry debate in June 1973 thought that we should be talking about it again as soon as this. That was under the previous Government. The reasons for the debate were different but the effects of what was proposed were almost exactly the same and resulted—and have resulted now—in a great lack of confidence.

I am afraid it may be stale news to some of your Lordships but I should like to go over the dedication side of it because that is what I am particularly interested in. I think the House should remember that this has been a combined operation, starting with the Attlee Government scheme in 1947. It has gone on now for over 25 years—a combined operation between successive Governments, the Forestry Commission and the private owners, and each has made a contribution towards this objective. As the noble Lord, Lord Lovat, said, it has taken a long time, but on the other hand I think we are entitled to claim that it has made some progress and that if we have a revival, as we hope there may be, in the construction and furniture industries in the near future we shall perhaps reach what I believe is described as the "take-off point "towards becoming truly viable as an industry.

During this period successive Governments have not only helped with grants, with tax concessions and with technical advice, but have also helped with the formation of the pulp mill at Fort William and with other timber using industries, such as chipboard, in other parts of Scotland. These are all slightly delicate infants at the moment, mostly running a long way below capacity, and they are entirely dependent on a steady policy without setbacks, and on expansion of the timber which can be produced by both the Forestry Commission and the private owners, to keep them busy. No half measures are any good. It is no good having a series of timber industries all running at half strength all over the country, and all requiring a subsidy and making a loss. One has to get on to a plateau where the output of our forests is sufficient to maintain a really efficient timber using industry, and that is what we hope to do.

We must comeback to the old point that is mentioned in every forestry debate, that we are only half way to maturity for the very first trees that were planted after the war. My first plantings were in 1948, and covered a very small area at that, so they are only just over 25 years. They have another 25 years to go, which will see me out. So it is really not reasonable to expect that we should be fully viable yet. But if we can avoid these periodical setbacks and get our message across to the Treasury and others I believe that perhaps before another 25 years we shall be able to establish a fully viable industry.

The other point I should mention is that when one was considering starting an afforestation policy back in 1947 one had to look carefully at both sides of the bargain—and there were two sides to the bargain. On the one hand the Government asked private owners to sign a dedication agreement. That is a pretty big mouthful for anyone to swallow. You are committing yourself to first-class forestry practice and to the maintenance of the forest in production, not for one generation of 50 years but ad infinitum. No owner is so stupid, and no Government would be so greedy, as to expect people to sign such an undertaking without some assurance in return; and that main assurance is that Governments will persist in trying to build up a viable timber industry in this country to compete with foreign imports, or to take their place. In that connection it is of interest to remember that there is in fact a shortage of timber in Europe now and I understand that the Food and Agriculture Organisation have forecast that that shortage will be doubled by the end of the century, which is about the time our own scheme should be in full operation and the first post-war plantings will be ready for final felling.

So, if we are to continue doing our part, I think the moral is that we must ask that Governments must try to be careful not to introduce measures—whether concerning taxation as on this occasion, or the dedication scheme on the previous occasion—without due consultation and due consideration of the effect of the dedication scheme; otherwise it is only too probable that it will be stopped in its tracks, and if it is stopped in its tracks our timber Industry will also be stopped in its tracks.

3.56 p.m.

Lord DULVERTON

My Lords, in expressing gratitude to the noble Lord, Lord Lovat, for initiating this debate, I think I should declare my interest; I am responsible for looking after woodlands for my family, both in England and in Scotland, and I am chairman of the Timber Growers Organisation and vice-chairman of the Forestry Committee of Great Britain. Having got that off my chest, I shall proceed to say how much I agree with so many remarks that have been made this afternoon. I can "up "the figure given by the noble Lord, Lord Lovat, a little, because the rate of imports of timber and timber products is now running at £2,000 million per annum. I was glad to hear the noble Lord, Lord Mackie of Benshie, refer to the necessity for getting down more thoroughly to the integration of forestry with agriculture, a subject on which I am extremely keen and have tried to practise.

I shall try to skip as quickly as I can through the lead-up to my story, which must be brief, but I think I shall be somewhat more directly critical than noble Lords who have already spoken of the impact of the CTT provisions on forestry, as they now stand, as we have seen them to be so intimately working for the Timber Growers Organisation. It was just over 30 years ago, when the war had come to an end and our tiny stocks of woodland timber were much depleted, when, as has already been referred to, the Labour Government started up the dedication scheme, enjoining the private sector to replace the wartime fellings which had fallen almost entirely on the private sector, because the Forestry Commission then was too young to have anything to contribute. We were enjoined to replace what had been felled and then to expand. I think we were justifiably chided for not expanding our efforts enough, but as the noble Earl, Lord Dundee, has said, confidence began to arise during the 1960s. Bigger pulp mills arrived and people saw that there really was an outlet for timber, which many people had doubted. During the 1960s there was a great upsurge in activity in the private sector and dedicated foresters up and down the country really got down to work.

The dedication scheme and its concomitant fiscal provisions fitted to the peculiar needs and nature of forestry were beginning to succeed. Long years of work were at last bearing fruit, and with energy and growing expertise private enterprise was joining the national effort to build a national forest of worthwhile proportions. One might have thought that Whitehall would have rejoiced, but no. Somebody must be profiteering, thought Whitehall, and the Left Wing took up the cry, aided and abetted by the senti- mental but not all that well-informed element of the conservation lobby.

A new element had come into the scene and a new kind of investor had taken up forestry. This attracted adverse comment. People had no previous connections with the land; they came in and started planting up, taking grants from the Forestry Commission. This caused a great deal of adverse comment. But would your Lordships rather that such people had put their money into building gin palaces in Bermuda, or skiing hotels in Switzerland, or taking the money out to Hong Kong?

A Noble Lord

Slag heaps.

Lord DULVERTON

My Lords, they were doing just the job they were being asked to do. In that climate, the dedication rules were called into question. We had two years of negotiations with the previous Government, and then with this Government, which in the end resulted in a new form of dedication, Basis Three Dedication, being brought in. The Labour Government ratified the Basis Three Dedication Scheme with protestations that they still wished to see an active and flourishing private sector. Hardly was the ink dry on the new dedication scheme when capital transfer tax was introduced. The combined effect of these measures has been to bring forestry up short. I cannot blame it all on capital transfer tax, but largely so, and I shall hope to explain why. But I think the shaken confidence as a result of the dedication scheme being first called into question had a lot to do with it as well.

My Lords, the latest figures that I have available through a survey recently carried out by the Timber Growers Organisation in Scotland is that since 1972 planting in England and Wales has dropped by 48 per cent. over three years. In Scotland it has dropped 46 per cent. in two years, and it will certainly fall much more because many people have work in the pipeline, dedication schemes are in being, there are five-year plans in being where people have committed themselves, and there will be a much bigger tail-off over the next two or three years. There being no demand for them, tens of millions of tree plants have been destroyed by the nurserymen in the trade over the last 18 months.

What the Chancellor of the Exchequer and the Treasury call a concession to forestry in the rules of capital transfer tax is less of a concession than an acknowledgement that one cannot raise a tax on something that is unrealisable, and young plantations are unrealizable. In the end, your successors will pay in full this confiscatory tax as well as other taxes on the timber sold. Thus, in the very nature of forestry, you remove all the incentive for a man to plant, for a man cannot plant trees for his own gain. In order to make themselves a living or possibly even a fortune, men will farm, or manufacture, or engage in many activities necessary to mankind, where the returns come in year-by-year. But one thing man will have no incentive to do is to spend time, trouble, thought and energy on planting trees for the future of his family, and for his country. A man cannot plant trees for himself as he can farm or trade for his own benefit.

My Lords, our fair but tiny island is all we have now. We must make all the use we can of those acres that remain beyond the ever-growing tentacles of the concrete jungles. Forestry provides a chance for investing in the least productive areas of land to harness the rain-fall and the sunlight to convert their natural energy into one of the few renewable resources available to service the needs of man; I mean, of course, the tree. Some political thinkers might say, "Well, let the Forestry Commission do it all ". But I do not think that the Forestry Commissioners themselves, if you consulted them, would encourage you to feel that the Forestry Commission can do it all. This is a case for all willing hands to the pump. There are more willing and knowledgeable hands in the private sector now than there have ever been in our history. Do not now say to them, "Hands off ".

My Lords, I conclude my speech with a quotation: The Government have committed themselves to a mixed economy in which the private sector is vigorous, alert and profitable ". As I am running against the clock, I shall skip part of the speech. Any adjustments to the system which the Government have to make for this purpose cannot rightly be regarded as State aid. Your Lordships may be wondering who said that; it was said by our present Chancellor of the Exchequer, Mr. Healey, on 12th November 1974. As a forester, I can only ask noble Lords opposite: What on earth did he mean?

4.6 p.m.

Lord GISBOROUGH

My Lords, I must first declare an interest as a forester. Two world wars saw to the felling of the bulk of the mature British timber. Since then, the Forestry Commission has planted its 3 million acres of mainly conifers, many now mature, but far more still young and middle-aged. Private forestry has been encouraged to plant by taxation relief, and has been responsible for the planting of the great bulk of the young hardwoods, and probably all the smaller woodlands, as well as many larger acreages, that are scattered over the countryside to give it that magnificent aspect admired by all. Inevitably, as estates break up and farms become owner-occupied, pressure of mortgage repayments forces much woodland back into agriculture. One sees this happening all over the country. Smaller acreages naturally cannot carry trained forestry staff and machinery as the larger estates have been able to do. Private owners have planted mass timber, but they have also had the interest to grow, care for and love many hundreds of exotic varieties of hard and soft wood. Yet not one owner can have seriously imagined that he would reap any great reward for his investment, management and care.

My Lords, forestry essentially is a long-term exercise. It takes 80 years for hardwood, and perhaps 50 years for softwood to mature, and a return of 3 per cent. can hardly be regarded as an investment for profit. Therefore, the motive has been amenity, conservation, and probably a deep, and perhaps illogical, sense of responsibility towards the future, best illustrated by the fact that even in 1975 private forestry used much more hardwood seed than did the Forestry Commission. All this was based essentially on the belief that there was stability of the rules of taxation, and that forestry was not a political plaything subject to the whims of each bright new politician.

That stability over the last 40 years has given confidence. That confidence has resulted in massive planting which will increasingly play its part against the huge import bill for timber. That confidence has led to the creation of wealth, not profit, not cash, but wealth for the nation in converting the rays of the sun into timber. Now, timber has been dragged into politics: messing about with the dedication scheme, now with capital transfer tax and next year with the wealth tax, what will happen the year after? Confidence has been given a very severe shaking, and the effect has been immediate.

My Lords, forestry never stops dead. Areas clear-felled under licence have to be replanted. Established young trees have to be weeded, beaten up and given all the work and care that forestry entails, and this keeps many of the estate staffs in work. But with new afforestation it is another matter. This is where there is such evidence of a drop, and if this continues then the effect will be felt in 30 to 40 years' time. As an example, the Scottish Woodlands Association estimate that there is a down turn of 46 per cent. for this year of bare land planting; while in England the estimate is 45 per cent. This has resulted in redundancy figures of 35 per cent. to 40 per cent., representing some 3,000 skilled men, many lost for ever from the industry, mainly from the contractors. Even the management groups and estates have been reduced by 20 per cent. The demand for conifer seed has reached the lowest level ever recorded, and 20 million seedlings have been destroyed this year, representing 20,000 acres of planting, or 40 per cent. of the average annual private sector planting.

CTT will now mean that at each transfer, which could be three or four times in the life of a crop, full value must be paid on the value of the trees; far more will be paid in tax than will ever be recouped by the eventual seller. Considering the timescales involved, what point is there in planning for the next century? Better to have a holiday than invest in forestry. This is sad. Surely this is the one industry where inheritance should actively be made possible and encouraged. On semi-mature timber the heir will either have to sell to pay his tax or opt to defer and pay at a much higher rate—caused by the enhanced size of the timber and value due to inflation—on felling. This is inherently unfair for various reasons, not least because he will be paying capital transfer tax at a greater rate on his own investment of locked up capital. In practice the heir will sell, and down will fall all the fine timber stands of the country at the first transfer. We can all think of one or more fine stands which will disappear.

The ravages of CTT will interfere severely with good silviculture and all the valuable timber will be felled in a generation. This is particularly unfortunate because it is plain to all that every year's growth ring on a large tree produces far more timber than the annual growth ring on a small tree. The alteration of CTT to growing crops surely conflicts with the Chancellor's statement on 12th November 1974 when he said that the Government had no right in equity to withdraw fixed incentives without due notice being given and without due regard to the industry affected.

Capital transfer tax has already thrown up many other anomalies that have been brought to the notice of the Treasury. Forestry is a long-term enterprise and the value of the land and trees is unrealisable until felling. It is only fair that the value at transfer should be the valuation for CTT and that duty should be paid only on felling, though perhaps current prices might be applied to what passed at transfer. This would encourage the maturing of large and valuable saw-woods. Timber should be deemed a separate estate, though without the £15,000 threshold, to avoid penal rates. The land should be treated on a going concern basis, as with other productive assets.

The Government must realise that a strong private forestry industry is vital to the country, to help to supply softwood and to provide most of the hardwood, quite apart from the amenity aspect. We were lucky to find oil off our shores. We will not suddenly find new timber on our land, and as world supplies become tighter, so one day will the price of timber shoot through the roof. We must plant now for the year 2030, particularly as the Timber Committee of the EEC discussed last November the prospect by the year 2000 of wood becoming the raw material for feedstock, chemicals, alcohols, yeasts, protein and sugar. Plentiful supplies will then be vital, but it is at that time that the FAO foresees a shortage. I am glad to learn that the Government have obtained £80,000 from the EEC for a Forestry Commission education project. I hope the courses at this school will be open fully to private foresters and that the EEC, which favours private forestry, will be encouraged to help private forestry in its request for an education grant. The EEC's Timber Committee also discussed the full utilisation of trees, from needles right through to the roots, and tree-breeding, which is at an early stage compared with plant and animal breeding. All these matters need massive and early study.

My Lords, let us take timber out of politics, try to restore confidence and plant as many trees as possible. To do this perhaps a special review body should be set up to inquire into the whole economic structure of forestry and so determine its priorities in the economic structure of the country. This might lead to an agreed policy acceptable to any Government; and long-term assurances would lead to a return to a vigorous private sector.

4.15 p.m.

The Earl of CAITHNESS

My Lords, we must ask the one question: does this country need a private sector in forestry? In 1974 our timber imports cost £1,850 million, and that figure is now higher. That alone is a good reason for encouraging forestry. But when one appreciates that approximately 57 per cent. of all the timber grown in Great Britain is provided by the private sector, it is then that one realises just how important this sector is. Will our large import bill decrease? I think not. Looking at the world situation as a whole, we find that the supplies are diminishing while the demand per capita is increasing. Not only do we need a privatesector—and no Government could fill the gap if it ceased—but there is every reason to encourage it.

The growing of timber is a long-term business. While most Governments look as far ahead as the next election, the forester looks forward perhaps 150 years. Bearing this in mind, it is imperative that no Government toys with forestry for a short-term gain while destroying the long-term prospects of the industry. To plan for the future one needs confidence. After years of work that confidence has now been erased, but the fault does not lie entirely with the present taxation system; the economic situation of the country as a whole has accentuated it.

My Lords, one of the effects of taxation is to channel our actions in certain directions, and as taxes alter so do the directions change in which we head. Moreover, the more stringent and biting the tax system becomes, the fewer become the directions in which we can head. If we relate this to forestry we see the picture emerging. Our inheritance of mixed and often unevenly aged woodlands has given way to a more unnatural system of plantations of a single-age and common species. This more stereotyped system has been forced upon private forestry by the tax system. This in itself is not a threat to private forestry, as there is a market for this type of timber, albeit a poor one at the moment. However, for both the Forestry Commission and the private sector to grow only one type of timber is not as helpful to the country's economy as it might be. The most recent of Government taxes, CTT, only serves to make the position worse. The result of this tax is that the better the quality of the timber the more the tax bites. The answer from the private sector will be to continue to grow single species of an even age and on as short a rotation as possible. Furthermore, one is not encouraged to hand over any mature timber to one's children and grandchildren. Much more careful planning and advice will be needed. The private sector will remain, but only in a more limited capacity. There is now little incentive to replant species which might become a rod with which a future Government could beat our children.

The market for growing quick rotation timber is limited primarily to pulp and, as we have seen, the trend is for all types of timber to be in short supply in the future. If we continue to grow timber for only one market, we will have to pay an exorbitant price for top quality material in the future, and that will not help our balance of payments. The Forestry Commission is well geared to producing pulpwood, so why not encourage the private sector to help fill our requirements in other markets by growing top quality timber? To grow this material, a change is needed in our present system of forestry, and this can be achieved, to the good of the country, through the taxation system. Encouragement to plant the right species in the right places is more important than an increased grant for hardwood planting.

The disadvantage of our present system is not only that of limited markets; it is unnatural. Nature, of its own accord, does not produce single-age one species plantations, so why fight nature when one can work with it? Why have something that is scenically poor and depressing'? Although it provides a home for much wildlife, one moment it is there and the next, after clear felling, it is not. There is a greater incidence of disease, requiring chemical spraying to control it, and it is liable to windblow, as we saw at the beginning of January. Many years of hard work can be lost because of this. I would recommend the system, used satisfactorily on the Continent, of uneven-aged mixed woodlands. Although this is much more difficult to manage and suffers from the disadvantages that I have mentioned, the advantages are that the timber grows slowly at an early age and therefore produces a greater volume of better quality timber in the long-term. The amenity of the countryside is improved, as is the habitat for wildlife, because the wood should never be clear felled. Under proper management, the wood becomes self-seeding and only the most suitable seedlings on the site flourish. The finished product is excellent timber, but to produce it requires more skilled management than does the present system. However, if the results are worthwhile, then the locality and the rural economy must benefit.

Landlords in the private sector are concerned not only with plantations but with hedgerow trees and the countryside as a whole. The BBC produced an excellent programme, called "The Death of a Landscape ", on the tragic results of Dutch elm disease, yet we are still awaiting constructive Government action in this field. Do not let our grandchildren say, "They caused the death of the landscape ". Under the present taxation programme the rural environment as we know it will be destroyed, leaving only blocks of quick-growing conifers as their inheritance. Private forestry is essential to this country. The tax system should not destroy it but encourage it to play its full part in the potential of the economy. To do this we need confidence and a consistent policy of sensible taxation.

4.22 p.m.

Baroness SHARPLES

My Lords, I should declare my interest, having a farm with woodlands, and I do not wish to separate the two in this debate. We acquired a property which was in a very sorry state. More than a quarter of it was badly neglected woodlands. Over the years we took a very small proportion of woods into farmland and replanted the remainder, and the results of our efforts made us very proud. Some eighteen months ago, because of real and threatened taxation, I was advised that it was essential to make our five woodmen redundant. I did so with the greatest regret. It is a sad comment that none of these experienced men has found a job in forestry. Your Lordships know that contract labour, if available, is not the same as a good team of woodmen who take such great pride in their work. Inevitably, things will deteriorate, and we will all be the losers.

The proportion of woodlands to farmland varies enormously all over the country, and what most concerns me is the possibility that the Government are considering setting an arbitrary limit on the amount of woodland which may be treated as ancillary to a farm. I should like to urge the Minister, if this is in fact the case, to reject any such idea. Surely we cannot afford to lose well kept and beautiful woodlands, large or small, in any part of Britain. As other noble Lords have said, we need confidence, as forestry can only be long-term with long delayed return on investment. Other noble Lords have clarified what the situation will be when the effects of capital transfer tax are really felt. I cannot pretend to understand the complexities of taxation that face those of us who have a responsibility for future generations. We do not want to fail them, but I feel a deep anxiety about the situation, which I hope Her Majesty's Government can alleviate when the Minister replies. Finally, I am extremely grateful to my noble friend Lord Lovat for giving me the opportunity to speak in this debate and to make a very small contribution to a most interesting discussion.

4.25 p.m.

Lord INGLEWOOD

My Lords, I think that it is a tragedy that we have to have this debate at all this afternoon. After the success of post-war forestry policy encouraged by all Governments, it is a pity that the foolish decision over proposed taxation by the present Government should so quickly have set back expansion, endangered good relations between the public and the private sectors, and put good men out of jobs and risked the jobs of many more. When the Government went back on the policy statement of July 1974 and suggested taxation changes, all political Parties in Scotland, I believe, except the Communists, told the Government what would happen, and now it has happened exactly as they said. Then arguments during the Committee stage of the Finance Bill in another place convinced Ministers that they had made a mistake and some Amendments were proposed to that Bill, although nothing like as far-reaching as some Government spokesmen have since tried to represent. But, then, the smallest crust nowadays is better than no bread. Many of us who since then have had correspondence with different Ministers, will have had the same unconvincing standard letter from different Departments, really showing how little the problems of forestry are understood in Whitehall.

It is disturbing, too, after the Minister's statement about his proposed Amendment in another place, that he was visited by a deputation from the TUC urging him to stand firm, and saying that anything that was "given away ", as they put it, would be taken as a breach of the Social Contract. Of course what the TUC says to this Government, however damaging, must not be ignored.

The fact remains, in spite of what the noble Lord, Lord Lovat, said about this not being a political subject, that Socialists do not like privately owned woodlands in other countries or in this country. They have very little knowledge on which to base this view; but I would cite as one notable exception—Mr. Philips Price, a Member for a long time of another place and also a Forestry Commissioner. I am sorry he is not with us still. Over the last year, I have spoken to noble Lords from the Benches on the other side, and to Members of another place, who seem to think that if under the proposed taxation system the private owner cannot carry on, then surely the Forestry Commission can take over. That just shows how flimsy their knowledge is. Maybe that could happen with a few big areas, but not with the many small woods containing the bulk of hardwoods, as has just been mentioned, which contribute so much to the amenity of our countryside. Very soon, unless changes are introduced, we shall see a beginning of these woods being cut and left derelict.

I have just said that we cannot overlook politics in this debate, and it is interesting to look back to see what the Socialist Government of this country from 1945 to 1950 tried to do in the British zone of Germany, for which they were then largely responsible. I think that they were surprised to find that more than half of those splendid German forests were in private hands. They thought that it was within their power to change this, and they tried to do it. Of course privately owned woodlands were something which buttressed continuity and stability in the countryside—wicked, terrible, conservatism with a small "c ". Luckily, they failed in Germany to carry this through. We can only hope that they will fail to carry it through in this country, and that they will admit that they have made a mistake and will propose early amendments which will encourage high standards in the industry and will be fair, not just to the forestry industry but to the ancillary industries, too, and to the country as a whole. They must never forget, as has been pointed out time and time again this afternoon, that forestry, different from all other industries, is long-term. It is quite easy to damage the forestry industry. We have seen it happen during two wars. Serious damage can be done in a very short time and it takes much longer to repair.

4.31 p.m.

Lord CLIFFORD of CHUDLEIGH

My Lords, I happen to be a forestry owner of some 500 acres which I manage myself, and of 400 acres which are let to the Forestry Commission at 2s. 6d. an acre for 999 years. In addition, I have a park of 450 acres laid out and planted by Capability Brown in 1760, which, tree-wise, I endeavour to maintain. Added to that, there are innumerable copses and much hedgerow timber, on which so much of the beauty of the countryside depends.

One plants trees for posterity—soft-woods for one's sons and grandsons and hardwoods for one's great-grandsons and later. In hilly parts of the country, such as Devon, one plants and maintains woods on ground which is too steep for agriculture to stop soil erosion and to provide firewood and fencing posts, as well as to preserve flora and fauna. The present disastrous floods in Australia are caused by the indiscriminate ring barking of many of the trees, allowing erosion to fill the river beds, so that when heavy rains come the streams are unable to take the rain. There are no trees, therefore there is no sponge effect. Fortunately for us, our ancestors did not behave so irresponsibly. They planted woods and copses with a view to blending forestry and agriculture to achieve a proper balance.

I should like to quote from an article in a country magazine. It is from a column called "Land Agent's Letter "by Agronomos. It says: I recently attended a forestry meeting on the estate where I was a pupil. It was fascinating to look at plantations, some of which I had actually helped to plant, 20 years later and to see how they had fared. They had done very well, thanks largely to a keen owner and his agent who had been managing the woodlands now for over a quarter of a century. It seems we have gone out of our minds though, when, after all the care and hard work that has gone into these wood-lands, the owner would have to say that with our present taxation the sensible thing to do would be to fell the lot before he died. Such are the rewards of good husbandry. It took me ten years to pay off the death duties on my woodlands. For the last 13 years I have planted 14,000 trees a year until this year—or, rather, last year because my planting month is March. I shall not plant this March. If I planted more or maintained, weeded or fertilised the present trees, I should only be building up a bigger tax burden for my successor and a wealth tax for myself. In the last 13 months I have phased out, as the noble Baroness has done, two woodmen. My land is strewn with trees ready to go to the mills. They are windfalls and elms but now no one can buy them, for the sawmills are full. If one has to pay to strip the elm bark, as per the recent order, the cost of getting the timber to the mills will not he covered. Yet we import £2,000 million worth of timber a year. We import that timber together with oak wilt from Russia and Romania and chestnut blight and Dutch elm disease from Canada, which caused the last outbreak. I cannot for the life of me see why we cannot treat foreign timber as we do cattle so as to keep out these diseases.

If we do not keep down the grey squirrels and rabbits, all our young trees will go. But if one gets no income and only increases one's tax liability, why bother? Why employ another man? The South-West Timber Growers' Organisation, meeting last Monday at Tavistock, reported that no new planting had been done in the South-West this year by their members. Unless the Government alter their tax proposals soon the countryside, or a large proportion of it, will become a desert. The numbers of those employed in the countryside will drop still more and our balance-of-payments deficit will be further increased. I, for one, shall have spent half my working life cutting off my nose to spite my face.

4.38 p.m.

The Earl of KINTORE

My Lords, I want to draw attention to some of the side effects of the unfair taxation on private woodlands and private forestry and also to the effect it has had on the national economy. I must declare an interest. I am a small shareholder in a large chipboard mill in the East of Scotland—Scottish Timber Products—and I am a forester and have 500 acres of trees, most of which I myself have planted from seed. Owing to the tax position I have stopped planting. I see no point in planting for the benefit of the Treasury, be it for the United Kingdom Government or for the "Scots Nats "if they succeed in getting us into a sort of haggis republic.

There is an immense import saving and job promotion potential in difficult areas if the forestry is exploited as it should be. I believe that we should remember that North Sea oil may last only between 20 and 30 years, and that the probable result of the wealth allegedly to he derived from that may pay about half the national mortgage which we have already incurred.

The consumption of chipboard in the United Kingdom has doubled over the past five years. Even so, we use only about a quarter as much chipboard as other EEC countries. This year, we expect to make 600,000 cubic metres of chipboard and to import 950,000 cubic metres. The largest chipboard mill in the United Kingdom is Scottish Timber Products. It depends on thinnings and small wood for its raw materials and that means a continuous planting programme and continuous supplies. At the moment, the mill is producing 170,000 cubic metres a year and the industry collectively—there are six big mills—employs 2,000 men and women directly and another 2,000 indirectly on transport, haulage and forestry work. The capital directly employed is something over £50 million. The 1975 output was valued at £30 million, and the estimated value of the 1976 production is £40 STP—Scottish Timber Products—is working three shifts and yesterday went over to a seven-day week. It has increased its labour force by 10 per cent. and is investing another quarter of a million pounds in plant to try to increase output by another 20 per cent.

Recent research and experiment has shown that the home-grown timber is as good as imported timber provided it is properly seasoned and machine stress graded, and is eminently suitable for house building. A large number of timber and timber-framed houses are being built in Scotland today, and a local firm which started from very small beginnings in Stonehaven—it is known as Industrial Joinery—is producing three houses complete a week. It has increased its labour by 50 per cent. and at this moment is planning a large extension.

Turning to a small scale, another friend of mine, Mr. Black, who was a working lad in Stonehaven, started seven years ago with a hand-saw and a claw hammer making pallets out of home-grown timber. He is now employing 18 men, working on 99 per cent. home-grown timber, and the turnover is just £200,000 a year. I believe that that demonstrates that there are people with enterprise and lots of guts who work hard. These are the kind of people and the kind of industries which the present short-sighted policy in taxation is putting at risk, and I think it is crazy.

Lord JACQUES

My Lords, first I am asked by my noble friend Lord Taylor of Gryfe, the Chairman of the Forestry Commission, to express his apologies to the House for his absence today. This morning he was presiding at a meeting of the Commission, and this afternoon he is receiving representatives of private forestry to discuss the grant in connection with the dedication scheme. Therefore I believe that most noble Lords here who are interested would agree that my noble friend has a very good reason—I do not say an excuse—for his absence. We are all indebted to the noble Lord. Lord Lovat, for raising this issue, which is of considerable importance. Members of your Lordships' House who have taken part in this debate are all experienced in woodland and it would be right that the Government, and especially my right honourable friend the Chancellor of the Exchequer, should take account of what has been said.

I must give priority to a review of taxation on woodlands, having regard to the terms of the Motion, but before dealing with that I wish to deal with some of the points that have been mentioned. First, there is planting. There has been a tendency for a decline in planting since 1972; that is to say, the decline set in long before we had the present Government and long before there was any discussion of the capital transfer tax. It must be admitted at once that there are other reasons why there has been this decline, and it cannot all be laid at the door of the capital transfer tax. The official year ends on 31st March. In the year ended 31st March 1975 grants were paid to private owners of woodland on 53.700 acres. That was a decline of 4,800 acres. But in the same year (that is the most recent year) planting by the Commission amounted to 57.200 acres—that is to say, an increase of 3.5 or 3,500 acres. Thus in the case of the private woodlands in the last year there was a decrease of 4,800 acres, and so far as the Commission was concerned there was an increase in its acreage of 3,500—

Lord MACKIE of BENSHIE

My Lords, the noble Lord is talking about planting grants to the private owners only.

Lord JACQUES

My Lords. I know that it can be questioned that there is the delay clement, but using that as the basis, the Commission substantially made up the decrease in the private sector in the last official year.

So far as imports are concerned, there are two factors which are very important but have not been mentioned in the debate. First, in real terms our imports are declining at a very rapid rate. The best way of measuring our imports in real terms is to calculate them in terms of cubic metres. In 1973 we imported here I use millions— 44 million cubic metres of timber and timber products. In 1944 it was down to 40 millions—

Lord SANDYS

My Lords, surely the noble Lord means 1974.

Lord JACQUES

I am sorry, my Lords, if I stated a wrong date. In 1973 the figure was 44 million cubic metres. In 1974 it was 40 million cubic metres. In 1975 it was 30 million cubic metres. So there has been a rapid decline of our imports in real terms—

Lord MACKIE of BENSHIE

My Lords, I am sorry to keep asking questions, but does that include pulp for paper?

Lord JACQUES

It includes pulp for paper, my Lords.

A Noble Lord

My Lords, does the noble Lord believe that that is due to the recession, or is it a permanent trend?

Lord JACQUES

My Lords, I believe that all these figures are subject to the recession, including many of the figures quoted by noble Lords in the debate.

There is another factor about the imports that ought to be noted; namely, while we import a good deal in terms of value, a large part of what we pay is not for the timber at all but for the processing of the timber that has taken place before we receive it. For example, in 1975 the value of our imports was £1,308 million, but the value of those imports at home roadside prices was £408 million. Therefore it can be assumed that roughly two-thirds of what we paid for the imports was not for the timber content but for the processing that had taken place before we received the timber products. These are important factors which were completely overlooked by those noble Lords who mentioned imports during the course of the debate.

On the question of employment, the latest figures produced by the Department of Employment show that for forestry workers unemployment is roughly the same as it is for workers in general. It is 5.7 per cent. compared with 5.1 per cent. for the whole of the labour force.

I come now to the question of taxation—

Lord LOVAT

My Lords, would the noble Lord give way for one moment, because he is rather blinding us with figures? There are always two sides to all these stories—

Lord JACQUES

I thought that I had heard one side, and so I was giving the other.

Lord LOVAT

My Lords, I am correcting some of the facts which the noble Lord read out, with the evidence I have before me. With all respect—because I am answering in a moment—I do not think the noble Lord can reconcile the following. I am talking about the imports of timber and timber products over the period from 1962 to 1974. In 1962 the total imports were 415 million, in 1972 they were 877 million, in 1973 they were 1,360 million and in 1974 they were 1,878 million. So whatever the noble Lord says in isolation may be an impressive argument, but it does not tally with the facts, because the imports have quadrupled in 10 years. There is no way round that.

Lord JACQUES

My Lords, if we are to measure in real terms our imports of timber and timber products, I suggest there is no better way to do it than to use cubic metres, and that is the measurement I used. Secondly, so far as the value of processing is concerned, I took the figures for one year to show that the processing was equivalent to two-thirds of the value which we paid. I can take any other of the last three or four years and I will get exactly the same result.

But I come now to taxation, because that is the main idea behind the Motion. Let us deal with taxation. I shall take one tax at a time; first, income tax. The private owner of woodland has a choice; he can be taxed under Schedule B or Schedule D. Under Schedule D he is taxed in the same way as any other trade or industry; that is, his profits and losses are assessed in the same way as they are for any other trade or industry. In so far as they are profits, he is taxed upon those profits; in so far as they are losses, he can set off those losses against any other income.

Lord SANDYS

My Lords—

Lord JACQUES

No, my Lords; I am not going to give way again to anyone, but when I am finished I will stand here and noble Lords can ask me as many questions as they like. So the owner of a private woodland has this choice between Schedule B and Schedule D. If he chooses to be taxed under Schedule D, then he has his profits and losses assessed in the same way as any other trade or industry. He is charged tax if he has profits, and if he has losses he can set off those losses against any other income.

Throughout the whole of the lifetime of the woodland, except for the year at the end when the felling comes, there are obviously losses, so the owner of the woodland always goes for Schedule D. He will have no tax to pay; and if he has losses those losses are set off against the income from any other source. That means, of course, that he is passing on the annual cost of his woodland to the Exchequer, and the extent to which he passes on the annual cost of his woodland to the Exchequer depends upon his marginal rate of tax. His marginal rate of tax can be anything from 35 per cent., which is the standard rate, to 98 per cent., which is the highest rate. So in all cases where the owner of the private woodland is a taxpayer, the Exchequer is paying some part of the annual costs of the woodland by tax relief; economists who have made a study of woodlands estimate that, on the average, 60 per cent. of the annual cost of woodlands is passed on to the Exchequer by way of claiming losses against other income. It is clear, therefore, that the expenditure on woodlands gets relief.

Let us look at what happen sat the time when the profit comes; that is, the last year, when the timber is felled. As the law stands at the present time, the option of Schedule B or Schedule D applies whenever there is a change of occupiers. So if the owner of the woodland takes into partnership a near and dear relative of his or her's the year before the timber is felled then there is a change of occupation, and because there is a change of occupation there can be a change in the Schedule under which the tax is paid. He can opt to be taxed under Schedule B instead of Schedule D. The basis of the tax under Schedule B is quite different. Under Schedule B, the basis of the tax is one-third of the annual rent of the land in its natural state. I will repeat that: one-third of the annual rent of the land in its natural state; in other words, a nominal figure.

By this slight change in occupation there can be a change of the Schedule under which the tax is paid, and in consequence the tax which the Exchequer receives from the sales of felled timber is insignificant. So the present position, so far as income tax is concerned, that the owner of the woodland gets relief for expenditure during the lifetime of the woodland, and at the end of its life, by this slight change of the basis of taxation, no significant payment is made to the Chancellor of the Exchequer on the profits which are made when the trees are sold. The noble Lord, Lord Lovat, said he was not seeking any tax exemption. So far as income tax is concerned, I suggest he has got it and does not need to seek it.

I come now to capital gains tax. Woodlands are completely exempt from capital gains tax. On that I have nothing more to say. I come now to wealth tax. The Report of the chairman of the Select Committee in the other place, as amended by the Committee itself, and the Report of the Opposition in the Select Committee, both recommended that forestry assets should be completely exempt. My right honourable friend will obviously have to take that into consideration when reaching any decision. So far as wealth tax is concerned I do not think that I need make any further comments.

I come now to capital transfer tax. In the case of capital transfer tax, tax has to be paid, of course, on a transfer which is made at a time other than death. But that, of course, applies to all assets, not just to woodlands. It applies to all assets; it applies to all of us. In general, this was the position under estate duty; that is, that those who were clever did not pay because they transferred seven years or more before the due date, whereas those who were foolish did nothing and consequently paid. We now have a capital transfer tax, which puts everybody on the same footing, and we have lower rates. I suggest that that is equitable fiscal policy.

So far as woodlands arc concerned, they are given a considerable exemption. First, on the death of the owner of the woodlands the tax on the woodlands can be deferred, so that there is no need for the heir to have to find the money to pay the tax. It can be deferred until the timber is felled or the woodland is sold, so it is deferred until the money becomes available. It is not a question of making it difficult for the owner of the woodland; it is deferred until he sells. He is then taxed—only once; at the time of sale—and that is at the marginal rate at the death of the last owner; so that if there have been two or three owners, it is only the tax at the death of the last owner that is payable. It is paid at the marginal rate, not the average rate. It is the margin. The heirs have decided to postpone the tax on the margin. It would be unreasonable for them to expect, having had the opportunity of postponing, that they are going to pay only at the average rate on the estate. They have deferred the tax on the marginal slice of the estate and it is fit and proper that they should pay at the marginal rate.

It was mentioned specifically in the debate that they have to pay on the value of the timber as sold, not on the value at the time of death. On this I would say only two things. The present thinking of the Government is that in the context of existing income tax and capital gains relief, the relief which is afforded in the capital transfer tax strikes a reasonable balance between fiscal equity and the need for maintaining an adequate level of planting. That is the present position of the Government. But there have been pre-Budget representations made on this point of valuation which my right honourable friend is presently considering. It is fit and proper that I should not in any way try to anticipate the Budget. I must leave it there.

The EEC has been mentioned, but I should like first to deal with one specific point raised by the noble Baroness, Lady Sharples. The special capital transfer tax agricultural relief covers small areas of woodland occupied with agricultural land. There is no arbitrary limit on the size of the woodlands which qualify for this relief.

Finally, my Lords, I want to mention the question of EEC. The Government view of the draft Directive is unfavourable for this reason. It would mean that areas of agricultural land would have to he converted to forestry. The Government do not think that that is a good thing for this country. They also believe that it would be a costly Directive, so far as this country is concerned, in that it would be required to pay very much more than it would get back if this Directive were put into operation. I would say that, by and large, woodlands fare very well in the existing tax arrangements. If there is anything wrong, if there is anything preventing planting, it is certainly not taxation.

5.2 p.m.

Lord LOVAT

My Lords, we have listened to some very good speeches. I do not know about the last one; it was not a speech, but a trade union directive. I made the point of saying that I did not wish to drag politics into this debate, that in my opinion it was a debate of national importance. When I saw the noble Lord, Lord Jacques, before the debate, I thought that he agreed with that. I am thoroughly disappointed with his remarks. He has talked for 21 minutes to my 11, so I suppose that I can talk for more than five minutes before summing up this debate and before withdrawing my Motion. I should like to say simply this. From every side of the House there have been constructive remarks to step up woodland production if one is given equal opportunity to do so. If we march in step with the Forestry Commission we can certainly double the figure—a figure which is continuing to dwindle every day. We do not know the results of the present planting season, but I repeat that whatever the arguments from the Front Bench there is no getting away from the fact that the import figure quadrupled between 1962 and 1974.

There was no answer to the point I made very respectfully, that if you do not approve of 2,500 woodland owners, do you wish to turn the country into a State forest where there are only 250 Forestry Commission woods at the present time That point has been ignored. I said that I did not want to be political; but if I had been political I should have been speaking from the Liberal Benches because in 1909 there was a Royal Commission under Mr. Asquith which recommended that some 9 million acres of timber should be planted—6 million acres in Scotland and 3 million acres in England. That recommendation was disregarded. We have gone through two world wars which stripped our forests, and a depression in the thirties which rendered planting impossible.

We have mistakes made by every Government whatever their complexion. There was no worse mistake, in my opinion, than the absurd White Paper which I think came out in 1972. There a cross benefit study initiated by the Treasury was complete and abject non-sense, repudiated by all sides, although it came from the Conservative ranks. It was a disaster which undermined confidence in the industry long before capital transfer tax came about. I would agree with the noble Lord, Lord Jacques, that that was the beginning of the trouble; although we put out the Party cry, "Plant a tree in '73 "very soon afterwards. No one has mentioned that war cry of the foresters, and of course there was "Plant some more in '74 ".

Since that date, things have gone from bad to worse and they will continue to go from bad to worse because there is a curious ignorance on both sides of the House—and I say this beating my own breast. I have seen it in every country in the world. When you have got something, you take it for granted. I saw it in Argentina where they thought they had too much meat. They now have meatless days in order to survive. In Russian they thought they had enough grain to support the whole of the Soviet Union. Now, every time they have a grain shortage, they put up the timber prices to this country. I have even seen it in the Humboldt Current off Peru and in Chile, where they thought they had unlimited anchovies. Now they have disappeared. We had herrings around this country in profusion. Now we are running out of herrings. And we are running out of timber so fast you have no idea of the situation.

I heard the noble Lord, Lord Melchett, speaking in answer to a Question about imported wood pulp. He said that a lot of wood pulp is to be found in Europe. That is not so. I did not profess my own interest in forestry at the beginning of the debate. I apologise for not doing so. I should have done. But from my own woods I am sending pulp once a month from Inverness to Göthenberg in Sweden. The whole thing is standing on its head unless we take a sensible objective view of the situation.

This debate has been drawn out of the hat. It is now rather a curious and. I think, challenging thought that this week there is an exhibition of great paintings by Constable. Those paintings, as your Lordships will know, are quite outstanding for two features: the cloud effects, sunshine and the towering trees—towering trees which in England are much finer than in Scotland. We have heard in recent months in Question Time of the sad effect of Dutch elm disease on a tree which Constable painted extremely well. It is a hedgerow tree, but, economically, as a forest tree, it is of no great importance. But if the private sector goes out of forestry, as it will, on the arguments not marshalled but pushed forward by the noble Lord, Lord Jacques, there will not be a forest tree, a deciduous tree, or a broad leafed tree in England. All of them will be cut down to meet taxes. I withdraw my Motion with the statement that this will inevitably happen unless you get rid of this doctrinaire nonsense. We arc not selling slag heaps, we are making a very small profit. And we are not doing land deals down in East Sussex either.

Motion for Papers, by leave, withdrawn.