New Clause. — (Allowance for Capital Expenditure on Farmhouse.)

Orders of the Day — Finance Bill – in the House of Commons at 12:00 am on 29 June 1954.

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The Income Tax Act, 1952, shall have effect as if in section three hundred and fourteen there were inserted after the word "farmhouse" in paragraph (a) of subsection (2) thereof the words "having a rateable value of not less than twenty-six pounds."—[Mr. MottRadclyffe.]

Brought up, and read the First time.

8.0 p.m.

Photo of Sir Charles Mott-Radclyffe Sir Charles Mott-Radclyffe , Windsor

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

My hon. Friend will be aware that under Section 314 of the Income Tax Act, 1952, capital expenditure allowances are given on the full cost of constructing or improving a farm cottage, but only on one-third of the cost of constructing or improving a farmhouse. This is due to some rather curious mathematical formula which the Treasury has evolved by which it has come to the conclusion that one-third of a farmhouse is a place of business and two-thirds a place of residence, no matter how small the farmhouse may be.

The object of the new Clause is to bring the small farmhouse of a rateable value of less than £26 a year into exactly the same category as the farm cottage for the purpose of a capital expenditure allowance. The present system of the operation of the capital expenditure allowance creates a number of obviously unfair anomalies. For instance, there are owner occupiers, and occupiers of small farmhouses who are in many cases obliged to accept a lower standard of accommodation and fewer amenities than many agricultural workers.

In the North of England, in particular, and in Scotland—but by no means confined to either district—there are many farms where the farmhouse itself is very small, but where a number of modern agricultural cottages have been built in which the agricultural labourer is enjoying far better amenities than his employer. I would also remind my hon. Friend that in the North of England it is by no means unusual for farm workers to live in the farmhouse and so long as this particular discrimination exists against a building which is technically a farmhouse though no bigger than a farm cottage neither the farm worker nor the farmer can enjoy the improved accommodation which is their due.

My hon. and gallant Friend the Member for East Grinstead (Colonel Clarke) and I have deliberately put a figure of £26 rateable value into this Clause. We did so for a definite purpose. That value roughly embraces the three or four-bedroom farmhouse and excludes the bigger one. By putting that ceiling we thought we would enable occupiers of small farmhouses to enjoy minimum reasonable standards of accommodation and, at the same time, would prevent the capital expenditure allowance being given for extravagant and excessive expenditure on much larger farmhouses, which would be unreasonable to ask for.

I hope that my hon. Friend the Economic Secretary will feel that I have made out a fair and a clear case for the removal of an absurd anomaly between one building of three bedrooms used as a farmhouse and another building of three bedrooms used as a farm cottage, both equally in need of repair and improvement.

Photo of Colonel Sir Ralph Clarke Colonel Sir Ralph Clarke , East Grinstead

I do not wish to detain the Committee, but I want to emphasise the danger of what I might term capital starvation of the farmhouse in favour of the rest of the farm. That arises from the fact that only one-third of the capital expended on the farmhouse ranks under the section to which we have referred. I know of many cases where the farmer in the old farmhouse has a much lower standard of living than some of the men working on his farm. Again, in the case of a family holding, the family perhaps own the farm, live on it and work it, yet have a much lower standard of existence than agricultural workers in the neighbourhood.

This is very discouraging to those who wish to see what I think the Chancellor of the Exchequer himself has referred to as the "agricultural ladder" become a real feature of the agricultural life of this country. The agricultural worker who saves a certain amount of money and changes from agricultural worker to the occupier of a small farm finds that, just when he has to risk his hard-saved capital he has also to overcome the opposition of his wife, who is probably going from a nice, small, service cottage to a much older house with a much lower standard of amenity. That definitely deters the agricultural worker from the course I have outlined.

If it is thought that of these small farmhouses two-thirds have nothing to do with the farm at all, I am really amazed. One has only to go into some of the small farmhouses to find that one of the back rooms is the dairy, where the wife spends a great deal of her time. In the cellar such things as seed potatoes are stored, and there may be other seeds in the attics. The front room is the office, where the farmer for at least a good deal of the evening fills in forms, writes his letters and so on.

The farmhouse is really an essential part of the farm equipment. I hope that this new Clause will be seriously considered, because I believe that as a result of the present legislation small farmhouses are deteriorating below the level of the workers' cottages surrounding them.

Photo of Mr Reginald Maudling Mr Reginald Maudling , Barnet

As my hon. Friend the Member for Windsor (Mr. Mott-Radclyffe) and my hon. and gallant Friend the Member for East Grinstead (Colonel Clarke) are aware, my right hon. Friend the Chancellor of the Exchequer takes a particular interest in the problems of the agricultural industry. He believes, for example, that the investment allowance provision which he introduced this year should be of considerable assistance to the farming industries generally. It is also true, as my hon. Friends have pointed out, that the small farmer often has to face not only economic but personal difficulties.

I very much agree with my hon. Friend the Member for East Grinstead regarding the importance of the small farmer as part of the general agricultural picture. I hope, therefore, that my hon. Friends will believe me when I say that we have considered with great care what they have put forward in this new Clause, but I must say that I find difficulties in detail—and I am afraid in principle—which make it impossible for us to accept the Clause.

I should perhaps mention, first of all, one or two of the difficulties of detail which arise. For example, the test of rateable value which is proposed would lead to a number of difficulties. For example, it would have very little meaning at all in Scotland, whereas in England and Wales rating valuation varies a good deal. I think it would lead to considerable unfairness between one case and another. Introducing the level of £26 is bound to create unfairness to those people immediately below and immediately above the limit.

There are those definite objections in detail to the proposal, but the objections in principle are overwhelming. The point really is that writing off of farm buildings used for the purposes of farming is a normal part of our Income Tax structure and that applies to barns, fences and other works, but a farmhouse is a building which functions as a dwelling-house and as part of the capital equipment of the farm. No other dwelling-house, as a dwelling-house, is the subject of a capital allowance.

Lord Waverley, during the Committee stage of the Income Tax Act, 1945, said, when he was Chancellor of the Exchequer: The farmhouse has to be treated on a different footing from farm buildings in general because, in fact, it serves a dual purpose. It is a dwelling-house and it is the headquarters of a particular unit in the farming industry."—[OFFICIAL REPORT, 15th May, 1945; Vol. 410, c. 2377.] One must recognise the force of this argument, that in so far as a farmhouse is used as part of the capital equipment of a farm, it is right and proper that there should be a deduction for Income Tax purposes, but in so far as it provides dwelling accommodation I cannot see that there is any more of a case for Income Tax deduction than there is for a dwelling-house occupied by someone engaged in other business.

It is true that deductions are allowed in respect of farm cottages, but it would be right to say that the farm cottage is in a different category because the cottage is provided by the farmer as part of the necessary capital equipment of his farm, and expenditure which he incurs on the farm cottage is definitely expenditure incurred wholly for the purpose of earning his farm profit, whereas expenditure incurred in providing himself with a farmhouse is not incurred for the purpose of earning a farm profit.

There is the question of whether one-third is a proper proportion. When taking a proportion of this kind one has to be arbitrary, and my hon. Friend has made the point that in small farmhouses in particular the accommodation is extremely limited. But we feel that on the evidence we have—and we have a fair amount of evidence of this kind—the proportion of one-third is fair. When we come to assess the farmer's income for the purposes of Schedule D assessment, then it is necessary to make a deduction for the annual value or rent of the farmhouse, and we find, in practice, that although no fraction is laid down by statute in respect of Schedule D, in practice the amounts that we allow rarely exceed one-third. They sometimes come to substantially below one-third. It appears from detailed information which we have that in practice sometimes less than one-third of a farmhouse is used for farming purposes, but more than two-thirds of it is used for dwelling purposes.

We have studied this proposal with a great deal of care and we believe that it is not possible to make out a case for allowing a tax deduction in respect of capital expenditure on the portion of a farmhouse which is really a dwelling-house. The principle as enunciated by Lord Waverley, then Sir John Anderson, in 1945, has stood the test of time, and while I recognise the concern which my hon. Friends feel, I cannot help feeling that it has worked, on the whole, fairly as between taxpayer and taxpayer.

I hope my hon. Friends will believe, when I say we cannot accept this proposal, that it is not for lack of consideration or for lack of concern for the farming industry, but because we do not feel that it would be just between taxpayer and taxpayer to introduce this proposal.

Photo of Mr Ralph Assheton Mr Ralph Assheton , Blackburn West

I very seldom disagree with my hon. Friend the Economic Secretary, but on this occasion I should like to put another point of view. He and the Financial Secretary as well as the Chancellor of the Exchequer all have the disadvantage of living in the South of England, and they are probably not as familiar as I am with conditions in the North of England. There are in this country about 300,000 or 400,000 farmers, and the figures which the Ministry of Agriculture and the Board of Inland Revenue supply indicate that by far the greater number of farmers employ no farmworkers at all but live in a very small farmhouse and, with their families, do the whole work on the farm. At least three-quarters of the farms are within that category, and I believe the figure to be rather higher.

8.15 p.m.

I should like to take my hon. Friend the Economic Secretary round a great many small farmhouses in the North of England. It has been my duty to go round very many of them, and I am familiar with the details of at least 50 or 60 farmhouses of this sort in that part of the country, so that I know what I am talking about. I could show the Economic Secretary small farmhouses with not more than three or four small bedrooms occupied by a working farmer and his family. Those farmhouses are falling far below the condition in which they ought to be, and that is largely because of this particular discrimination from which they suffer.

It is possible for a cottage to be built or re-equipped for a farm worker, and for the advantage of this Section to apply to that work. But when it comes to a farm cottage which is designated a farmhouse, although it is nothing more than a very old farmhouse with none of the amenities which many hon. Members feel are wholly necessary, it is not permitted to take advantage of the Section. I assure the Economic Secretary that until, this change is made, farmhouses in the North and West of England will be far behind the standards to which they ought to be brought.

The cost of modernising an old farmhouse is very considerable these days. It entails installing modern heating ranges, bathrooms, electricity, and so on. These are very great burdens on the small owner and on the owner with a large number of these farmhouses to deal with. I do not think it is fair to say that a cottage is more a part of the farm capital than a small farmhouse. I make no claim for the larger farmhouse. Of course, if a man has a farmhouse with seven or eight bedrooms, that comes in an entirely different category. But the farmhouse with three or four bedrooms does fit into this picture.

The figure of £26 rateable value was put forward as a difficulty by the Economic Secretary. If he finds that is a difficulty because of the different rating system in Scotland, I should like to consult him and propose some method of getting over that difficulty, because I can think of several methods. If he were to base his differential on the number of bedrooms, that would be one suitable method, and I have no doubt that there are other criteria which could be used.

I do not know whether hon. Members agree with me, but I consider that the small farmer living on his own farm and working the farm with his family has one of the hardest lives in the country. He milks the cows twice a day for seven days a week, whether he is ill or well. He does not have Saturdays and Sundays off. The larger farmer who is able to employ labour finds himself milking the cows on Saturdays and Sundays, but at least he can take Mondays or Tuesdays off. The small farmer never does. I spoke to a small farmer the other day who had lived in the same house where he was born 60 or 70 years ago, and be had never spent one night from home. This is a hard-working section of the community and it is only fair that they should get the same sort of concession as other people in the community.

Photo of Mr John Morrison Mr John Morrison , Salisbury

I should like to support the remarks made by my right hon. Friend the Member for Blackburn, West (Mr. Assheton). There is great importance in this comparatively small proposal. My hon. and gallant Friend the Member for East Grinstead (Colonel Clarke) emphasised the position of the farming "ladder" and referred to the wives of the small farmers. As my right hon. Friend has said, this is a seven days a week job, and without taking up any more time I express the hope that my hon. Friend the Economic Secretary will give further consideration to this new Clause.

Photo of Mr William Hall Mr William Hall , Colne Valley

The hon. Member for Windsor (Mr. Mott-Radclyffe), in moving the new Clause, based his argument on the fact that it would rectify an anomaly in Section 314 of the Income Tax Act, 1952.

I rise only to point out that there are other anomalies besides the one to which he referred. My hon. Friends and I had tabled two new Clauses which, in our view, would have rectified greater anomalies. Unfortunately for us, those Clauses have not been called. I congratulate the hon. Member on the fact that his Clause has been called and that he has been allowed to put his case to the Treasury. As we have now heard from the Economic Secretary, the Treasury has considered the case.

This Clause has given the hon. Member an opportunity, which we should have valued had our new Clauses been called, of taking the matter to a division. A number of his hon. Friends are obviously with him and feel very deeply about the matter, and I hope that they will carry their views to the extent of calling a division and expressing them in the Lobby.

Mr. W. M. F. Vane:

I ask my hon. Friend the Economic Secretary to look at this matter again before Report stage. He said that the proposal contained in the new Clause was likely to cause unfairness. It is likely to remove unfairness and not cause unfairness as between the small farmhouse and the farm cottage. They are indistinguishable for many purposes.

It is frequently the custom in the North of England for farm workers to live in the farmhouse. That is not altogether a popular system, but we must face the facts as they exist and as they will be with us for a little time yet. Under the existing law, the owner of a farm cottage who wishes to improve it by adding a bathroom and providing other amenities can get full tax relief. On the other hand, if he is carrying out this improvement on a small farmhouse in which one or two farmworkers live, the tax relief is a great deal less, and that is extremely unfair. It is to remove that unfairness in particular that some such provision as has been suggested should be adopted.

It is very important to maintain the standard of the small farmhouses. By and large, they are on small farms and not on the best land. If we want to maintain full agricultural production in such areas, it is essential that we do what we can to provide the necessary tools for not only the farmer and the farmworker but also for the farmer's wife.

Photo of Mr Reginald Maudling Mr Reginald Maudling , Barnet

I should be misleading my hon. Friends if I gave any undertaking that this matter would be reconsidered before the Report stage. However, I can say that my right hon. Friend the Chancellor will study with great care what has been said, and I know that he will be glad to receive from right hon. and hon. Friends further details of these matters and any further suggestions that they can make about alleviating the difficulties of the small farmers.

I hope that my hon. Friends will be prepared to leave the matter there. I cannot give any undertaking to reconsider the point, because I find the difficulties of principle in the suggestion insuperable. My right hon. Friend is anxious to consider all matters in detail. If my right hon. Friend the Member for Blackburn, West (Mr. Assheton) is inviting me to see something in practice, I hope I shall have the opportunity of accepting his invitation.

Question put, and negatived.