CAB129-36 — Page 88

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304. Magnetite resources of possible commercial significance are known in three areas and are described below.

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305. Shetland. An occurrence of magnetite situated at Clothister Hill, Sullom, Shetland, discovered by the Geological Survey (Scotland), was ex- plored during the Wa6by the Ministry of SupplyPage&rolfminary magnet- ometer survey conducted. Some development was eventually carried out as a result of which it was estimated that 18,000 tons of proved ore existed, with a further 2,000 tons probable. About 1,000 tons of the ore were brought to the surface during the course of development. It is unlikely that further reserves of ore exist in this ore body although further exploratory work in the immediate neighbourhood would probably reveal other ore bodies.

306. Similar magnetic anomalies have been indicated elsewhere in Shet- land but all of these may not mean workable ore bodies. More geophysical work in the district, combined with diamond drilling, would seem to be justified, although subsequent development would only be likely to be economic if on a sufficiently large scale to warrant special loading and transport facilities.

307. Skye. Small bodies of magnetite ore have been found by the Geo- logical Survey a few miles S.W. of Broadford and some exploratory work was carried out on them during the War. At one locality magnetometer surveys indicated from 20,000 to 25,000 tons of ore to a depth of 40 ft., which was the limit of depth beyond which the magnetometer did not pre- dict. A similar

was 12,000 tons date for another locality based on surface exploration

was 12,000 tons down to 12 ft. No estimates were possible at other localities, It would appear that in aggregate a considerable tonnage of magnetite ore may exist in this area and that other occurrences than those so far investi- gated may be found. Individual ore bodies, however, are likely to be small and irregular and difficult to work. As in the case of the Shetland occurrences, further exploration seems justified, but here again transport costs would have an important bearing on the economics of exploitation

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308. Island of Tiree. Magnetometer work during the War on behalf of the Ministry of Supply, and in 1947 by Professor Whetton of the University of Leeds, following an earlier discovery by the Geological Survey, disclosed substantial anomalies indicating the existence of a vein-like deposit up to 10 ft. wide in places and with possibly considerable extension in depth. The occurrence may have a lateral extent of 3 to 4 miles and the geophysical work carried out suggests either a considerably greater width than 10 ft. or the existence of parallel veins. The ore contains an unduly high per- centage of phosphorus but it might be possible to reduce this by treatment. As the occurrence is conveniently situated for shipment to the Clyde or elsewhere and relatively accessible, it seems clear that it is of sufficient importance to merit further investigation, for instance, by diamond drilling and further geophysical work.

MICA

309. Several relatively small occurrences of muscovite mica in the High- lands of Scotland, chiefly in Inverness and Ross-shire, have been discovered by the Geological Survey in recent years, and a joint investigation with the Non-ferrous Mineral Development Control of the Ministry of Supply during 1941-43 showed that several were capable of yielding block mica of best quality and grade suitable for use in condensers and other high-grade electrical work. PAg819 bff 66ul production was obtained gugolWar from one or two of these localities, although, generally speaking, inaccessibility and the small size of the occurrences made production costs high compared with

imported mica. While some allowance must be made for the difficult conditions of wartime operation, there is no suggestion as yet that any of the localities known could Be Worked economically

Other

ahan on Very small scale. The fact that commercial mica does occur, however, suggests that further deposits may be found as detailed geological surveying of the favour- able areas proceeds.

TALC

310. The chief occurrence of this mineral of commercial interest is in Shetland where it has been worked on the Mainland, in the Island of Fetlar, and the Island of Unst, the last being the most important. Talc has also been worked in the Glenelg district of Ross where between 500 and 600 tons were quarried between 1931 and 1933. It also occurs at Toward Point, Argyll, at Portsoy, Banffshire (where it is also worked) and at Corrycharmaig, Perthshire.

tantrona pri

311. Shetland. Prior to 1940 the only output was 50 tons in 1922 and 186 tons in 1923. As a result of local enterprise combined with the results of Geological Survey mapping, however, a new quarry was opened in 1940, since when a total of about 4,200 tons has been produced including nearly 500 tons of high-grade talc which is used in the manufacture of high-quality paper. The lower grade material is used for roofing felt.The quarry is at present equipped for a production of only 1,500 tons but it is said that this could be increased to about 5,000 tons in a year or two. U.K. total require- ments for all purposes amount to about 20,000 tons per annum. It is claimed that beneficiation can raise the grade sufficiently to enable the Unst quarry to supply a large proportion of certain home requirements at a price which would compete with Norwegian imports. Production on a larger scale in Unst, however, would probably be difficult at the moment owing to shortage of labour.

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312. It is said that hand boring to a depth of about 30 ft. has proved the existence of about 200,000 tons of talcose rock; the lower grade material has in it a mineral suspected to be breunnerite. It is clear, therefore, that there is a good prima facie case for a thorough examination of the possibilities of large-scale development in the national interest. Anier mus

313. Corrycharmaig. As stated in paragraph 288 above, it is considered that further exploration should be undertaken to ascertain whether the talc-bearing' parts of this occurrence can be used as a source of commercial talc.

naked OTHER MDC MINERALS 36 m.

314. Little information is available about certain occurrences of the ores of antimony, copper and nickel (which might have a wartime value) and neither has any investigation been made of the possible economic significance, either now or in the future, of occurrences of beryl (the importance of which is growing) and of fluorspar. None is likely to be of economic significance at the present time.

CHAPTER V

MINERAL RESOURCES (NORTHERN IRELAND).

BALL CLAYS

315. This material, which has similarities to the ball clays of Devon and Dorset, occurs extensively to the west of Lough Neagh, and is at present worked for making salt-glazed pipes and various types of sanitary ware. It is suggested thataguther instigations might be confidered) wof 66 View to extending its use in pottery and other industries.

*See footnote, page 59. 65

44BAUXITE

316. Deposits of bauxite have long been known in the form of a thin but extensiagebed Between the lower and uppea gasalt, Omainly in County Antrim. Available records of production and values show that between the years 1852 and 1915 a total output amounted to 292,596 tons (value £103,730), the highest production being 13,478 tons in 1883. Compared with imported material, the bauxite is low-grade and siliceous, and working was suspended at the end of the 1914-18 War. Operations were re-started in 1941 as a war measure and were expanded to the extent that eventually output reached a maximum of about 150,000 tons per annum. At the end of the war, however, when imported bauxite was freely available, working was again suspended. Considerable resources still exist and their distribu- tion is fairly well known, the bauxite horizon being proved over most of the ground.

DIATOMITE

317. Deposits of diatomite are at present being worked near the outlet from Lough Neagh. The raw material is of relatively low-grade in com- parison with some material at present being imported into the United King- dom. There would seem to be a case for research into methods of dressing and processing with a view to raising the grade.

FELSPAR

318. Veins of potash felspar of some economic value occur in Fermanagh where they gave rise to the establishment of the Belleek Pottery industry. Considerable quantities of the mineral were exported to England shortly after the 1914-18 War and 2,029 tons were worked during the recent war. Working has since been suspended. There is little information about reserves of the mineral still available, and it is doubtful in present conditions whether further development would prove economic.

IRON ORE

319. This occurs mainly associated with bauxite within the basalts of County Antrim. Mining commenced about 1860 and continued intermittently until the end of the 1914-18 War. During this period the output reached a maximum of 150,000 tons per annum (1873-1882), but on balance was around 50,000 tons. During the last War the total output was 11,874 tons, but in view of the irregular nature of the deposit further investigation and research would be required before the large resources still existing could be exploited economically on a substantial scale in post-war conditions.

LEAD ORE

320. Small veins of lead ore have been found in Counties Armagh and Down some of which were worked during the early part of the last century. There is a record of an output of 1,000 tons of lead ore between 1850 and 1861. It is not considered that they are of any importance at the present time, although little is known about them.

POTASH

321. The possibility of an occurrence of this mineral in association with the salt deposits of Carrickfergus was suggested during the 1914-18 War and small trials made, at that time recorded traces of potash There is no evidence suggesting that substantial deposits maybe found, but further trials may be justified.

SALT

322. Extensive greposits are known near Carrickfergage aunty бÁátrim,

· under similar geological conditions to those in which salt occurs in England, Mines and borings in the immediate vicinity of Carrickfergus have disclosed three bands, eleven feet, seventy-four feet, and thirty-seven feet in thickness respectively, separated by small thicknesses of rock. At present salt is being produced from brine. The extensions of this salt field are as yet unknown.

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CHAPTER VI # M

NATIONAL POLICY-PAST AND PRESENT

323. For all practical purposes it was not until the 1914-18 War that the Government became directly interested in the development of the mineral resources of the country. As a matter of wartime expediency a Depart- ment was then set up under the Ministry of Munitions and equipped with a staff of engineers to investigate undeveloped or under-developed mineral occurrences, and to encourage production. At the same time the Geological Survey commenced special investigations into mineral resources and a series of special reports was prepared, eventually numbering over thirty. The first of these appeared in 1915, but the bulk of them was not published until after the War. Many have since been revised.

324. In all other respects, Government responsibility up to that time had been exercised only in regard to the health and safety of workers in the mineral industries and in the collection of statistics. Mention should be made, however, of the appointment of a Royal Commission to enquire into mining royalties. Their Report appeared in 1893 but few, if any, of their recommendations were adopted.

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325. In 1918 the results of the wartime investigations by the Government were published in a Report by the Controller of the Department, Sir Lionel Phillips. This Report drew attention to the need for greater information about mineral occurrences. One of the principal recommendations, how- ever, was that a Mines Department should be set up with comprehensive responsibilities regarding the collection and publication of information about mineral resources and their efficient development in the national interest: It was recommended that this Department should have the general super- vision of the mineral industries and of the rates of royalties charged; that it should have funds (but should be made largely self-supporting) to enable geological studies of certain districts to be followed up by exploration. The Geological Survey (at that time under the Board of Education) was recommended to be attached to the new Department.

326. In 1919 such mineral responsibilities as existed were exercised by the Board of Trade which, following the publication of Lionel Phillips'. Report, appointed another Committee "To investigate and report upon the present condition and economic possibilities of non-ferrous mining in the United Kingdom and to make recommendations as to such Government action as may be expedient in regard thereto ". That Committee recom- mended among other things that, other than coal, duties relating to minerals

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*Mineral RPO Auetion, that is, coal and petroleum only sense explained in themtro restricted to MDC minerals. It is used in the wide

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(split up between several Departments) should be centralised into one organi- sation equipped with technical staff empowered to undertake geological, advisory, and statistical work and to provide funds for approved exploration and development The Committee drew attention, mainly 682 relation to tin mining in Cornwall, to the dangers of the industry and to its workers of mining companies starting operations with insufficient capital or of dis- tributing profits too readily, so that in time of depression mines were often forced to close through lack of funds when development prospects were still reasonable. Trained miners became unemployed or left the district to work overseas and mineral resources were either lost or their extraction made more expensive in future. Two members of the Committee in a reservation to the Report thought that the mines should be nationalised to prevent these two things happening.

327. The Mines Department of the Board of Trade was set up by the Mining Industry Act, 1920, “for the purpose of securing the most effective development and utilisation of the mineral resources of the U.K.

"but

its statutory functions as defined in the Act were naturally largely related to coal and none of the specific functions in regard to other minerals as recommended in the 1918 or 1920 Reports appears to have been included. A section of the Mines Department was established, however, to deal with other minerals but it seems to have done nothing other than to collect statistics. It is true that as provided in the Act a standing Advisory Com- mittee was appointed known as the Metalliferous Mines Advisory Committee. In 1930 this Committee was asked to report specifically on the possibility of reviving or developing the working of metalliferous or associated deposits, but was informed that the Government was against the direct grant of financial assistance. Nevertheless the recommendations of the Committee in a Report published in 1932 included proposals for a geo-physical and economic geological survey of the Leadhills-Wanlockhead area, South Scot- land, and the provision of funds for constructing a combined drainage and transport tunnel to serve the needs of the Camborne-Redruth tin mine dis- trict. Three members of the Committee, however, signed a reservation to the Report to the effect that the conclusions were unduly optimistic about the prospects of non-ferrous metalliferous mining and that public money should not be spent on any scheme offering uncertain prospects. An interest- ing recommendation of this Committee was that legislation already applic- able to coal mines under the Coal Industry Act, 1926 (see below) whereby' consolidated leases could be granted to ensure efficient exploitation of a deposit in the hands of several owners, should be extended to metalliferous mines. This recommendation. (but in respect of certain minerals only) was adopted by the Mines (Working Facilities) Act, 1934 but none of the other recommendations of this Committee appears to have been implemented.

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328. A note about the Working Facilities and Supports legislation enacted between the two Wars would be appropriate at this point since it represents the first attempt on the part of the Government to ensure that mineral development is not impeded by recalcitrant owners or that the terms and conditions of working are not so onerous that the mineral becomes un- economic. The Mines (Working Facilities and Support) Act, 1923, gave power to the Government through the Railway & Canal Commission to grant rights to work minerals which might otherwise be rendered unwork- able because of exceptional reservations or other legal restrictions. The Act also ensured that ancillary rights such as wayleaves could be secured. Provisions of this Act were extended by the Mining Industry Act, 1926 (but only in respect of coal) to give any person the right to make application

to search for or work coal should the Railway & Canal Commission decide that it was enpedient in the national interest that sugh agright should be granted. Further powers were given to the Commission to hear applica tions in respect of restrictive terms or conditions in mining leases and, if expedient, to free the lessees wholly or partially from such restrictions or conditions. As stated above, the provisions of these two Acts regarding the working facilities were extended to certain other minerals by the Mines (Working Facilities) Act, 1934. (iron ore and ironstone, tinore, lead more, zinc ore, copper ore, tungsten ore, fluorspar, barytes and oil shale). This legislation thus removed, certain legal restrictions associated with private ownership of minerals which it was gradually coming to be recognised were hindrances to mineral development and particularly to mineral exploration. 329. The Government first became directly and actively concerned in the mineral resources of the country about 1920, when a considerable expansion of the Geological Survey was made chiefly to enable coalfields to be mapped the Coal Survey, under the Department of Scientific and Industrial Research, was also set up.

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330. The first official step towards ownership of natural mineral resources came in 1934, when the Petroleum (Production) Act became law. This vested in the Crown the property in petroleum and natural gas in Great Britain. The Act made no provision for compensation to the owners of the mineral rights concerned, for at that time no important underground resources of natural petroleum were known in this country. This was followed in 1938 by the Coal Act, which constituted the Coal Commission and secured the unification of ownership of coal in the hands of the Com- mission by the acquisition of the "fee simple Compensation to existing owners for the acquisition of their interests was payable out of an aggregate sum in respect of the whole country amounting to £66,450,000, the allocation of which was decided by a central valuation board, working through regional valuation boards. One of the duties of the Coal Com- mission was to make recommendations in cases where in their view the amalgamation of undertakings was necessary in order to secure the most efficient development of coal deposits in the national interest. Another was to exercise their functions as owners in such a manner as to promote the interests, efficiency and better organisation of the coal mining industry. They were also given the power to search and bore for coal but were not themselves to engage in mining.

331. On the outbreak of war in 1939 those Departments interested in the end uses of minerals and mineral products took powers under the Emergency Powers Act in relation to production and distribution. The arrangements then made are, broadly speaking, those in force today, and the division of responsibility may be summarized briefly as follows:

Coal, Petroleum, Oil Shale, Lignite and Peat.

Metalliferous Minerals (and a few others).

Non-metalliferous - minerals (with some exceptions).

A few minerals used mainly

for building materials and road-

making.

Ministry of Fuel and Power.

Ministry of Supply.

Board of Trade.

Ministry of Works and Ministry of

Transport.

332. The arrangement was arrived at because of the practical difficulty, particularly in wartime for separating responsibilityPfore production from that for distribution and use.

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333. The Ministry of Fuel & Power Act, 1945, provided for a restoration of the 1939 administrative position but, for the first time, it included mineral developinga 95 afresponsibility of Government,athe otol 66ording being general duty of securing the effective and co-ordinated development of coal, petroleum and other minerals

Since 1945, however, the war- time position has been more or less maintained largely on account of the economic position of the country which has necessitated the continuance of many of the wartime arrangements. The present position is, therefore, that while statutorily the Ministry of Fuel and Power has been given a long-term interest in mineral development, other Departments acting as production authorities for minerals in which they are interested in the end uses are dealing with the mining industries concerned, and not the Ministry of Fuel and Power. The nature of the interest of these Departments is largely short-term in character; it inevitably excludes long-term considera- tions, and thus comprehensive technical knowledge which could only be remedied if one Department had the overall responsibility.

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334. The Town and Country Planning Acts, 1947, introduced a new phase of Government interest in the mineral industry. Under these Acts mineral workings, whether underground or on the surface, became subject to planning control, and the development value of minerals has been severed from the ownership, in the same way as development values are removed from the ownership of land, and vested in the Central Land Board. These Acts are further discussed in Chapter VIII.

The Function of the Geological Survey

335. The Geological Survey was founded well over a hundred years ago with the object of preparing and publishing maps and memoirs covering the detailed geology of the United Kingdom (now Great Britain). This is still recognised as the primary function of the institution and under normal conditions the majority of the staff are engaged on this work. The chief functions of the Geological Survey and Museum may be briefly summarised as follows:-

(i) The preparation and publication of geological maps and memoirs of

England, Scotland, Wales and the Isle of Man.

(ii) The special investigation of the coalfields, iron ore fields, and the distribution of non-ferrous ores and rocks and minerals used for industrial purposes generally.

(iii) The investigation of the geology, supplies and distribution of under-

ground water.

(iv) The furnishing of expert advice and information to Government Departments, Mining and Industrial interests, and to the public

generally.

(v) The maintenance and development of the Museum of Practical Geology both as an educational institution and as an instrument for research into the various branches of geology, pure and applied. (vi) The carrying out (in recent years) of research work into the applica- tion of various methods of geophysical prospecting. It is under- stood that further work of this character, possibly on an enlarged scale, will be carried out in the future.

The Geological Survey and Museum is primarily a research establishment and in Ragmen with the other branches of D.S.P.Rgits work concentrated upon problems of basic research of scientific or industrial importance. Its purpose is to provide fundamental geological facts or conclusions required

by science or industry and on which more detailed investigations beyond the scope of the Geological Survey can be founded. The programer of work of the Geological Survey is drawn up by an independent board appointed by D.S.I.R. in consultation with the Director. (The Ministry of Fuel and Power is represented on this Board.) The programme is reviewed by the Board annuallyd, a to zna jo gninum of 40 wie is

336.

It will be apparent, having regard to its

be apparent, having regard to its main geological functions, that it will only be in special circumstances such as wartime, that a large proportion of the relatively small staff could be allocated to special investiga- tions on other minerals. There are still large areas of the United Kingdom which have not yet been primarily surveyed on a 6 in. to the mile scale and in the economic field responsibilities in regard to the coalfields and to underground water supplies are obviously of relatively greater national importance. Special investigations on mineral resources were commenced during World War I and, as stated above, a series of economic memoirs covering minerals or groups of minerals throughout Great Britain has been published. Some of these publications have recently been revised and in most of the major mineral fields a thorough re-investigation, mainly on a regional basis, was begun before 1939 and has now been largely com- pleted although the results are not all published. SUALIZ

IDA

337. The general purpose of such mineral investigations is to collect, collate and interpret all information available with regard to the geology, mode of occurrence, existence and distribution of mineral occurrences and their potential economic importance. It is not considered to be a function of the Geological Survey to undertake prospecting or development work necessary for the economic evaluation of a mineral deposit. This is work that calls for the services of mining engineers, metallurgists, and other specialists, and necessitates boring, mining operations; mineral testing and research.

338. The nature of the information and assistance which the Geological Survey can render when mineral development is planned falls under two headings :-

(i) They can provide geological information on which a programme of

prospecting can be based.

(ii) They can provide geological advice and assistance during the course

of the investigation.

The relationship between the Geological Survey and the new Mineral Development Commission which we propose is discussed in Chapter XI.

CHAPTER VII

MINING TAXATION

339. For many years the mining industry has maintained that national taxation is too onerous and that in its application an exceptionally heavy burden is placed upon mining enterprise. Their main contention is that the economic and technical risks in mining are unusually high and that for many years there has been little incentive to search for new mineral deposits when taxation so substantially limits the reward obtained on the outlay of money at such risk.

340. Representations made by the industry have mainly been concerned with mining overseas where the greater part of the capital of most mining companies registered in this Zountry is invested. Companies operating in

the U.K., however, have generally maintained that the same arguments apply with equal force in this country and it has been commonly claimed that the incidence of taxation, particularly in recent years, is one of the main, for the reason for the decline of mining laevity. It must be added that such claims have had in mind more particularly “lode mining", that is, in the U.K. the mining of ores of the base metals-tin, tungsten, lead and zinc-together with such minerals as barytes and fluorspar, which have a similar mode of occurrence and distribution.

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341. The chief evidence available to the Committee has been provided by:

Institution of Mining & Metallurgy,

Federation of British Industries,

Association of British Chambers of Commerce,

British Overseas Mining Association,

Joint Committee of the Accountancy Institutions,

Professor S. J., Truscott, D.Sc., A.R.S.M., M.I.M.M.

342. Our examination has been conducted under three main headings:

(a) The extent to which the Income Tax Act, 1945, and the Finance Act, 1947, met claims from the industry for allowances in respect of " capital expenditure incurred in connection with the working of a source of mineral deposits of a wasting nature

(b) Claims for allowances in respect of expenditure on the acquisition

of the mineral source or the rights over it.

mended to encourage production or more efficient exploitation.

Our observations and conclusion under each of these headings are given below.

343. (a) Generally speaking, claims by the industry for taxation concessions by way of allowances for expenditure on exploration, development, shaft sinking, etc. (which were not admitted prior to 1945) have been largely conceded by the Income Tax Act of that year. It is admitted by the industry that the provisions of this Act go a long way to meet the grievances. Expenditure of the kind mentioned can now be written off for taxation purposes over the life of the mine and it is clear that what was one of the major financial handicaps to mining development prior to 1945, has now been removed.

We have examined the Act in conjunction with evidence we have received to see whether there still remain any inequalities in the incidence of taxation on mining as compared with other industries. In our view there are differ- ences between mining and other industries as a result of which the former suffers adversely, although the differences are of degree only. Firstly, there is usually a greater risk in mining because of the uncertain nature of the mineral occurrence; for instance, the grade of the deposit may show un- expected variations, or working conditions may become more difficult. The difference is greatest in lode mining where the risk is highest. Secondly, there is the uncertainty about the life of the deposit. Thirdly, there is the risk of violent fluctuations in market prices. All sections of industry have to face this latter risk, some more than others, but in mining, particularly metalliferous mining, past experience has shown that the risk of violent

fluctuations is highest Fourthly, there is usually a much longer and more

Page 97 662

costly development period in mining before profits are earned. The first two, mining pisk and the life factor, are both differences which, fbecause of their intangibility and variation, cannot, in our view be satisfactorily and equitably met by special taxation concessions. We go into this in more detail under (c) below. Similarly, in our opinion, the third difference is not susceptible of being counteracted by the medium of taxation. With regard to the fourth difference, however, we consider that the principle now ad- mitted by the Inland Revenue and incorporated in the 1945 Act does not go far enough, and the mining industry is still relatively at a disadvantage in one or two respects. Taxation concessions are of no assistance to an industry unless profits are being made. It is important, therefore, that the principle should be extended so that provision is made for all expenditure incurred in the opening and development of a mine to be allowed as a charge against the profits of the mine. For instance, as the law now stands, it is doubtful if allowances for payments for surface damages other payments of a similar kind are included. Furthermore, mining concerns which incur losses in their early years computed in accordance with the existing law cannot carry forward the revenue expenditure represented in those losses beyond the six years of assessment following the year in which the expenditure was incurred. At present the six-year period allowable under the Finance Act, 1926 is too short having regard to particular needs of the mining industry as compared with other industries. In comparison with the important new principle introduced by the 1945 Act, the extra concessions needed to meet the point made above are of a relatively minor character, and may be summarised as follows:--

(i) All expenditure except (a) any expenditure on the acquisition of the site of the source, or of the site of any works or of the rights in or over any such site, (b) any expenditure on the acquisition of or of rights in or over, mineral deposits (both of which are now regarded by the Inland Revenue as being of a Capital nature and, therefore, not chargeable against profits) where not otherwise pro- vided for should be allowed as charges against profits having regard to its effective life or the life of the mine, whichever the shorter, and

(ii) Losses incurred in the early years of operation of a mining concern, computed in accordance with existing legislation, should be charged against the first profits available, with no limit on the period during which they can be carried forward.

344. (b) The other class of expenditure for which allowances are claimed by the mining industry, and which is at present specifically excluded (Income Tax Act, 1945, Section 25 (I)), is that incurred in the acquisition of the mineral source or rights over it. From evidence we have received it appears that the question is of special significance to U.K. mining companies operating overseas, and it is to be noted that a Committee of Enquiry was appointed by the Treasury in September, 1948*, to examine the claims made and to advise whether further modification of taxation is justified in this respect so that U.K. companies operating abroad are not at a disadvantage in comparison with foreign mining companies with whom they are in competition.

There has been a good deal of misunderstanding in the past about the terminology used in regard to this claim, and about claims made in respect of expenditure represented by "wasting assets in general. According to evidence submitted to particularly by the British Overseas Mining

HS 98 of

* This Committee has reported, and since the date when our Report was signed some provision for expenditure of this class has been proposed in the Finance Bill, 1949.

Association) expenditure in this category is that in connection with the purchase of the mineral before it is mined, or with that on securing rights over the mineral deposit, and with this we apege Theangal allowance claimed to amortize this expenditure is known as depletion allowance and is to be distinguished from allowances granted by the Income Tax Act, 1945, in respect of other expenditure of a wasting nature, i.e., develop- ment (see para. 343 above).

Some U.K. mining companies, notwithstanding the new concessions allowed by the Income Tax Act, 1945, still feel that they should be allowed to claim a depletion allowance, despite the fact that the companies concerned lease their mineral rights in the ordinary way and pay royalties on the mineral extracted and sole. They did not incur any expenditure in acquiring the right to mine except perhaps nominal fees in connection with taking out the lease, and they did not purchase the minerals outright. Tax is deductible on the payment of royalties and tax relief is granted when profits are earned. In fact, therefore, companies in this position are not concerned with depletion as defined above. There are, however, some examples of industries in the U.K. where companies have purchased outright some or all of the mineral rights of the deposits they are working, although it is the exception rather than the rule for those minerals with which the Committee are dealing, and the question of depletion, therefore, does not often arise.

YOUTHE

The conception behind the claim for a depletion allowance is that the mining company, by making payments of this kind, acquires an asset in the nature of stock-in-trade represented by the mineral in the ground which is being gradually reduced in value as the mineral is extracted, and which becomes nil when the mine is worked out. It is, therefore, claimed that provision should be made in Income Tax legislation for amortising the cost of the mineral asset or the rights over it by charging an appropriate sum each year against profits before the latter have been taxed. It may be noted here that the non-allowance of such sums against profits for tax purposes is not peculiar to the mining industry; mention might be made, for instance, of premiums on leases, and there are other examples.

;

In view of the fact that the special Committee recently appointed by the Treasury is examining the principle of this claim in regard to U.K. mining companies operating overseas, it is undesirable for us to comment further*. So far as the future is concerned the question should not again arise in the case of new mining companies operating in the U.K. since either under the provisions of the Town and Country Planning Acts, 1947, or under the new administrative arrangements for minerals we propose in this Report there will be no need for payments of this kind. If the merits of the claim by U.K. overseas mining companies are eventually considered to be justified or if they receive retrospective concessions in this respect, the position of those domestic companies who have made payments of this kind should be considered in relation to the compensation they receive in return for the "development value" under the Town and Country Planning Acts, and the manner in which they are allowed to deal with it for tax purposes.

345.-(c) Quite apart from the application of taxation in regard to capital expenditure is the much broader question of whether taxation can be used directly to encourage mining or any particular aspect of it, that is, exploration, production and efficient exploitation. In principle this method is in use in certain parts of the British Commonwealth. In some respects it would appear to be one of the easiest ways, short of direct subsidy of the price

CAB129-36 — Page 88

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