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New Clause—(Annual Allowances, &C, For Mineral Rights In The United Kingdom

Volume 466: debated on Tuesday 28 June 1949

The text on this page has been created from Hansard archive content, it may contain typographical errors.

(1) Subject to the provisions of this section, capital expenditure incurred by any person in connection with the working of a mine, oil well or other source of mineral deposits of a wasting nature in the United Kingdom, being expenditure on the acquisition of, or of rights in or over, the deposits shall, notwithstanding anything in section twenty-five of the Income Tax Act, 1945, be expenditure to which Part III of that Act applies, and that Act shall have effect accordingly.

(2) In relation to expenditure to which subsection (1) of this section applies—

  • (a) the references in the Income Tax Act, 1945, to the appointed day shall be deemed to be references to the sixth day of April, nineteen hundred and forty-nine;
  • (b) Part III of the First Schedule to that Act shall not apply;
  • (c) references in Part II of that Schedule to the expenditure to which Part III of that Act applies shall not include references to expenditure to which Part III of that Act applies otherwise than by virtue of this section; and
  • (d) applying sub-paragraph (b) of paragraph 5 of the said Part II, output before the trader acquired the source shall be left out of account.
  • (3) Where—

  • (a) on or after the appointed day, a person incurs expenditure to which subsection (1) of this section applies on acquiring any deposits or rights; and
  • (b) those deposits or rights had previously been acquired (whether before, on or after the appointed day) by some other person, being, or being a body corporate or partnership under the control of, a person resident in the United Kingdom; and
  • (c) the case is not one to which subsection (7) of section twenty-eight of the Income Tax Act, 1945 (which relates to sales of sources and parts of sources as going concerns), applies,
  • the said expenditure of the first-mentioned person shall be left out of account for the purposes of Part III of that Act so far as it exceeds the capital expenditure incurred by the said other person in acquiring the deposits or rights:

    Provided that where the source in question, or the relevant part thereof, has been worked between the dates of the two acquisitions, the said capital expenditure of the said other person shall be treated for the purposes of this subsection as reduced so as to bear to the full amount thereof the same proportion as the total potential future output from the source or part, estimated as at the later of those dates, bears to the said total potential future output plus the actual output from the source or part between those dates.

    (4) Where—

  • (a) before the appointed day, a person incurs expenditure to which subsection (1) of this section applies on acquiring any deposits or rights; and
  • (b) those deposits or rights had previously been acquired by some other person, being, or being a body corporate or partnership under the control of, a person resident in the United Kingdom.
  • that expenditure shall, in arriving at the expenditure which, under subsection (4) of section twenty-seven of the Income Tax Act, 1945, the first-mentioned person is to be treated as having incurred on the appointed day, be left out of account so far as it exceeds the capital expenditure incurred by the said other person in acquiring the deposits or rights:

    Provided that where the source in question or the relevant part thereof has been worked between the dates of the two acquisitions, the capital expenditure of the said other person on acquiring the deposits or rights shall be treated for the purposes of this subsection as reduced so as to bear to the full amount thereof the same proportion as the actual total output from the source or part from the later of those dates to the appointed day plus the total potential future output from the source or part, estimated as at the appointed day, bears to the actual total output from the source or part from the earlier of those dates up to the appointed day plus the said total potential future output.

    (5) In the cases specified in this subsection, the two last preceding subsections shall have effect subject to the following provisions, that is to say—

  • (a) if there is more than one such other person as is therein mentioned (that is to say, more than one person who, being, or being a body corporate or partnership under the control of, a person resident in the United Kingdom, previously acquired the deposits or rights in question), regard shall be had only to that one of those other persons who first acquired the deposits or rights;
  • (b) where any such other person as aforesaid carried on a trade which consisted of or included the buying and selling of, or of rights in or over, mineral deposits, references to capital expenditure shall, in relation to him, be deemed to include expenditure which would have been capital expenditure if his trade had been the working of the deposits or rights in question and had not included such buying and selling as aforesaid;
  • (c) in computing the expenditure of any such other persons, liabilities undertaken by him which, in connection with the disposal by him of the deposits or rights in question, have been taken over by some other person may, notwithstanding anything in subsection (2) of section sixty-four of the Income Tax Act, 1945, be taken into account.
  • (6) References in this section to expenditure on the acquisition or deposits or rights shall not in any event include—

  • (a) expenditure which, apart from this section, is, within the meaning of section twenty-five of the Income Tax Act, 1945, expenditure to which Part III of that Act applies; or
  • (b) expenditure on machinery or plant, or on any asset which has been treated for any year of assessment as machinery or plant; Or
  • (c) expenditure on any building or structure.
  • (7) References in this section to capital expenditure include references to any payments of minimum royalties or dead rents, or any other similar payments, being payments of royalties or rents or other payments which cannot be taken into account as deductions in computing profits or gains for income tax purposes by reason of the fact that no trade, or no relevant trade, was being carried on at the relevant time by the person making the payments.

    (8) In no case shall the amount on which a balancing charge is made upon a person be increased by virtue of the provisions of this section by more than the total amount by which annual allowances made to that person are increased by virtue thereof.

    (9) This section shall be construed as if it were contained in Part III of the Income Tax Act, 1945, and the reference in subsection (1) of section fifty-eight of that Act to expenditure incurred on the provision or the purchase of

    property shall, in relation to this section, be deemed to include a reference to expenditure on the acquisition of, or of rights in or over, mineral deposits.—[ Commander Agnew.]

    Brought up, and read the First time.

    5.0 a.m.

    I beg to move. "That the Clause be read a second time."

    The Clause is in the name also of the hon. Member for Bodmin (Mr. D. Marshall) who would have been in his place to support it but for an accident that he has suffered. The Clause provides for a new annual allowance of Income Tax in the case of the extractive industries against the cost of the acquisition of mineral rights for the purpose of working those rights for the first time. The Chancellor's Clause, which we discussed last week, confines his concession to property oversea. The new Clause, which is admittedly generous in its physical proportions but narrow in its scope, seeks to extend the benefits of the concession given in Clause 18 to enterprises situated in the United Kingdom.

    The Clause is closely modelled on the Chancellor's own Clause, with, of course, the geographical difference which is the reason for it having been put down. It contains also the same safeguards for ruling out any question of the granting of an allowance where there is already an established source of income being transferred from one person to another. It is in cases different from those, in which a company acquires mineral rights in land in this country that had not been previously worked because the presence of ore bodies there had not been suspected, that it seems to us that there is a good case for the purchaser of such rights, for the purpose of working them the first time being given the benefit of the same annual allowance of tax in respect of his capital cost on acquisition of those rights as has been accorded by Clause 18 to the mining entrepreneur who does the same thing in properties oversea.

    I am aware that in the discussions on the Amendments to Clause 18 the Solicitor-General referred to the Report of the Royal Commission on Income Tax, 1920, with reference to certain Amendments moved by my hon. Friend the Member for Chippenham (Mr. Eccles), and he called in aid the Report of that Royal Commission to support a refusal to consider any question of granting an allowance of tax where mineral rights in this country are already a potential source of income and are transferred from one person to another, there being already an actual source of income involved in the transfer. But the point of this new Clause is not to contravene that principle laid down by the Royal Commission, but to consider the case, which is not an uncommon one in base metal mining, where there is land which is not known at all to be a potential source of income until the time comes when some mining company or individual deems it right to prospect the land and test it for the presence of ore bodies, and having done that to acquire the mineral rights to work the ore bodies underneath it. It is in cases such as those that it seems there is no case for withholding the new concession granted oversea to mining enterprises at home also.

    For a generation, nothing has been done to encourage the base metal mining industry of this country, apart from the very moderate help which was given by the Income Tax Act of 1945, which was passed by the Coalition Government. I do not claim that this new Clause, if it is embodied in the Bill, will be an enormous help to the home base metal mining industry; but I do claim, and I do declare, that if this concession is not extended to the home industry, something less than justice will have been done to it.

    Perhaps I may be allowed to say a word or two upon this matter, because it affects the West Country very closely, although it affects few other places, except some in Wales and possibly one in Scotland. There are few hon. Members concerned apart from my hon. and gallant Friend, as to whom I am sure everyone in the Committee would agree that we would like to hear more of his speeches after the clear way he has put this matter before the Committee. It is unfortunate that the hon. Member for Bodmin (Mr. D. Marshall) and the hon. Member for St. Ives (Mr. Beechman), who are much more closely connected than I am with these things, should not be here to put the case of the Cornish mining people.

    My family has had a far longer connection with these matters than I think can be claimed by any other person in the Committee, and I therefore have had the advantage of hearing a great deal about the considerable difficulties with which these mines have had to contend for many years. Earlier in the day we were discussing what should be done to help our mining industry in Malaya and in other parts of the world. There has been a definite help to that industry. In this country there is only a small industry in comparison, but it was an asset of value—even the small amount of tin from Cornwall was of considerable value—during the war.

    Another point which I think might appeal to the Government is that it is of some advantage to keep the oldest mining industry of this country going. This type of mining had gone on long before coalmining was thought of—right back to Carthaginian times. There are some places where there are still Carthaginian workings in this country. They obviously will not benefit. I ask the Government to remember that it is vital to the interest of this country to keep some of these metal mines going. We suffered during the war because of a lack of tin and other metals, and I appeal to the Government to give full consideration to this matter.

    The hon. and gallant Member who moved this new Clause referred to the fact that I had already, when we were discussing Clause 18, deployed the argument I would now use in asking the Committee not to accept the new Clause. May I put it in this way? If the principle of this Clause were accepted, it would involve the Revenue in very heavy loss. It is impossible to say how big the loss would be, because one could not accept this principle for mineral rights in this country and limit it to that particular type of property.

    Let me put, as clearly as I can, my reason for saying that the Revenue would be involved in loss. Supposing that a mining company is exploiting minerals. It is taxed under Schedule D, and pays tax on the whole of its profits, so that the Exchequer gets tax on the full amount of the profits arising from the working of these mineral deposits. Now, suppose that the mineral company has purchased the rights to exploit the minerals from the person on whose land the workings are made—the landowner— and has paid a capital sum for those rights. The new Clause would enable him to write off against profits, allowances for the capital sum, and if the mining company was allowed to reduce its profits by writing off the capital sum paid to the landowner, the Exchequer would not get payment on the full amount arising from the profits from the exploitation of the minerals.

    The State would suffer loss. There would be a source of profit untaxed to the extent that the amounts were written off against the profits in relation to the capital involved. The only way in which the State could recoup these losses would be if there was some system whereby a capital payment was taxed in the hands of the landowner. In order to safeguard the Exchequer, we should, if this Clause were accepted, have to incorporate in our taxation legislation some system whereby the capital in the hands of the landowner was also taxed. If there is a right to write off against profits the capital payment made to acquire and work the minerals, then, unless a correlative tax was imposed on the capital payment in the hands of the landowner—the recipient—the State loses the amount by which the writing off is granted. We could not accept this Clause without a correlative right to obtain tax at the hands of the landowner.

    This principle is not limited only to capital payments for the purchase of mineral rights. It would apply to every premium paid to acquire a leasehold interest and it would have very general repercussions throughout our taxation system. This Clause would mean that it was practically impossible to tax capital payments, and there is no safeguard against heavy loss to the Exchequer. This is also opposed to the findings of the Royal Commission.

    5.15 a.m.

    I must say that I am very dissatisfied with the answer which the right hon. and learned Gentleman has given. I did not suppose that the concession would cost nothing. Every concession is going to cost something, but this is a very moderate one indeed. With regard to his citation of the report of the Royal Commission, I have the words here:

    "We are of opinion that no allowance should be given to incomes arising from wasting assets which consist of proprietorship of natural resources in this country."
    What the Clause seeks to do is not to give allowances of tax in respect of proprietorship but in respect of the working of those mineral assets by a company or individual.

    The Clause says:

    "being expenditure on the acquisition of, or of rights in or over, the deposits.…"
    That is what the Clause asks.

    In the context of the Clause with Part III of the Income Tax Act, 1945, which it seeks to amend, it is not relief of tax on static property but on the system of taxation of mining and other allied enterprises. I was going to say when the right hon. and learned Gentleman interrupted me, that the Royal Commission goes on to say that the reasons that actuated them in coming to a negative recommendation with regard to static proprietorship is contained in Section 191, where they state that

    "no allowance should be granted to any asset other than an inherently wasting material asset which has been created by an expenditure of capital."
    It is in just those cases where capital is going to be expended in prospecting land and working the ore that it is sought to obtain this allowance.

    I do not think the right hon and learned Gentleman can say that the general principle of not giving some kind of depreciation allowance for the mining industry at home has not already been largely vitiated by the terms of the Income Tax Act itself which, in Part III, gives both an initial and an annual allowance of which, the formula for the latter is closely related to the output and total future potential output of the mine concerned. In these circumstances I think the Solicitor-General's reply is very unsatisfactory and has not met the case.

    May I ask a question? Did not my hon. and gallant Friend make it clear that this allowance is made for mines overseas but not for a mine in this country? Surely there can be no reason for that discrimination against our own mines, whatever the complicated reasons the right hon. and learned Gentleman gave and which I do not follow. Surely there remains the fact that one makes an allowance for overseas and not for home?

    The Royal Commission said that in the case of a mine overseas it is by the expenditure of capital spent in acquiring the rights for the first time that it is brought within the purview of United Kingdom taxation. That does not apply to mineral rights in this country.

    I think the distinction between allowances given overseas and the treatment of mines at home is not right. It is based upon a purely revenue conception. The long and short of it is that if someone pays a sum of money to a foreign owner, the Revenue cannot collect anything from him because they have no jurisdiction over him. But they do now recognise in Clause 18 that, if the mining company is to have a fair deal, in the sense that it is able to recover over the life of the deposit capital invested in acquiring it and opening it up, it must have this additional allowance.

    The Solicitor-General says that a different situation obtains at home because it is a British citizen who gets the capital payment for the deposit which may be under his land and that the Revenue therefore loses something. I quite agree that it does, but which is really more important—the amount of revenue involved or the production of the metal? We must look at this question from the point of view of the Revenue, and I think we should ask the Solicitor-General to reconsider this. He bases it simply on a principle of taxation, whereas we are concerned with how much tin we can get out of the soil of Cornwall rather than have to pay foreign exchange for it from Malaya.

    I think that the right hon. Gentleman has taken a false position. If a mine in Burma or in the Far East has to pay something towards that position, is that counted for relief in taxation? Surely, if relief is given abroad, then it ought to be given in this country as well.

    If the hon. Gentleman will read Clause 18 he will see that that is what the Clause is for. It is in direct pursuance of the Royal Commission's report, and it specifically says "mineral deposits overseas."

    Has not the position been very much modified by the Town and Country Planning Act? Under the new conditions under which minerals will be worked in the future, the mineral undertaker will be obliged to pay to the Central Land Board a development levy. I understand that under the provisions of those regulations it is possible to commute the development levy for a capital payment. In those circumstances the undertaker will not only, in the first instance, have purchased his minerals from the proprietor, but he will also be paying a development levy. Does that not rob the right hon. Gentleman's argument of a great deal of its force? He based his argument on the assumption that the Revenue was not going to obtain a great deal of benefit from this, but I think that in view of the terms of the Town and Country Planning Act, his argument loses much of its force.

    In other words, what the right hon. and learned Gentleman says is that you are going to do everything you can to stop mining in this country by not giving the relief given in other countries, and at the same time imposing an additional heavy burden in the form of development of land tax. We shall be glad to know whether that is exactly what the right hon. and learned Gentleman does say. That is the meaning of what he has said, and one cannot get away from it. I am sorry he has taken that point of view.

    Would the Solicitor-General agree that whether a mine is situated in this country or overseas, the same considerations will apply because the first acquisition of mineral rights must be written off out of profits, having regard to the fact that they are a wasting asset? Looking at it from the point of view of the Revenue, the same considerations must apply. It is necessary to calculate the probable life of the mine and write off the cost of the acquisition of the rights out of profits over that period. Surely there is no distinction at all? Why should a distinction be drawn between a mine situated here and overseas? I have read carefully the recommendations of the Royal Commission, and they are most unsatisfactory; I thought the report a most illogical docu- ment. Thirty years have passed since the recommendations were made, and I do not think we should regard them as gospel any longer.

    Division No. 194.]


    [5.30 a.m.

    Agnew, Cmdr. P. G.Galbraith, Cmdr. T. D. (Pollok)Nicholson, G.
    Baldwin, A. E.Galbraith, T. G. D. (Hillhead)Odey, G. W.
    Beamish, Maj. T. V. H.Gomme-Duncan, Col. A.Poole, O. B. S. (Oswetry)
    Birch, NigelHare, Hon. J. H. (Woodbridge)Raikes H. V.
    Bowen, R.Harris, F. W. (Croydon, N.)Renton, D.
    Boyd-Carpenter, J. A.Haughton, S. G.Roberts, Emrys (Merioneth)
    Braithwaite, Lt.-Comdr. J. G.Henderson, John (Cathcart)Spearman, A. C. M.
    Buchan-Hepburn, P. G. T.Hinchingbrooke, ViscountStanley, Rt. Hon. O.
    Carson, E.Hollis, M. C.Strauss, Henry (English Universities)
    Channon, H.Hope, Lord J.Stuart, Rt. Hon. J. (Moray)
    Clarke, Col. R. S.Hutchison, Lt.-Cm. Clark (E'b'rgh W.)Taylor, C. S. (Eastbourne)
    Conant, Maj. R. J. E.Hutchison, Col. J. R. (Glasgow, C.)Teeling, William
    Crookshank, Capt. Rt. Hon. H. F. C.Legge-Bourke, Maj. E. A. H.Thomas, J. P. L. (Hereford)
    Crosthwaite-Eyre, Col. O. E.Lindsay, M. (Solihull)Thornton-Kemsley, C. N.
    Crowder, Capt. John E.Linstead, H. N.Thorp, Brigadier R. A. F.
    Cuthbert, W. N.Lloyd, Selwyn (Wirral)Wadsworth, G.
    Digby, Simon WingfieldLucas, Major Sir J.Ward, Hon. G. R.
    Drewe, C.McFarlane, C. S.Wheatley, Colonel M. J. (Dorset, E.)
    Eccles, D. M.Mackeson, Brig. H. R.York, C.
    Fox, Sir G.Macmillan, Rt. Hn. Harold (Bromley)
    Fraser, H. C. P. (Stone)Mellor, Sir J.TELLERS FOR THE AYES:
    Fraser, Sir I. (Lonsdale)Neven-Spence, Sir B.Mr. Charles Williams and
    Mr. Langford-Holt.


    Adams, Richard (Balham)Evans, Albert (Islington, W.)Lavers, S.
    Albu, A. H.Evans, John (Ogmore)Lee, F. (Hulme)
    Attewell, H. C.Evans, S. N. (Wednesbury)Lee, Miss J. (Cannock)
    Awbery, S. S.Ewart, R.Levy, B. W.
    Bacon, Miss A.Fairhurst, F.McGhee, H. G.
    Barton, C.Farthing, W. J.Mack, J. D.
    Bechervaise, A. E.Fernyhough, E.McKay, J. (Wallsend)
    Berry, H.Fletcher, E. G. M. (Islington, E.)Mackay, R. W. G. (Hull, N. W.)
    Beswick, F.Foot, M. M.McKinlay, A. S.
    Bing, G. H. C.Forman, J. C.McLeavy, F.
    Binns, J.Fraser, T. (Hamilton)Macpherson, T. (Romford)
    Blackburn, A. R.Freeman, J. (Watford)Mallalieu, J. P. W. (Huddersfield)
    Blyton, W. R.Freeman, Peter (Newport)Mann, Mrs. J.
    Braddock, Mrs. E. M. (L'pl. Exch'ge)Ganley, Mrs. C. S.Manning, C. (Camberwell, N.)
    Braddock, T. (Mitcham)Gibson, C. W.Mellish, R. J.
    Brook, D. (Halifax)Gitzean, A.Middleton, Mrs. L.
    Broughton, Dr. A. D. D.Glanville, J. E. (Consett)Mikardo, Ian.
    Brown, George (Belper)Gordon-Walker, P. C.Millington, Wing-Comdr E. R.
    Brown, T. J. (Ince)Griffiths, D. (Rother Valley)Mitchison, G. R.
    Bruce, Maj. D. W. T.Guest, Dr. L. HadenMonslow, W.
    Burden, T. W.Gunter, R. J.Morris, Lt.-Col. H. (Sheffield, C.)
    Burke, W. A.Guy, W. H.Morris, P. (Swansea, W.)
    Butler, H. W. (Hackney, S.)Haire, John E. (Wycombe)Nally, W.
    Castle, Mrs. B. A.Hale, LeslieNeal, H. (Claycross)
    Chamberlain, R. A.Hall, Rt. Hon. GlenvilNicholls, H. R. (Stratford)
    Champion, A. J.Hamilton, Lieut.-Col. R.Noel-Baker, Capt. F. E. (Brentford)
    Chetwynd, G. R.Haworth, J.Orbach, M.
    Cocks, F. S.Henderson, Joseph (Ardwick)Paget, R. T.
    Collindridge, F.Herbison, Miss M.Paling, Will T. (Dewsbury)
    Collins, V. J.Hewitson, Cap M.Pargiter, G. A.
    Comyns, Dr. L.Holman, P.Parkin, B. T.
    Cook, T. F.Horabin, T. L.Pearson, A.
    Corbet, Mrs. F. K. (Camb'well, N. W.)Houghton, A. L. N. D.Peart, T. F.
    Crossman, R. H. S.Hoy, J.Popplewell, E.
    Cullen, Mrs.Hudson, J. H. (Ealing, W.)Price, M. Philips
    Daines, P.Hughes, Emrys (S. Ayr)Proctor, W. T.
    Dalton, Rt. Hon. H.Hughes, Hector (Aberdeen, N.)Pryde, D. J.
    Davies, Edward (Burslem)Hughes, H. D. (W'lverh'ton, W.)Randall, H. E.
    Davies, Ernest (Enfield)Hynd, H. (Hackney, C.)Ranger, J.
    Davies, Harold (Leek)Hynd, J. B. (Attercliffe)Reid, T. (Swindon)
    Davies, Haydn (St. Pancras, S. W.)Irving, W. J. (Tottenham, N.)Rhodes, H.
    Deer, G.Jay, D. P. T.Ridealgh, Mrs. M.
    Delargy, H. J.Jeger, G. (Winchester)Robens, A.
    Diamond, J.Jones, D. T. (Hartlepool)Robinson, Kenneth (St. Pancras, N.)
    Dobbie, W.Jones, J. H. (Bolton)Rogers, G. H. R.
    Driberg, T. E. N.Keenan, W.Ross, William (Kilmarnock)
    Dye, S.Kinley, J.Royle, C.
    Ede, Rt. Hon. J. C.Lang, G.Sargood, R.

    Question put, "That the Clause be read a Second time."

    The Committee divided: Ayes. 63; Noes, 187.

    Shackleton, E. A. A.Thomas, George (Cardiff)Wilcock, Group-Capt. C. A. B.
    Sharp, GranvilleThomas, I. O. (Wrekin)Wilkes, L.
    Shurmer, P.Tolley, L.Wilkins, W. A.
    Silverman, J. (Erdington)Ungoed-Thomas, L.Willey, F. T. (Sunderland)
    Silverman, S. S. (Nelson)Vernon, Maj. W. F.Willey, O. G. (Cleveland)
    Simmons, C. J.Wallace, G. D. (Chislehurst)Williams, J. L. (Kelvingrove)
    Skinnard, F. W.Wallace, H. W. (Walthamstow, E.)Williams, Ronald (Wigan)
    Smith, C. (Colchester)Warbey, W. N.Williams, W. T. (Hammersmith, S.)
    Smith, S. H. (Hull, S. W.)Watkins, T. E.Williams, W. R. (Heston)
    Sorensen, R. W.Weitzman, D.Willis, E.
    Soskice, Rt. Hon. Sir FrankWells, P. L. (Faversham)Wills, Mrs. E. A.
    Stross, Dr. B.West, D. G.Wyatt, W.
    Symonds, A. L.Wheatley, Rt. Hon. John (Edinb'gh, E.)Younger, Hon. Kenneth
    Taylor, R. J. (Morpeth)Whiteley, Rt. Hon. W.
    Thomas, D. E. (Aberdare)Wigg, GeorgeTELLERS FOR THE NOES:
    Mr. Hannan and Mr. Bowden.

    First to Fifth Schedules agreed to.