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New Clause—(Insurances For Estate Duty)

Volume 65: debated on Tuesday 21 July 1914

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(1) Any person desiring to provide against the duties which may become payable under the Finance Act, 1804, or any Amending Acts, in respect of property passing on his death, may effect for that purpose a policy of assurance (to be called an Estate Duty policy) upon his life.

(2) Any moneys payable upon the death of a person under an Estate Duty policy effected by him shall be applied by the company with whom such policy is effected in payment in the first instance of the duties payable under the said Acts in respect of so much of the property passing on the death of such person as he shall by writing under his hand direct, and the balance, if any, of such moneys shall be paid to the executor of such person and Estate Duty shall be levied thereon at the proper graduated rate.

(3) Save as herebefore provided, Estate Duty shall not be paid in respect of any moneys payable under an Estate Duty policy.

Clause brought up, and read the first time.

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

The object of this Clause is to make some reasonable provision for cases where n man insures against Death Duties. In substance the proposal is this. If a man insures against Death Duties, which shall become payable upon his death, and earmarks the fund which he so provides for the payment of those duties, then when he dies that fund shall not be brought into his estate so as to pay duty, except in so far as it is obliged to pay duty. In existing circumstances a man who insures against the payment of Death Duties is subject to two hardships. In the first place, his thrift is penalised and he is discouraged from making that provision, because he knows that he will have to pay duty, and there is the further hardship, that by the very act of making provision for the Death Duties, he builds up a fund which, in existing circumstances, is added to the estate, so that the estate may be made to pay a higher rate of duty than if he had never provided this fund at all. That is a very serious harship, and it is a hardship even in existing conditions. But when we come to this year and find that the Estate Duties are to be increased largely, this existing hardship is also very largely increased. And what I suggest to the Chancellor of the Exchequer is that the proposal involved in this Clause will be of advantage not only to the subject, which perhaps will appeal to him more or less, but will be to the advantage of the Exchequer itself. It will be to the advantage of the subject because he will be induced to make this provision in his lifetime and save money for his successor, and when his successor comes in, instead of having to pay away a considerable portion of the estate, whether it be realty or personalty, in the shape of Death Duties, he will find a fund ready to hand out of which Death Duties can be paid. The advantage to the subject is therefore quite obvious. An additional advantage is that the Death Duty rate would not be increased owing to the existence of this fund. But it will be to the advantage of the Exchequer itself, because the Exchequer will find a fund ready to hand out of which this duty can be paid, and will not have to wait for a year to run on, as the fund will be ready to pay them at once. A further advantage is that the property itself which pays duty is not going to be diminished by the duty.

In other words, when a man dies with an estate worth, say, £100,000, the Death Duties will be paid out of the fund, and the £100,000 estate will be handed on to his successor, and upon the next death duty will be paid upon the £100,000 intact. In other words, you leave the taxable asset in the form of the estate undiminished for the Chancellor of the Exchequer to get full duty upon the next death. The Chancellor of the Exchequer will therefore see from his own point of view as a tax gatherer that it is very desirable to have this undepleted fund. One of the gravest dangers of the existing system of taxation, which has been pointed out over and over again, is that you are continually depleting the capital by these heavy duties. You are reducing the fund which pays the duty, and in that way reducing the duties themselves and the proceeds of the duties when death takes place. But if you give a man an opportunity of providing in this way a fund out of which Death Duties can be paid, then the capital of the country and the individual remains undiminished for the purpose of future taxation. I offer that to the Chancellor of the Exchequer as a strong inducement for accepting this Clause. May I recall the fact that in 1894 the proposition was made in substantially the same form as the present Clause? It was made by Mr. Byrne, subsequently Mr. Justice Byrne, in this House, and was supported by the present Member for the City of London, by Lord St. Aldwyn, and, I think, by all the financiers of the day. Sir William Harcourt very nearly conceded it; he promised it favourable consideration. Unfortunately the moments expired, and he did not carry that promise into effect.

If the right hon. Gentleman cares to look at the Debate he will find that Sir William Harcourt thought that there was a very great advantage in having a fund earmarked for the payment of duty. Unfavourable comment has been made between the finance of Sir William Harcourt and that of the present Chancellor of the Exchequer, and not to the credit of the latter. I am not going to say anything in any way disagreeable that would induce the right hon. Gentleman to look unfavourably upon this proposition, but he has now an opportunity of doing something better than his predecessor Sir William Harcourt did. The right hon. Gentleman ought to be obliged to us for giving him this opportunity of being able to say that he made a concession which Sir William Harcourt would have liked to make, but which unfortunately for some reason or other—perhaps time—he did not make. Therefore, now that the right hon. Gentleman has increased the Death Duties so largely, I hope he will take the opportunity of encouraging the tenant for life to build up a fund for the payment of the Death Duties—not for his own advantage, but to the advantage of his successors and the advantage of the State itself.

This Clause, if I accepted it, would make a very serious inroad upon the revenue. I do not say that is a reason for excluding it, but that fact in itself is, at any rate, sufficient to compel very careful scrutiny of demands of this character. The Amendment is practically that the owner who insures his life with a view to paying the Death Duties should have the cost of the premium deducted from the Death Duty. If his proposal were accepted it would involve a loss of £2,000,000 a year to the revenue.

I am much obliged to the right hon. Gentleman for stating the figure, but does he take into account the fact that the capital of the estate would be left intact for taxation? That is really a very strong point in favour of my proposal.

I am not so sure that the estate would be kept intact, though that might be the case in the second generation. The capital is not left intact, and the hon. and learned Gentleman knows very well that it does not remain from generation to generation—I will not say in the majority of cases—and the estate is shifted from one to another. Let me point out what the Amendment would mean. It would involve this consequence, that the owner of property would have to earmark the proceeds of his life policy to the payment of Death Duties, and the extent to which the Death Duties would be payable would mean that the amount received under the insurance policy would be exempt altogether from Death Duties. That is a proposition which no Chancellor of the Exchequer could possibly accept. There are many estates where no provision of this kind is made at all—no provision by means of insurance. Other provisions may be made. For instance, the owner might set aside stocks for the purpose of paying the Death Duties, or he might sell certain outlying farms for their payment. In that case the particular owner would have to pay a heavier Death Duty than the owner who had made an arrangement by means of a life policy. This would not be fair as between the one owner and the other, and I therefore cannot see my way to accept the Clause.

I do not think the right hon. Gentleman's answers are really conclusive. He has given two answers. In the first place, he says that the Amendment would make a very serious inroad on the revenue if it were accepted. That is an easy position for the Government to take, and it is not one that I can deny, but I am prepared absolutely to take the right hon. Gentleman's word for it. I think, however, that there are one or two other matters which must be considered, as well as the inroad on the revenue. Last week I looked up some figures as to the yield of the Death Duties during the last twenty years. I have not those figures with me, but the right hon. Gentleman can check them by reference to the Report of the Inland Revenue Commissioners for this year. The conclusion that those figures showed beyond any dispute was that the whole yield of the Death Duties indicated a far less substantial growth than might reasonably have been expected in the last few years, especially the last six or seven years. What was especially noticeable was that the payments which have been made were mainly on the smaller estates. The larger estates had been stationary, and I am almost certain that they showed a diminution. As I am reminded by my Noble Friend near me, one reason of that is that the rates have been altered. I should have thought that the object of the Chancellor, if he was disturbed, and he must be disturbed, by the rather stationary yield of these duties, would have been to use whatever machinery he could to case the collision between the demands of the Treasury and the resources of the taxpayer. The hon. and learned Member for York suggests one way of doing it, and I have often thought that the only profession or calling in the country that has benefited from the increase of the Death Duties is that of the insurance companies. I know, and almost everybody in the House knows very well, that since the Chancellor introduced his Budget, almost every person has had rained upon him policies and advice from the insurance companies in London as to the best way in which the Chancellor of the Exchequer could be defeated. The insurance companies are not doing it for their health, and we all know that these companies have been able to make very substantial profits for their shareholders.

I have often wondered if it would not be worth while for the Chancellor of the Exchequer to consider whether the State—I go rather further than my hon. and learned Friend suggests—could enter into some kind of insurance business with the taxpayers, and allow them to insure with the State in order to make provision for the payment of these duties. I merely throw that suggestion out for consideration. The other point on which the right hon. Gentleman relied in his resistance to my hon. and learned Friend's Amendment, was that it would tend to produce in some cases unequal treatment as between different estates. I really do not think that this House need concern itself with that consideration. It is really desirable, so far as we possibly can, to encourage the taxpayer by every means in our power to provide for occasions of financial strain, which are bound to be occasions to him of great financial dislocation. Therefore, I think we need not be deterred from giving, by every means in our power, encouragement to men who endeavour, not in their own interests, but in the interests of those who come after them, to provide for the strain which the Chancellor of the Exchequer is putting upon them. If you want to encourage them, one simple way, and only a small way, is to do what my hon. and learned Friend suggests; and I do not think that is an unfair proposal to make, if you view the Death Duties as being really what they are, namely, deferred Income Tax. It is surely unreasonable to aggregate for duty any sum of money that has either been set aside on the taxpayer's death, or has been produced by an insurance policy, because if it had been paid as Income Tax it would have been spent year by year, and it would not have been there to be aggregated when the gentleman died. I would only point out, in conclusion, that by trying to encourage insurance in this way you can avoid what is the inherent vice of the Death Duties, namely, that they always tend to spend your capital unless the taxpayer can be induced, by some sort of favourable treatment, to make provision to pay them out of income. For these reasons I support the Amendment.

8.0 P.M.

I support the Amendment, which, if carried, would operate as a very great relief to the taxpayer, and would stop a great deal of the harm arising from the burden of the Death Duties. While it is difficult for the Chancellor of the Exchequer to accept this Amendment because of the inroad upon revenue, I would point out that that is a reason given in respect of a good many other Amendments. It is a reason which ought not to be pressed too far on each Amendment as it comes up for discussion, because the greater the inroad such a proposal makes on the revenue the greater, in all probability, is the injustice which is being done to the taxpayer. In so far as this would mean two millions a year, that shows that considerable injustice is being inflicted on the taxpayer. He is encouraged to insure by the Government, and by the late Sir William Harcourt and his successors, and then the money is aggregated with the rest for the purposes of taxation. I think this Amendment is all the more necessary because of the graduation which has been made steeper, and makes the provision already made inadequate. The discussion we have had on Clause 12 makes the matter still worse. In the case of real property there is to my mind a greater hardship than in the case of personal property. Real property gives a very low rate of interest and is more difficult to replace, while personal property, such as stocks and shares, gives a higher rate of interest, and in forty years, by a sinking fund, will largely replace itself. Therefore, in the case of real property, a provision of this kind would be of the greatest value in preventing the breaking up of estates, which is a debatable point. Some people think it is good and some bad, but, I suppose, the owners would think it a bad thing. If it ought to be done, and I am not discussing it now, it ought to be done directly by legislation, and not by means of a fiscal instrument.

It is all very well for the Chancellor to say that the owner can make provision to sell outlying farms. After the first generation that cannot go on very long. I think I am within the mark in saying that no agricultural property can nowadays possibly survive for more than three generations—probably not more than two—under these burdensome Death Duties.

Is it not desirable from the point of view of the Exchequer that there should be those large blocks of real estate passing intact from generation to generation, and therefore subject to Death Duties? The Chancellor said this proposal would not be fair as between one owner and another. I do not think that argument appeals to me very much, since the present Prime Minister, when Chancellor of the Exchequer, drew a distinction between earned and unearned income for the purposes of Income Tax, although the distinction is really a very flimsy one. A man who has earned his money and invested some, is really as much entitled to favourable treatment in Income Tax as the man who continues to earn his income. If the Chancellor says this would cost too much to the revenue, no doubt we shall not be able to persuade him to give way on this point, but, if he cannot give the whole thing, can he not make the money represented by the insurance policy a separate estate, and not aggregate it with the rest? That would be some mitigation of the present difficulty.

It has been suggested that it might be advisable for the Government to enter into some scheme for insurance in this matter. Anybody who knows anything about the insurance of the Government knows that it would be rather a bad thing for the insured people, because there is no system of insurance the Government have undertaken but is entirely to the detriment of—

We are not concerned with that just now. This is an obiter dictum of the hon. Member.

The question had been raised, and that was the reason I referred to it. I think my hon. and learned Friend has made his case perfectly plain. We had the argument last week about the sale of land, and if there is a large amount of duty payable the Chancellor may realise how harshly it presses on landowners. Surely, if men under such circumstances insure against those heavy duties, they should not have those amounts included for taxation. It seems rather hard that such sums should be charged on the same basis according to the sliding scale. It might be dealt with separately, as the Noble Lord has suggested. The Chancellor has mentioned the amount this would cost him, but I think that in many cases he is entirely out of his reckoning in his calculations. In 1909 motor taxes were estimated to yield £250,000 or £300,000, and that amount has already been doubled or

Division No. 192.]


[8.12 p.m.

Agg-Gardner. James TynteDuke, Henry EdwardPollock, Ernest Murray
Ashley, W. W.Eyres-Monsell, Bolton M.Pryce-Jones, Colonel E.
Astor, WaldorfFell, ArthurRandles, Sir John S.
Baker, Sir Randolf L. (Dorset, N.)Flannery, Sir FortescueRawlinson, John Frederick Peel
Baldwin, StanleyFletcher, John SamuelRees, Sir J. D.
Banbury, Sir Frederick GeorgeGardner, ErnestRonaldshay, Earl of
Baring, Major Hon. Guy V. (Winchester)Gibbs, G. A.Rothschild, Lionel de
Barrie, H. T.Gilmour, Captain JohnSalter, Arthur Clavell
Beach, Hon. Michael Hugh HicksGlazebreek, Captain Philip K.Sanders, Robert Arthur
Benn, Arthur Shirley (Plymouth)Goldman, C. S.Sanderson, Lancelot
Bennett-Goldney, FrancisGreene, Walter RaymondSharman-Crawford, Colonel R. G.
Bigland, AlfredGuinness, Hon. W. E. (Bury S. Edmunds)Spear, Sir John Ward
Bird, A.Haddock, George BahrStanier, Beville
Blair, ReginaldHall, Frederick (Dulwich)Stanley, Hon. G. F. (Preston)
Boscawen, Sir Arthur S. T. Griffith-Hamilton, C. G. C (Ches., Altrincham)Staveley-Hill, Henry
Boyton, JamesHenderson, Major H. (Berks, Abingdon)Stewart, Gershom
Bridgeman, W. CliveHewins, William Albert SamuelStrauss, Arthur (Paddington, North)
Bull, Sir William JamesHibbert, Sir Henry F.Swift, Rigby
Burn, Colonel C. R.Hohler, G. F.Sykes, Sir Mark (Hull, Central)
Cassel, FelixHope, Harry (Bute)Talbot, Lord E.
Castlereagh, ViscountHope, James Fitzalan (Sheffield)Thomas-Stanford, Charles
Cave, GeorgeHorner, Andrew LongThomson, W. Mitchell- (Down, N.)
Cecil, Evelyn (Aston Manor)Jardine, Ernest (Somerset, East)Thynne, Lord Alexander
Cecil, Lord Hugh (Oxford University)Joynson-Hicks, WilliamTuilibardine, Marquess of
Cecil, Lord R. (Herts, Hitchin)Locker-Lampson, G. (Salisbury)Ward, A. S. (Herts, Watford)
Chaloner, Colonel R. G. W.Lockwood, Rt. Hon. Lt.-Colonel A. R.Watson, Hon. W.
Clyde, J. AvonLyttelton, Hon. J. C.Weston, Colonel J. W.
Craig, Captain James (Down, E.)M'Calmont, MajorWheler, Granville C. H.
Craig, Norman (Kent, Thanet)Malcolm, IanWhite, Major G. D. (Lancs., South port)
Crichton-Stuart, Lord NinianMorrison-Bell, Major A. C. (Honiton)Williams, Colonel R. (Dorset, W.)
Currie, George W.Newman, John R. P.Willoughby, Major Hon. Claud
Dalrymple, ViscountNield, HerbertWills, Sir Gilbert
Denniss, E. R. B.Orde-Powlett, Hon. W. G. A.Wood, Hon. E. F. L. (Ripon)
Dickson, Rt. Hon. C. ScottOrmsby-Gore, Hon. William


Du Cros, Arthur PhilipPerkins, Walter FrankButcher and Viscount Helmsley


Abraham, William (Dublin, Harbour)Bowerman, Charles W.Compton-Rickett, Rt. Hon. Sir J.
Acland, Francis DykeBoyle, Daniel (Mayo, North)Cornwall, Sir Edwin A.
Addison, Dr. ChristopherBrady, Patrick JosephCory, Sir Clifford John
Adkins, Sir W. Ryland D.Brockiehurst, William B.Crooks, William
Allen, Rt. Hon. Charles P. (Stroud)Brunner, John F. L.Crumley, Patrick
Armitage, R.Bryce, J. AnnanCullinan, John
Arnold, SydneyBuckmaster, Sir Stanley O.Dalziel, Rt. Hon. Sir J. H. (Kirkcaldy)
Baker, Joheph Allen (Finsbury, E.)Burt, Rt. Hon. ThomasDavies, Ellis William (Eifion)
Balfour, Sir Robert (Lanark)Byles, Sir William PollardDavies, Timothy (Lincs., Louth)
Barnes, George N.Carr-Gomm, H. W.Davies, Sir W. Howell (Bristol, S.)
Benn, W. W. (T. Hamlets, St. George)Chancellor, Henry GeorgeDawes, James Arthur
Bentham, George JacksonClancy, John JosephDelany, William
Bethell, Sir John HenryClough, WilliamDenman, Hon. Richard Douglas
Black, Arthur W.Clynes, John R.Devlin, Joseph
Boland, John PlusCollins, Godfrey P. (Greenock)Dickinson, Rt. Hon. Willoughby H.
Booth, Frederick HandelCollins, Sir Stephen (Lambeth)Dillon, John

trebled. I think it might be advisable for the right hon. Gentleman to look into the amounts he is likely to obtain.

The Chancellor said something, I think in his Budget Speech, to the effect that the Government are considering some method as to whether they would themselves insure against Death Duties.

I rather referred to advancing money at Government rates of interest.

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

The House divided: Ayes, 103; Noes, 225.

Donelan, Captain A.Kilbride, DenisRea, Walter Russell (Scarborough)
Doris, WilliamKing, JosephReddy, Michael
Duffy, William J.Lambert, Richard (Wilts, Cricklade)Redmond, John E. (Waterford)
Duncan, C. (Barrow-in-Furness)Lardner, James C. R.Redmond, William (Clare, E.)
Duncan, Sir J. Hastings (Yorks, Otley)Lawson, Sir W. (Cumb'rld, Cockerm'th)Redmond, William Archer (Tyrone, E.)
Edwards, John Hugh (Glamorgan, Mid)Levy, Sir MauriceRichardson, Thomas (Whitehaven)
Elverston, Sir HaroldLewis, Rt. Hon. John HerbertRoberts, Charles (Lincoln)
Esmonde, Dr. John (Tipperary, N.)Lundon, ThomasRoberts, George H. (Norwich)
Esmonde, Sir Thomas (Wexford, N.)Lynch, Arthur AlfredRobertson, John M. (Tyneside)
Falconer, JamesMacdonald, J. Ramsay (Leicester)Robinson, Sidney
Farrell, James PatrickMacdonald, J. M. (Falkirk Burghs)Roch, Walter F. (Pembroke)
Fenwick, Rt. Hon. CharlesMcGhee, RichardRoche, Augustine (Louth)
Ffrench, PeterMaclean, DonaldRoe, Sir Thomas
Field, WilliamMacNeill, J. G. Swift (Donegal, South)Rowntree, Arnold
Fitzgibbon, JohnMacVeagh, JeremiahRunciman, Rt. Hon. Walter
Flavin, Michael JosephM'Callum, Sir John M.Russell, Rt. Hon. Thomas W.
George, Rt. Hon. D. LloydM'Curdy, C. A.Samuel, J. (Stockton-on-Tees)
Gladstone, W. G. C.McKenna, Rt. Hon. ReginaldScanlan, Thomas
Glanville, Harold JamesM'Laren, Hon. F. W. S. (Lincs, Spalding)Scott, A. MacCallum (Glas., Bridgeton)
Goddard, Sir Daniel FordMarkham, Sir Arthur BasilSeely, Rt. Hon. Colonel J. E. B.
Goldstone, FrankMarshall, Arthur HaroldSheehy, David
Greenwood, Hamar (Sunderland)Meagher, MichaelShortt, Edward
Greig, Colonel James WilliamMeehan, Francis E. (Leitrim, N.)Simon, Rt. Hon. Sir John Allsebrook
Griffith, Rt. Hon. Ellis JonesMeehan, Patrick J. (Queen's Co., Leix)Smith, Albert (Lancs., Clitheroe)
Guest, Hon. Frederick E. (Dorset, E.)Molloy, MichaelSmith, H. B. L. (Northampton)
Gwynn, Stephen Lucius (Galway)Molteno, Percy AlportSmyth, Thomas F. (Leitrim, S.)
Hackett, JohnMond, Rt. Hon. Sir AlfredSpicer, Rt. Hon. Sir Albert
Hancock, John GeorgeMontagu, Hon. E. S.Sutherland, J. E.
Harcourt, Rt. Hon. Lewis (Rossendale)Mooney, John J.Sutton, John E.
Harcourt, Robert V. (Montrose)Morgan, George HayTaylor, John W. (Durham)
Harmsworth, Cecil (Luton, Beds)Morison, HectorTaylor, Theodore C. (Radcliffe)
Harvey, A. G. C. (Rochdale)Morton, Alpheus CleophasTaylor, Thomas (Bolton)
Harvey, T. E. (Leeds, West)Munro, Rt. Hon. RobertTennant, Rt. Hon. Harold John
Haslam, Lewis (Monmouth)Murphy, Martin J.Thorne, G. R. (Wolverhampton)
Hayden, John PatrickNeedham, Christopher ThomasThorne, William (West Ham)
Helme, Sir Norval WatsonNeilson, FrancisToulmin, Sir George
Henderson, Arthur (Durham)Nicholson, Sir Charles N. (Doncaster)Verney, Sir Harry
Hewart, GordonNolan, JosephWalsh, Stephen (Lancs., Ince)
Higham, John SharpNuttall, HarryWardle, George J.
Hinds, JohnO'Brien, Patrick (Kilkenny)Waring, Waiter
Hobhouse, Rt. Hon. Charles E. H.O'Connor, T. P. (Liverpool)Watt, Henry A.
Hodge, JohnO'Doherty, PhilipWebb, H.
Hogge, James MylesO'Donnell, ThomasWhite, J. Dundas (Glasgow, Tradeston)
Holt, Richard DurningO'Dowd, JohnWhite, Sir Luke (Yorks, E. R.)
Howard, Hon. GeoffreyO'Malley, WilliamWhite, Patrick (Meath, North)
Hudson, WalterO'Neill, Dr. Charles (Armagh, S.)Whitehouse, John Howard
Hughes, Spencer LeighO'Shaughnessy, P. J.Whittaker, Rt. Hon. Sir Thomas P.
John, Edward ThomasO'Sullivan, TimothyWhyte, Alexander F. (Perth)
Jones, Edgar (Merthyr Tydvil)Palmer, Godfrey markWilkie, Alexander
Jones, H. Haydn (Merioneth)Parker, James (Halifax)Williams, Aneurin (Durham, N. W.)
Jones, J. Towyn (Carmarthen, East)Parry, Thomas H.Williams, Penry (Middlesbrough)
Jones, Leif (Notts, Rushcliffe)Pearce, William (Limehouse)Williamson, Sir Archibald
Jones, William (Carnarvonshire)Phillips, John (Longford, S.)Wilson, Rt. Hon. J. W. (Worcs-, N.)
Jones, William S. Glyn- (Stepney)Pratt, J. W.Wilson, W. T. (Westhoughton)
Jowett, Frederick WilliamPrice, C. E. (Edinburgh, Central)Winfrey, Sir Richard
Joyce, MichaelPriestley, Sir W. E. B. (Bradford, E.)Wing, Thomas Edward
Kellaway, Frederick GeorgePringle, William M. R.Yeo, Alfred William
Kelly, EdwardRadford, George Heynes
Kennedy, Vincent PaulRaffan, Peter Wilson


Kenyon, BarnetRea, Rt. Hon. Russell (South Shields)Illingworth and Mr. Gulland.